Commentary for Monday, Dec 1, 2014 – Gold closed up $42.80 at $1218.00 as the aftermarket sell off on Sunday was corrected in the domestic US market. Gold’s initial weakness began last Friday (down $21.00) and the lower trend was reinforced as Swiss citizens rejected their referendum vote on gold Sunday.
Of course the stronger dollar and weaker oil helped orchestrate the sell off as the short traders once again cashed in on falling gold prices. For the record gold spent the month of November without a close above $1200.00 although it tested this level a number of times – so today’s close of $1218.00 was the highest since October 29th.
Silver closed up $1.16 at $16.65.
This question from a reader – “To best preserve the value of your investment, should mint tubes of silver coins (e.g. Maple Leafs, Eagles, Philharmonics) be stored as is? Or should something be done to protect the coins from tarnishing and/or jostling (e.g. placing coins in air-tites, sealing tubes in ziploc bags with silica desiccant and/or activated charcoal, etc.)?
The above inquiry is often raised because the public believes there is a link between the color of silver and its value. There is no such link between color and value – silver bullion moving from its “as struck” shiny self to a colorized tarnish is simply the result of silver combining with oxygen to form a protective coating called silver oxide. This is a natural process and does not change the value of the coins or bars.
So as far as improving the storage conditions using additional plastic packaging or ziplock bags or chemical inhibitors – it’s a waste of your time and money. The best long term storage is already supplied by the producing world mints. The plastic tubes and custom made monster boxes will keep your silver bullion in perfect condition for eternity. Use the money you saved on worthless supplies to buy more silver bullion as prices seem cheap at the present.
The only admonition relative to silver bullion storage is that all products must be kept dry. So storage underground is not recommended – regardless of what you have been told by “preppers” getting ready for Armageddon. All of these underground remedies will eventually fail and many don’t even consider the natural water table. So never bury your silver bullion and remember that $90% silver coins contain 10% copper which will corrode if left wet for any period of time. So dry is the universal and only answer – natural toning does not change value.
Platinum closed up $31.00 at $1241.00 and palladium was off $4.00 at $808.00.
Traders obviously reacted badly to the rejection of the much talked about Swiss Gold Referendum but the domestic market was closed. So what can we learn from this bear raid? Even from the beginning most gold enthusiasts considered passage of the referendum a long shot so why the big deal now that those Swiss citizens have rejected the notion of increased and fixed gold reserves? My take is that the markets are already loaded with negative commentary and this unlikely event not happening was the perfect short term trigger in a thinly traded overnight market.
You don’t have to be a technical trader to see that gold remains in troubled waters helped by a massively strong dollar and lower oil. Gold has held to a generally lower trough since the recent $1300.00 level seen in July of 2014. The referendum did offer a kind of White Knight approach – but this seemly universal idea was smashed on the rocks of the new economic reality.
Actually this now popular approach is not new but I will admit its latest incarnation is much more formidable because the monetary numbers are in the extreme.
Central banks like to inflate and this time around the numbers were so large that it pushed stock prices into the stratosphere. But this created fiat growth that is not supported by a general improvement in the economic condition. Look at Germany, Europe and Japan – even with all that money they are fighting deflation. If you don’t buy this argument look at the price of steel or iron ore a key component in steel production. The price of steel has moved lower about 30% since 2012 and the price of iron touched a 5 year low in September according to Bloomberg.
At any rate each time the Keynesian model works the old time gold supporters are baffled. Don’t be – this time is only different in that the result (inflation) will take longer to work its way through the system.
But no matter – let’s talk about another White Knight – inflation. There is still none around so expect no short term support with the price of gold. And this condition will probably remain in place through 2015 or perhaps 2016 – look at the price of oil – everyone thought $75.00 a barrel was the end of the oil road but this weekend the OPEC decision not to cut production created another short term low of $65.00.
Perhaps our White Knight will come in the form of a bottom? The problem with this argument is that traders will continue to push the short trade because that is where the money is until gold actually muscles up and shows some prolonged strength. To me this would mean a break above $1200.00 for starters and as I have pointed out before the overhead resistance between $1200.00 and $1350.00 looks like a mountain – especially if the stock market continues strong.
I have been saying for some time that the price of gold is controlled by the short trade. This won’t last forever but by now you should have gotten used to the idea.
These comments from MarketWatch are worth reading – “I think the issue in Switzerland is dead and buried. It shows that among the public, the appetite for gold as a reserves asset may not be as strong as we think,” he said. “It shows that more people support 21st century monetary policy. I think this is a rejection [of the idea] that gold is ultimate reserve.”
Gold had kept to a tight trading range for most of last week, as it struggled to hold the key $1,200 level amid dovish comments from European Central Bank President Mario Draghi and a surprise rate-cut from China’s central bank.
Citi’s global chief economist Willem Buiter fired up gold bugs Friday, writing in a note that the Swiss vote was ridiculous and that no self-respecting central bank should ever put away a large chunk in a single commodity. He compared gold to Bitcoin and said he views the precious metal as a 6,000-year-old bubble.
“Its value may go from $1,200 per fine ounce to $1,500 or $5,000 for all I know. Investing a vast amount of money in something whose value is based on nothing more than a set of self-confirming beliefs will make for an exciting ride,” Buiter said.
Now stop and think about Citi’s chief economist Willem Buiter comments. He not only has embraced Keynesian economics – meaning world governments can inflate with no consequence – he has compared gold as a monetary asset to Bitcoin.
When gold was moving up in value every financial planner on the planet – including Citi’s gurus – suggested gold bullion was a prudent hedge against government mischief. So has gold’s decent from fame and fortune now become a joke and central banks of the world are wasting their resources?
My last guess as to what gold will do on the shorter term places its value somewhere between $1050.00 and $1150.00 – looking for a bottom supported by the physical market.
I still think this is realistic so in the meantime enjoy cheaper prices and don’t be afraid to buy weakness. Why? Because when this market turns around and people come to their senses gold’s value will rise against fiat currencies of the world – just like it has for 5000 years.
The walk-in cash trade and national phone business was a mixed bag today – sometimes hot and sometimes not – which is typical. In 33 years I have learned the physical business heats up considerably in a rising market and fizzles quiet badly in a falling market.
The problem with this gold market is that the paper traders control the short trade and everyone else is still trying to figure out the long term direction of physical gold. And this weekend’s volatile change in the price of gold – first down then up – only served to confuse the public.
The GoldDealer.com Unscientific Activity Scale is a “6” for Monday. The CNI Activity Scale takes into consideration volume and the hedge book: (last Monday – 4) (last Tuesday – 3) (last Wednesday – 3) (Thursday and Friday – closed). The scale (1 through 10) is a reliable way to understand our volume numbers. The Activity Scale is weighted and is not necessarily real time – meaning we could be busy and see a low number – or be slow and see a high number. This is true because of the way our computer runs what we call the “book”. Our “activity” is better understood from a wider point of view. If the numbers are generally increasing – it would indicate things are busier – decreasing numbers over a longer period would indicate volume is moving lower.
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