Commentary for Wednesday, June 18, 2014 (www.golddealer.com) – Gold closed quietly up $0.70 at $1272.40 before FOMC news was released that the Fed will cut its quantitative easing program by $10 billion beginning next month.
So even with tepid US economic results the Federal Reserve seems intent on reducing its bond buying program. This federal stimulus began at $85 billion a month and is now at $35 billion and their projection is that the entire program will be history by the end of the year.
Whether this reduction schedule can be maintained remains to be seen but the reduction of federal fiat money creation will weigh on the price of gold longer term so as far as I’m concerned let’s finish this boondoggle before we all end up in the poor house. Normalize interest rates over the next few years and see if the theory of “free” money has any consequences.
The reduction of QE will probably be seen in Thursday’s trading as shorts once again test for lower prices. But remember the $1200.00 floor in gold has been solid and technically the bears have been in charge short-term so I don’t expect much more in the way of a discount.
The Federal Reserve expects its Fed Funds Rate in 2015 to move from 1% to 1.5%. And they lowered their 2014 growth forecast from (2.8% – 3%) to (2.1% – 2.3%). Don’t ask me how they are able to “middle” these numbers in the tenth of percentage points because it is above my pay grade.
They do however see growth rates from 3% to 3.25% in 2015 which may still be wishful thinking as far as I’m concerned. There were no comments on the larger than expected Consumer Price Index seen on Tuesday.
The three month trend for the Dollar Index is generally higher but the one day chart show a somewhat weaker index which may have helped gold in early trading.
The nice thing about the new site (www.golddealer.com) is that any precious metal changes after hours are reflected immediately in all bullion products because they are hooked up with a live European price feed which works 24/7.
Silver closed up $0.04 at $19.76.
Platinum closed up $7.00 at $1450.00 and palladium closed by $6.00 at $823.00.
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 6-11-14 was 54,885,111. That number this week (6-18-14) was 54,792,077 ounces so over the last week we lost 93,034 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 6-11-14 was 631,845,584. That number this week (6-18-14) was 629,283,935 ounces so over the last week we lost 2,561,649 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.
This from Ed Steer / Gold & Silver Daily / MarketWatch.com – The Real Reason Oil Traders Worry About Iraq – Even if Iraq’s southern oil fields and export facilities remain untouched by the horrifying violence that’s swept the north, once widely-held expectations for a doubling or even tripling of Iraqi oil production in coming years likely need to be scaled back, analysts say. And if so, expectations that the price of a barrel of Brent crude could drop back below triple digits might be dashed as well.
“Any long-term forecast that says oil prices will be $90 or even sub-$100 needs Iraq to produce at 6 million to 8 million barrels a day, if not higher,” said Amrita Sen, chief oil analyst at Energy Aspects, in a phone interview.
For now, analysts are downplaying any major threat to Iraqi exports, which are pegged at around 2.5 million barrels a day. The fighting has remained confined largely to the north, while around 90% of key production infrastructure is seen remaining out of harm’s way, wrote analysts at Citi.
If so, that could mean there’s room for nearby oil futures, particularly Brent, to give back some recent gains, wrote analysts at Commerzbank. But with no other country set to achieve anywhere near the production increase forecast for Iraq, the $110 a barrel mark may remain a near-term floor.
(CNN) Charles Lister – “Last week, Iraq’s second-largest city of Mosul fell to the Islamic State in Iraq and Syria, or ISIS. In a few hours, the city’s security forces had dropped their weapons and uniforms and fled. Since then, the militants introduced a political charter in Mosul and marched south, seizing additional towns en route to the capital, Baghdad.
In taking Mosul alone, ISIS gained as much as $425 million in cash, an unspecified quantity of gold bullion, huge amounts of light and heavy weaponry (mostly U.S.-made) and probably hundreds of new recruits from three main detention centers, all which were overrun.”
I had a reader claim that my $50.00 one way or the other for gold relative to Iraq was nonsense. Well it might be if the Iraq meltdown develops into a larger conflict.
Let’s wait and see how much human misery these tribal conflicts can produce as ISIS challenges al Qaeda for not being extreme enough these days and moving too slow for change.
As far as gold goes short term bears are still in charge. There is plenty of support at $1250.00 and big overhead resistance at $1280.00. This overhead resistance zone has existed for 3 months so don’t assume a day or two of higher prices will mean much.
By the same token the lower end of the most recent trading range is $1250.00 with a declining tops line which began at gold’s most recent high ($1320.00) and this is bearish.
If the market continues weaker – moving below recent support ($1250.00) a test of the maginot line is probably in order ($1200.00). Long term support at $1200.00 goes back a year and as long as the US does not get caught up in the deflationary problems seen in Europe I think the chances of testing levels below $1200.00 is perhaps 1 in 4.
What also augers well for gold are the massive amount of money governments worldwide have thrown at the 2008 financial collapse. Keep in mind that QE has cost us 1 trillion dollars and most of that went to a bond buying program designed to save the real estate business.
This works until interest rates can no longer decline – then choices are made similar to those in Europe. Do all Central Banks go negative in an effort to once again jump start business?
And what bubbles are created when an extended cheap money policy becomes pervasive? Consider this offered by Chuck Butler (Evergreen) – “The “exit fee” is another instance of the Fed trying to fix a problem of its own creation, says former White House budget chief David Stockman. Owing to the Fed’s brutal financial repression since December 2008 (i.e., zero yield on short-term funds), there has been massive scramble for yield that has driven trillions into corporate and high-yield bond funds,” Stockman explains at his invaluable Contra Corner site. Liquid funds which would have normally been parked in bank deposits or money market funds have been artificially displaced. That is, they have been chased by the dictates of the monetary politburo into far more illiquid and risky investment vehicles owing to zero yields in their preferred financial venues. And there’s no way out: “Even the announcement of a rule-making,” Mr. Stockman writes, “would potentially trigger the very kind of sell-off that it would be designed to prevent. And if corporate bond prices took a tumble, it would not take long for equity markets to recognize that the massive flow of new debt capital which has been used to fund record stock buybacks could suddenly dry up.”
I don’t have these answers but figure the current state of financial affairs should support gold and silver until the inflation numbers return.
Walk in was again quiet and so were the phones but the national business seems to be alive and well with the CNI Activity Scale coming in at a week high of 6. Both buyers and sellers seemed even matched today.
The GoldDealer.com Activity Scale is a “6” for Wednesday. The CNI Activity Scale takes into consideration volume and the hedge book: (last Thursday – 3) (last Friday – 3) (Monday – 5) (Tuesday – 5). The scale (1 through 10) is a reliable way to understand our volume numbers.
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