Commentary for Monday, Aug 11, 2014 (www.golddealer.com) – Gold closed down $0.40 today at $1308.50 in very quiet trading. With the Kurds now being armed – another uneasy cease fire in Gaza and Putin looking for an excuse relative to Ukraine you would think there would be more action in gold. Many are also beginning to worry about Europe again – but there you have it – gold is flat and looks like it couldn’t care less.
It is interesting however that gold closed above its 50 Day Moving Average ($1299.00) – it’s 100 Day Moving Average ($1296.00) and it’s 200 Day Moving Average ($1284.00) which is positive but trading itself is quiet and non-committal. The overnight Hong Kong and London markets were very flat and this narrow sideways action carried over into domestic trading.
From GoldCore – “World Insecurity” May Have “Positive Impact on Gold” – Ex BOE Mervyn King – In his keynote address to the Diggers and Dealers conference in Perth, former governor of the Bank of England Mervyn King had positive thoughts on gold, arguing world insecurity could have “a positive impact on gold.” He said that global geopolitical and economic uncertainty will boost commodity prices including gold. He also warned that all countries would have to face up to mounting debt levels and said that central bank’s ultra-loose monetary policies were not the answer. “We are beginning to discover that the reason the world recovery is so slow is that monetary policy isn’t the answer now, and other policies need to be put in place to rebalance the world economy,” he said.
From FXEmpire these highlights of Draghi’s remarks from the ECB’s monthly rate statement and press conference include:
USD Rates Will Be Higher Than The EUR’s For A Long Time: The Fed is winding down its own QE and is expected to begin raising rates by no later than late 2015, possibly as early as late 2014.
The ECB is still looking to ease further and has no timetable for raising rates.
More Stimulus Coming: The ECB is intensifying its preparation for some kind of outright purchases of asset-backed securities as an additional form of stimulus.
The ECB Views EU Recovery as Slow, Uneven: It’s slow even in the more prosperous countries, and non-existent in many of the weaker ones. As noted above, on Wednesday Italy had officially tipped into recession.
ECB Is Worried About Economic Effects Of Russia Sanctions: On Thursday Russia banned food imports from the European Union in response to the financial sanctions enacted by the EU last month. Although it’s too soon to assess the economic damage, Russia is the world’s 5th largest food importer. The prospect of rising energy prices is a longer term concern, although for now crude oil prices are trending lower.
Also from the same FXEmpire source – “As we’ve noted repeatedly, particularly in our posts about the failed EU banking union, none of the real causes of the EU crisis has been addressed, nor have there been any meaningful reforms to prevent another round of EU contagion risk. The complacency about EU crisis risk, born of ECB president Draghi’s great bluff in 2012 that the ECB actually could do all that was needed, rests mostly on sheer confidence that everything will somehow work out, despite the lack of reforms or meaningful growth.
This latest recession risks raising the record low borrowing costs for Italy and the rest of the GIIPS and it could metastasize into a crisis if that a sustained spike in rates comes, and starts a rapid outflow of the capital buildup of the past two years. As Portugal’s BES troubles have reminded us, the EU’s periphery is on its own if they face a bank failure. There is no Fed-like safety net or anything like it, as the banking union doesn’t even exist yet and even when it does, will have too little money and too much bureaucracy to support confidence that the EU can respond quickly to banking crises in member nations, even those that threaten to spread to all of Europe and beyond.”
The above is important because our financial press now gives Europe a pass or equates the EU recovery to that of the United States. They are not close and the ECB does not have the firepower of our Federal Reserve.
The distinction between our banking system and theirs is important to note because if Europe tanks – possible – not probable – it will create a great deal of collateral damage – all of which will support the price of gold.
Silver closed up $0.16 at $20.06.
Platinum closed down $8.00 at $1472.00 and palladium was up $14.00 at $874.00. Rhodium pushes higher up $20.00 at $1355.00 and sales of the Rhodium 1 oz bar remain active.
Treasuries and gold – look at yields relative to the 10 Year Treasury – and remember when you buy this bond you are simply lending money to Uncle Sam.
The price of the bond is inversely proportional to it yield (interest rate) which means that if the demand for Treasuries goes down meaning they sell for less – the interest rate goes up meaning Uncle is willing to pay you more because things might be tough in the money borrowing area. On the other hand if demand is good for Treasures (usually the case when the human misery needle moves higher) they sell for more and their interest rate moves lower.
If all of this is just too confusing (it is for many) forget about the cost of the bond and look only at the interest rate you will receive from ownership. Today the 10 Year Treasure will pay you about 2.44% – a rate which has steadily fallen since January of 2014 (3%). This steadily lower rate has confounded some Wall Street folks because they figured interest rates would be going up as quantitative easing comes to an end.
At any rate all of this mysterious stuff should tell you that people continue to buy the 10 year Treasury because it represents safety in times of turmoil.
And if you look at gold you will see a similar relationship in that it was about January of 2014 when gold turned from a generally bearish market touching $1200.00 an ounce and reversed moving higher through March ($1375.00) – then settling to trade plus or minus around $1300.00. This turnaround was caused by safe haven – war and uncertainty in one form or another scares everyone and promotes safe haven investments like treasuries and gold.
Again the walk-in cash trade was summer-like even with a growing number of flash-points like Ukraine, Gaza and developing problems in the EU. The national phones were also on the quiet side so the current price of gold “above $1300.00” remains mostly a defensive position and has not spurred physical buying across the counter.
The GoldDealer.com Activity Scale is a “2” for Monday. The CNI Activity Scale takes into consideration volume and the hedge book: (last Tuesday – 3) (last Wednesday – 4) (last Thursday – 3) (last Friday – 3). The scale (1 through 10) is a reliable way to understand our volume numbers.
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Our four flat screens downstairs with live independent pricing (BullionDesk.com) are a big hit with the cash trade. Live pricing moves all the 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 to the store and walk away with cash. When buying from us remember if you exceed $10,000 in cash (the real green kind) a Federal Form is necessary.
In addition to our freshly ground organic coffee offered visitors throughout the day we have added cold bottled water, cokes and Snapple. We have also added fresh fruit in a transparent attempt to disguise our regular junk food habits – which seem to grow when things get this quiet. And it does not help that the world famous Randy’s Donuts is just down the street.
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