Commentary for Monday, March 16, 2015 – Gold closed up $0.70 on the Comex today at $1153.30. To say action has been slow of late would be an understatement. While this may put you to sleep it’s better than a market moving lower which we have seen in 7 of the past 8 weeks.
All the big players in gold are watching carefully the big Federal Open Market Committee which will meet this week and release information. But keep the order of things in mind – the “minutes” everyone sweats will not be released for a few weeks – they want to make sure every word is just right.
The sentiment or talking points will be made public Tuesday and Wednesday and this will be the first time everyone gets a hint at what if anything the Federal Reserve has in mind relative to interest rates.
What they do is pivotal to the short term price of gold. This is especially true because any tinkering with interest rates will push the dollar higher and the technical picture for gold is already weak.
But look at the close ($1153.30) and a relatively flat pricing market recently as traders scratch their heads wondering how all this will change the technical picture as the EU begins its own quantitative easing program and the Federal Reserve considers an interest rate hike.
Also note that oil is weakening again down $3.00 today ($43.00). Some knowledgeable oil guys believe this latest weakness is not warranted and the market will soon recover. But weaker oil in general remains the rule and this helps cap inflation and makes a general US economic recovery easier which leads to that pesky interest rate hike.
Still the gold market is oversold and for good reason – but traders, in my opinion are not completely sold on this short position. They could cover producing a small rally in a generally negative trading environment.
Finally consider what is really important – gold has already been hammered. Anything they do will create less downside than most believe – it always works that way. So if you are considering bullion at these lower levels – take advantage of weakness.
This from FXStreet (Guatemala) – Analysts at Rabobank noted the FOMC coming up this week and conditions that surround the event. “The two most recent Employment Reports have revealed a much more upbeat picture of the labor market, which has boosted market expectations of a June rate hike by the Fed. This had led to a considerable rebound in US treasury yields since early February.”
“Given the better-than-expected labor market data, the FOMC is likely to open the door to a June rate hike. In fact, the Fed seems intent on preparing the markets for the first rate hike. Therefore we are likely to see the removal of the ‘patient’ code word from this week’s FOMC statement.”
“However, we still see two reasons why in the end the FOMC may hesitate to pull the trigger in June: deflation and the strong US dollar. For most of the year the economy will continue to be in deflation and this means that the development of core inflation and inflation expectations will be crucial in convincing the FOMC that inflation will over time return to its 2% target.”
“The appreciation of the US dollar since last summer is increasingly having a negative impact on US exporters, amplifying the effects of weak global demand for US goods and services. This may explain why purchasing managers indices, durable goods orders and corporate earnings are showing a less upbeat picture than the labor market data. What’s more, the strong dollar is also reducing import prices, exerting downward pressure on core inflation. Therefore, we doubt whether the data that will be available in June will be sufficient to hike.”
“So if not in June, what would be the most likely date for a rate hike? Our view that the Fed will not hike before it has completed its checklist has been expressed in a 2015Q4 rate hike call since early 2014. However, after the Bureau of Labor Statistics has rewritten history for 2014 and the unemployment rate reached the upper bound of the Fed’s target range recently, we are considering updating our call to Q3.”
“If labor market data continue to be strong, and if core inflation and inflation expectations do not deteriorate, and if data on business activity do not fall further, we are likely to make this change in the near term. Alternatively, if the outlook for the economy and/or inflation deteriorates we would still be comfortable with a Q4 call.”
“For now we stick to Q4. Keep in mind that it was not so long ago that many banks were shifting their forecast from 2015 to 2016. We resisted that temptation and are now resisting this one until we are fully convinced that a change is justified.”
Silver closed up $0.13 at $15.60. The across the counter sales of bullion in this price region is steady with the usual suspects – $1000 face 90% silver bags, bars in various sizes, 1 ounce rounds and Monster Boxes.
Platinum closed down $8.00 at $1107.00 and palladium also closed down $8.00 at $780.00.
This from CNN Money – Why gold could rebound to $1,400 an ounce – Gold bugs were licking their chops earlier this year. The price of the yellow metal surged in January while stocks were tanking. It briefly topped $1,300 an ounce.
But the gold rally has come to an abrupt halt. Prices have plunged more than 11% from their highs earlier this year to about $1,150.
Much of the sell-off has taken place in the past few weeks as the dollar has strengthened.
That’s key. Gold is often looked at as an alternative currency. It does well when investors are worried about the outlooks for the legal tender printed by governments.
There are no such concerns about the greenback right now. What’s next for gold? Surprisingly, some market experts are still bullish.
Jeffrey Gundlach, the well-known investing guru who runs the money management firm DoubleLine Capital, is reported to have said in a presentation earlier this week that he thinks gold could rebound to $1,400 an ounce.
His reasoning? Negative bond yields in Europe will make gold look more attractive.
Gold is an asset that often outperforms in times of both inflation and deflation. In other words, when the market is scared of something, people flock to gold.
And those negative bond rates are a tell-tale sign of deflation worries. Investors are so spooked by the prospect of falling prices that they are willing to tolerate a small loss on government bonds rather than risk bigger losses in other parts of the market.
Still, it’s important to note that Gundlach has been bullish on gold for some time. And the negative bond yields overseas may also reflect the fact that the European Central Bank is finally buying bonds right at the time that the Federal Reserve is expected to soon start raising interest rates.
Higher rates in the U.S. should make the dollar even stronger. And that could be bad for gold — at least in the short-term.
“It’s the expectations of Fed rate hikes that are hurting gold. Momentum is bearish.” said Jeffrey Nichols, senior economic advisor with Rosland Capital.
But Nichols agrees with Gundlach. He thinks gold should eventually bounce back.
Why gold will rise: Nichols acknowledged that prices will probably remain volatile for the next few months though. But he believes the growth of the middle class in China and India will lead to a big pickup in demand for gold from consumers.
“It’s only a matter of time before gold turns around,” he said. “Gold should climb to a much higher price over the next three to five years thanks to physical demand from emerging markets.”
Michael Cuggino, manager of the Permanent Portfolios fund, also thinks that there will be more foreign buyers for gold … but it will probably be central banks holding it as an investment.
The dollar may be the currency flavor of the month right now. But what happens when the dollar eventually weakens? Many central banks may find that gold looks like a safer bet than the euro.
“Over time, gold prices will appreciate. Russia, China, India and central banks of other countries are looking to diversify their holdings. Buyers of any type will provide a floor for gold,” he said.
Cuggino also conceded that gold prices will jump around a lot for the foreseeable future. Still, he has about 20% of the fund’s assets tied up in gold as a way to hedge against inflation and market volatility.
That’s a much higher percentage than most financial advisers recommend for the average investor. But a little bit of gold as a long-term bet probably makes sense for your portfolio.
The walk-in cash trade was on the slow side today and our Activity Level has come off the recent very high readings so things seem to be cooling down.
The GoldDealer.com Unscientific Activity Scale is a “ 5” for Monday. The CNI Activity Scale takes into consideration volume and the hedge book: (last Tuesday – 4) (last Wednesday – 9) (last Thursday – 8) (last Friday – 7). 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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