Commentary for Wednesday, June 25, 2014 – Gold closed up a mild $1.30 at $1322.22 after trading lower ($1310.00 – $1315.00) overnight in Hong Kong and London.
Domestic trading in New York moved modestly higher as the Gross Domestic Product (GDP) came in at an unexpected negative 2.9% which is the poorest showing since 2009. This number is a backward looking indicator and the fall in economic activity was attributed to the winter weather.
Because of this even a poor number is unlikely to change the current Federal Reserve Policy but does illustrate once again that we are not out of the economic woods. Further quantitative easing coupled with low interest rates is the new normal.
Middle East pressure still supports gold short term and the president of Iraq today said that he was not willing to form a coalition government as suggested by President Obama. This seems to lessen the likelihood that we will see more US involvement but US Special Forces are now in Iraq for “evaluation” only. According to CNBC 70% of the American public believe this whole mess was a bad idea.
Silver closed up $0.08 today at $21.11.
Platinum was up $1.00 at $1473.00 and palladium was up $3.00 at $833.00. We are once again seeing trades of gold bullion for platinum, palladium and rhodium bullion.
Our Exchange Traded Fund Totals are presented each Wednesday and include platinum and palladium. What all ETF’s are doing as defined by total ounces – gained or lost will provide an independent idea of market thinking on the short to medium term.
All Gold Exchange Traded Funds: Total as of 6-18-14 was 54,792,077. That number this week (6-25-14) was 54,802,124 ounces so over the last week we gained 10,047 ounces of gold.
It might also be interesting to note that in 2013 the record high holdings for all gold ETF’s was 85,112,855 ounces. In 2014 the record low was 54,799,910 ounces.
All Silver Exchange Traded Funds: Total as of 6-18-14 was 629,283,935. That number this week (6-25-14) was 626,744,082 ounces so over the last week we lost 2,539,853 ounces of silver.
All Platinum Exchange Traded Funds: Total as of 6-11-14 was 2,803,292 ounces. That number this week (6-18-14) was 2,815,203 ounces so over the last week we gained 5,618,495 ounces of platinum.
All Palladium Exchange Traded Funds: Total as of 6-11-14 was 2,966,102 ounces. That number this week (6-18-14) was 2,951,992 ounces so over the last week we lost 14,110 ounces of palladium.
According to Paul Gikes (Coin World) the cumulative sales of the US Gold Eagle 1 oz during the first five months of 2014 is down 340,000 coins from 2013 levels. Sales of the half, quarter and tenth oz coins are also below 2013 levels. The US Mint will also produce an anniversary gold Kennedy half dollar in a gold proof.
Another interesting note in Coin World has to do with the US $1 paper note. There seems to be a prohibition against updating this old friend with all the new anti-counterfeiting devices. When asked if the Mint would ask Congress for authority they claim they are happy with what they have – the thinking being that the paper $1 bill is not often counterfeited. And this note remains profitable to the Mint because it cost about 4 cents to print as opposed to 12 cents for the $100 bill. Now that’s a great example of a cheap money policy.
This from Peter Hug (Kitco) – Gold Still Has Air Beneath Its Wings – “Gold continues to find lift, against a weaker US$, cracks in the recent equity strength and against an uncertain geo-political background. Funds are again moving into gold to diversify against both headline risk and the toppy feel of equity markets. Silver prices have outperformed, moving from a 67:1 ratio to 62.8 overnight, a straddle that has netted approximately 5% in the past three trading sessions. Gold is back testing the $1,322 level as suggested yesterday morning; a breach of $1,327 sets up the $1,337 level. Gold will continue to focus on the equity markets and the events in Iraq, but the market appears well bid from what appears to be “new” money, not short covering.”
Hug has plenty of trading experience and I must say he is a bit more bullish here than I might be considering gold is now flat and must break through the $1330.00 range to keep the bulls in short-term control. His comment on “new” money is the key given stocks continue to look “frothy”.
I think this short-term pause in the price of gold will be short lived – but the market could break either way. There are still too many uncertainties to say for certain – so once again patience is needed. From a personal standpoint this “new” money has not been seen across our counter.
That is not to say there is not action – there is steady business but we are not seeing a great deal of “new” buying – perhaps the ETF funds will show their hand soon and give the real physical market more momentum. In the meantime stay with a plan which will buy weakness – a long term strategy which has worked well in the past. In the meantime watch the Middle East – Front Line on PBS has a new documentary – Egypt in Crisis and note this PBS tag – Secretary of State John Kerry is indicating that the Obama administration is prepared to renew $1.3 billion in annual support to the Egyptian military.
Yesterday I was talking about inflation and posted the following – But the inflation scenario will be valid sooner or later.
Why not sooner would be a good question. And the answer can be seen in the velocity of money. According to the Federal Reserve Bank of St. Louis – Money Velocity – Velocity is a ratio of nominal GDP to a measure of the money supply (M1 or M2). It can be thought of as the rate of turnover in the money supply–that is, the number of times one dollar is used to purchase final goods and services included in GDP.
A similar way of looking at this is the number of times a person uses a dollar to buy something which is included in the Gross Domestic Product. The higher the ratio the more the turnover and the greater the inflationary force. This ratio can be figured using either M1 or M2.
If M1 is used the ratio moved from 5.2 in 1970 to a high of 10.6 in 2008 – and then decelerates back to 6.3 in 2014.
Use M2 and you will see that the 1980 high was 1.8 and the all-time high was 2.2 in 1997 – from that point we again see a significant deceleration to 1.5 in 2014.
During that deceleration phase the dollar we talked about was used significantly less in both cases between 2008 and 2014 (M1) and between 1997 and 2014 (M2).
Now if you consider that in 2014 the money spigot has been wide open since 2008 it is not the case that the dollar number was lacking as the banks and corporations are sitting on more cash than at anytime in history – basically the result of quantitative easing.
So what gives? The money is out there – it is just not circulating relative to the Gross Domestic Product and so inflation is not an immediate concern.
I want to restate the above and reply to a few emails. “The cost of food has skyrocketed, how can you say we do not have any inflation?” and “You must not pump your own gas” are typical.
All the above illustrates is that the way we measure inflation is flawed. Everyone knows there is inflation and they understand that the way the government measures inflation has been changed so many times – stripped really of many of the everyday things we all need.
I could probably make a decent case that the official inflation rate is a dog and pony show designed to sell the idea that quantitative easing is not only necessary – it is in your best interest.
So let’s agree that economics is inexact and something of a mix between science and art. And let’s also agree there is not an exact one to one link between the price of gold and inflation. These two are linked but lag times especially in good economic times can be a matter of years.
And then there are counter forces which come into play like changes in relative currency values, technological advances, changes in the public perception as to whether holding gold is a good or bad idea and this list is endless.
My point being that just because some statistics and the government claim inflation is low should not deter a thinking person. Do you think the government would actually be honest about the money even if there was something drastically wrong?
Of course not – not because Washington is crooked but because their job revolves around stability and not panic. The last thing they want is people hoarding food and silver coins. It’s not good for the economy and it’s terrible for the tax base.
So we all have learned to play this kind of inflation dance. The government sticks to its guns saying inflation in not so bad and here is proof. The consumer worries that something is wrong just because the paycheck does not seem to go as far but looks at the government numbers and wants to believe the system is still sound.
At this stage in this unwinding of the gold price and a struggling world economy – 7 years into the largest financial collapse we have ever seen – the best approach remains – the cautious approach.
Not so cautious that you don’t enjoy life but cautious enough to know that not all facts are revealed to you even in a democracy. Trusting completely in government stewardship is crazy so why would you keep all your money in paper currency?
Opt for a 10% or 20% insurance blanket in gold and silver bullion and sleep better regardless of price direction. Why? Because if you ever really need gold or silver bullion – the price you paid will be a secondary consideration. And no one will care which way the money supply is heading.
Consider this from Doug French (CaseyResearch.com) – “The fed funds rate will remain at zero to 25 basis points from now until we’re all safe and sound. Which might be never. And while the Federal Open Market Committee (FOMC) whittles $10 billion from the Fed’s monthly securities purchases, the central bank is still gorging itself on $35 billion worth of securities a month and has leveraged its balance sheet skyward to 77 to 1.
It’s bad enough that central bankers create money out of nowhere to buy bonds. Now it turns out that’s not all they’re buying. News from London reveals central banks and other government-controlled pools of money are buying stocks.
A study by global research firm Official Monetary and Financial Institutions Forum (OMFIF) states global public investors “as a whole appear to have built up their investments in publicly quoted equities by at least $1 [trillion] in recent years.”
This comes on the heels of news that the percentage of financial advisors who are bullish on the stock market jumped to 62.2%, the fifth straight week this indicator has been above the key 55% level.
The folks at Investors Intelligence say this is nosebleed level for that indicator. Previous highs were 61.6% at the end of last December. Other noteworthy tops came in August 1987 (60.8%), October 2007 (62%), and December 2004 (62.9%).
Those in the bearish camp are now even lonelier. The percentage of those negative on the market dropped from 18.3% to 17.3%, near historically low levels.
The market was tiptoeing upward, thinking Janet Yellen was ready to yank the punch bowl away any minute as price inflation looks to be near the Fed’s 2% target. But La Yellen doesn’t see inflation—the numbers are just “noisy,” she says.
Besides, the Fed follows a different inflation gauge. Something called the “personal consumption expenditures deflator” remains below the Fed’s 2% target. However, no one I know of shops at such a store.
The Fed’s policies should have everyone seeing red and lying awake at night.”
The walk-in cash trade picked up today and the phones were either busy or slow – there does not seem to be anything in the middle. Also talked to other national dealers and while business was not hot – there was enough going on to create some buzz.
The GoldDealer.com Activity Scale is a “3” for Wednesday. The CNI Activity Scale takes into consideration volume and the hedge book: (last Thursday – 5) (last Friday – 4) (Monday – 5) (Tuesday – 2). The scale (1 through 10) is a reliable way to understand our volume numbers. If you need a gift, the Swiss 20 Franc makes an excellent present.
Email confirmation using a PDF File when buying or selling is functional. It also includes the various forms of payment and includes bank wire instructions. And you can now see your actual invoice or purchase order on your computer screen.
When you buy or sell please check to see if we have your current email on file and that your computer will accept our email (no spam).
About shipping information – when buying or selling your rep will walk you through your most current mailing information. Thanks for keeping us up to date if you have moved.
Our four flat screens downstairs with live independent pricing (BullionDesk.com) are a big hit with the cash trade. Live pricing moves all our buy/sell product prices on a real time basis. Yes you can visit the store with cash and walk away with your product or you can bring product and get cash for your transaction. When buying from us remember if you exceed $10,000 in cash (the real green kind) a Federal Form is necessary.
Like us on Facebook and follow us on Twitter @CNI_golddealer. From your friends at GoldDealer.com – thanks for reading and enjoy your evening.