Commentary for Monday, May 19, 2014 (www.golddealer.com) – Gold finished the day up $0.40 at $1293.70 after climbing higher in early trading ($1305.00) reacting to a slump in the dollar. The election in India also helped gold as the NDA (National Democratic Alliance) won and it is seen as a free market party.
The talk that this political change in India would help remove gold important restrictions is bullish for gold but I feel has already been factored into anything approaching $1300.00. Still India is the world’s number 2 consumer of gold behind China so anything relating to their import trade will make headlines.
The Ukraine conflict which initially bolstered the price of gold escalated once again over the weekend but the price of gold showed little change. This is another example of how “gold insurance” is worth $50.00 to $100.00 in upside swing but will not sustain a move into the really tough overhead resistance ($1325.00 / $1340.00).
Silver was again quiet up $0.03 on the day at $19.30. The extra premium on the $1000 face 90% silver bag seems to be holding up but this play on silver half dollars only does not make sense to me.
Platinum moved higher by $4.00 at $1469.00 and palladium was up by $1.00 at $815.00. The South Africa mining strike is now in its 17th week and has created havoc with supplies but I’m disappointed in the price performance giving the circumstances. Platinum is now trading at about a 13% premium to gold.
From a reader – The U. S. Mint is selling ASEs at a record pace. Do you have any idea who is buying them? Ted Butler suspects it is JPMorgan. “Belgium” bought another large tranche of 10 Year Treasuries bringing their total to somewhere over 300 billion dollars, the third highest behind the Fed and China. Do you have any idea who is behind this? If you do the math their purchases make up for any tapering the Fed has done which may account for the lack of response in the economy. I would like to hear your analysis. In the “for what it’s worth category”: When is the Canadian Mint going to hire a decent engraver? I received a roll of the Birds of Prey (Falcon?) from you the other day and, although it does not descend to the level of the Cougar, it could have been a lot better. I realize St. Gaudens is dead but he isn ‘t the only engraver on the planet.
As far as the US Mint is concerned it seems they still don’t have any problem selling whatever they produce in the way of American Silver Eagles. But large mintages can sometimes create problems in distribution. And just because they make them does not necessarily mean they are being purchased! I don’t think the public knows that the distribution process is contractual – meaning distributors are required to purchase whether they want the coins or not. Normally the US Mint is right on their game as far as requirements but if they overshoot the mark the coins still get sold. They are then hedged in dealer inventory and over-supplies are sold off in time. If you want to understand the real inside story of American Silver Eagles watch the premium over spot. When these are steady everything in happy is distribution land. When premiums drop it means dealers are trying to run their high inventories into low inventories.
The “who has the Treasuries question” is beyond my pay grade. Personally I think the public would be shocked if they really knew the extent of government debt and that is why not all of it is transparent. The government does a good job at hiding (on and off the books) but many folks in the gold business figure the real number might be a mind-numbing $200 trillion dollars. At any rate the stealth buying of Treasuries especially in these times is just part of the “hide and seek” game. And expect more of the same because in the short term money market Treasuries are still the King of the Hill.
As far as workmanship on the new Canadian silver bullion coins I agree the details could have been more defined. In their defense however all these new silver bullion “series” have created an entire army of new buyers which is good for the silver bullion business. Thanks for reading and the comments.
This from Chris Gaffney (Daily Pfennig) – The Storm Clouds Are Gathering – Another piece of data released last week added to the confusion regarding the state of the U.S. recovery. Retail sales during the month of April, as reported last Tuesday, showed an increase of just .1%, and the more closely watched number ex Auto and Gas showed a surprising drop of .1%. Previous weakness in retail sales, much like the weakness in 1st quarter GDP, has been blamed on the tough winter weather. But, I don’t recall reading about any snowstorms in April, so the old “stormy weather” excuse can’t be used to explain this disappointing piece of news. This piece of data, combined with the weak GDP number and the questions regarding the state of the labor markets, leads me to believe that the FOMC will definitely be looking to continue their support of the economy. While none of these figures are dramatic enough to suggest a change in the pace of the taper, Yellen and her compatriots will be hard pressed to start raising interest rates anytime soon. And, concerns regarding the recovery are not limited to our own central bank. The head of the European Central Bank (ECB), Mario Draghi, stated that the ECB stands ready to embark on some form of Quantitative Easing (QE) in June if they determine the European recovery is stalling. And, officials at the Bank of Japan have also continued to discuss ways of increasing their stimulus efforts in order to offset the recent tax hikes. The liquidity that has been placed into the markets by the “Big 4” central banks through QE during the last few years will likely remain, and will give support to the asset bubbles, which they have helped to create. Asset bubbles? Yes, I think you have to call the real estate market in Manhattan, London, Sydney and Hong Kong (not to mention mainland China) a bubble. Prices of high-end collectibles are also indicative of a bubble with a Francis Bacon painting fetching $142.2 million and a 59-carat diamond selling for $83.2 million – both record prices for their respective asset types. And, most developed-world equity markets are at record levels, not to mention the bond “bubble,” which Chuck has continued to point out in his Daily Pfennig® newsletter. Yes, prices have definitely been rising. Transparent Bubbles – But, that leads to another conundrum – the official reports of the Consumer Price Index (CPI) show global inflation is almost non-existent. U.S. CPI for the month of March showed a very modest 1.5% gain, and the figures released by the European Union and Japan were even lower at .86% and .36%, respectively. How can asset price bubbles exist in a low inflation environment? I’ll refer back to that original Mark Twain quote – it’s all in the statistics. Official measures of price inflation almost completely ignore asset prices like equities and real estate. The U.S. CPI is calculated using something called “owner’s equivalent rent” instead of home prices and totally ignores the appreciation in the equity markets. Those record prices for paintings and diamonds are not part of the calculation for CPI. And, the FOMC’s favored measure of CPI doesn’t even include food and gas (CPI ex food and energy), as if the price of food and energy doesn’t really impact consumers. Traditionally, as governments increase the money supply, it naturally leads to higher inflation rates. After all, an increase in the amount of currency in circulation is the original definition of inflation. Ludwig von Mises, a leader in the Austrian school of economics, wrote the following in 1912, “There is only one meaning that can rationally be attached to the expression of inflation: an increase in the quantity of money that is not offset by a corresponding increase in the need for money, so that a fall in the objective exchange-value of money must occur.” This fall in the exchange-value of money can either be reflected in an increase in general prices or, alternatively, as asset price bubbles. There can be little argument regarding the increase in money supply. Central bank balance sheets in the U.S., Europe and Japan have increased dramatically in reaction to the financial crisis of 2008. According to data released by the central banks, the U.S. balance sheet has increased from $800 billion to $4 trillion, which is an increase of approximately 400%, while the Bank of Japan has seen a 100% increase and the ECB an increase of approximately 50% in the last five years. But, this increase has not yet led to inflation, according to our “official” gauges. This would lead one to believe these official gauges may be off. Returning to our friends over at ShadowStats, their alternative measure of the U.S. inflation rate indicates a much different picture than that portrayed by the BLS. And, the adjustments made by ShadowStats in the chart4 below only account for changes made by the government since 1984, and still don’t include asset prices (equities, real estate), which would propel the stated inflation rate even higher. Consumer Inflation – Official vs ShadowStats (1980-Based) Alternate – Source: shadowstats.com – So, what does all of this mean for investors? First, it is hard enough to try and make an educated guess of where the economy is heading even when we have accurate data to work with. And, doing it with unclear data is like trying to drive a car blindfolded. And, even more worrying is the thought that the decision makers on the FOMC are basing their decisions on this data. Inflation rates are likely much higher than what is being officially reported, and the risks remain that our central bank officials could be making policy decisions unaware of this disparity. As the big boss, Frank Trotter, likes to say during his presentations, “Borrowing is cheap until it isn’t.” Inflation risks are currently not being priced into the markets, but what happens if and when the inflation genie is released from its bottle? Returning to the Austrian school of economics, von Mises issued this warning concerning the point that unseen inflation suddenly becomes apparent, “Within a very short time, the things which were used as money are no longer used as media of exchange. They become scrap paper. Nobody wants to give away anything against them.” In this scenario, the value of “real” assets would jump along with interest rates, while fiat currencies created by government printing presses would see sharp declines. I certainly don’t mean to frighten any of you, or ruin your Sunday. I am simply trying to shed some light on what could be hiding in the “official” statistics. I would encourage readers of the Daily Pfennig® newsletter to dig deeper into the statistics by heading over to the ShadowStats website at www.shadowstats.com. Diversification into “real” assets could provide some protection. And, if inflation does spike, interest rates will likely follow, meaning floating rate notes or any investments benefiting from higher rates could also appear to be good choices.
It is not that this Gaffney view is new and readers should already be aware of the ShadowStats website which is solid in the precious metals community. So this information while not mainstream has been around for some time. Now that is troubling considering at first this failure to connect the dots was ignored and then perhaps forgotten. The most posed question from readers today is why the Von Mises rule (over expanding money supply leads to worthless paper and higher gold) seems to be missing in action. The above result or asset bubble explanation might lead readers to an alternative “cause and effect”. Is it possible that sooner or later this entire financial system will implode? My personal belief is that the expanded money supply will eventually chip away at buying power; the dollar will move lower gradually and over the years the “pain” created will happen in baby steps. But what if the new “asset bubble” is at the core of the financial system and we all wake up broke? I think as time goes by since the 2008 financial collapse the safer everyone feels that this “blow up” has been avoided. Banks are safer and stocks have recovered to recent all-time highs. But if you buy the “gold super-cycle” idea which is credible with the informed (Aden Sisters) gold’s best days might just be seen in this coming decade.
The walk-in trade was more active today than Friday but most of the action was on the small to moderate side. The phones continue steady but not real busy.
The GoldDealer.com Activity Scale is a “3” for Monday. The CNI Activity Scale takes into consideration volume and the hedge book: (last Tues – 4) (last Wed – 5) (last Thurs – 2) (last Friday – 3). The scale (1 through 10) is a reliable way to understand our volume numbers.
Live pricing on the site moves all bullion products up or down during the day. The Bullion Products link on the home page now includes our Bid (blue) and Ask (green) prices. Premium quotes vary with product and look like this – “spot plus $15.00” or “spot plus $50.00” and bullion products list them under the live prices on their respective landing pages.
This makes product comparison simple and GoldDealer.com is the only precious metal site on the internet with this transparency. Live Chat is doing well and new customers like setting up their own encrypted accounts. We recommend upgrading old browsers to Google Chrome (free/secure) especially as our site becomes more advanced.
Sign up for our daily Gold Newsletter on the Gold Newsletter page if you are so inclined. Also note that our old Specials Email list is not compatible with the new format so we have cleared all data.
If you want to be notified about specials please check the Special Offers box under All Bullion Products. Also note that the email list for the Gold Newsletter and our Special Offers are separate.
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).
Our four flat screens downstairs with live independent pricing (BullionDesk.com) are a big hit with the cash trade. This live stream moves all buy/sell prices so the cash buying or selling public can see the markets move on a real time basis. Our site uses the same pricing model so no more guessing.
Our Price Beating Guarantee (buying or selling) remains famous so call Kenny (1-800-225-7531) and get more money in your pocket! We guarantee your satisfaction and include our No-Nonsense Policy (NNP) which clients consider a welcomed extra. Like us on Facebook and follow us on Twitter @CNI_golddealer. Thanks for reading and enjoy your evening.