Commentary for Monday, June 30, 2014 (www.golddealer.com) – Gold closed up $2.80 today at $1321.80 in quiet trading but there was a pop in prices (plus $8.00) just after the close. There seems to be a bit of pattern trading at play here as the overnight Hong Kong and London market sells off and the domestic market once again recovers. If you move to the 30 day chart the price of gold is very flat around the $1320.00 so we are still treading water short-term.
I see that Bank of America is calling a bottom to the gold market in 2014 citing quantitative easing. It’s surprising this did not get more attention – they did hedge their bet saying that there is more appetite for gold as a financial hedge and they are more confident as long as the China and India physical gold trade holds.
Also keep in mind this short week might see lackluster trading (4th of July – Friday – we will be closed) but then again there are plenty of data points coming your way (Mon-Thurs) like the manufacturing index, ADP employment numbers and car sales.
Silver closed down $0.07 at $21.00 with no buzz at all.
Platinum was up $3.00 at $1481.00 and palladium was up $1.00 at $842.00. Rhodium was unchanged at $1115.00 (a bigger consideration these days). Anglo American Platinum has offered for sale some mining assets including mines in South Africa. This might be evidence of how difficult it is to make money in the platinum mining business. They are coming off a 5 month strike that cost Anglo 1.1 billion in revenue.
This from Tim Smith (Everbank) – Good News for Gold Coming Out of India – “During his campaign speeches, Narendra Modi, India’s new prime minister, criticized the import curbs on gold, arguing it was giving rise to criminal activity.
So, many analysts expect the new government will relax the import restrictions in the upcoming budget vote next month. A local news publication also quoted an anonymous source in the national finance ministry as saying, “We are examining the possibility of a cut in the gold import duty in the range of 2% to 4%.”
If that really happens, a lower import duty should increase demand for gold in the country. Just like a hike in the tariffs hurt the price of gold last year, a cut in the tariffs should help push the price of the metal higher.
And that small change could be just the beginning of an ongoing policy change. That same anonymous source also said, “There is a high likelihood that a calibrated approach to curtailing the import duty on gold may be taken beginning from a two percent cut.”
And let’s not forget the traditional seasonal impact on the gold market. We normally see a boost in demand for gold in India in the second half of the year because of the country’s religious holidays—first Ramadan and then wedding and Diwali seasons.
This combination of relaxation of gold tariffs, duties, and regulatory restrictions on gold imports and the seasonality effect could be very powerful for gold.
As you can see in the chart above, the yellow metal seems to have stabilized around $1,250 to $1,300. And in the last two weeks alone, it has jumped 5%. If we see a deeper rollback of duties in India, it’s very likely gold will finally break out of its trading range. So keep an eye on these Indian policy changes.”
The idea that Narendra Modi will give India a new outlook relative to gold bullion has been talked about in the gold press for months. Whether he can deliver is another matter but I think the best story about a new boss in India goes under the radar. There is little to be found about how much gold is smuggled into India because of corrupt officials. I have always contended that to watch only the official import numbers relative to gold was underestimating just how important gold bullion is to India. And regarding the smuggling trade – how much is coming from the US?
That’s right folks – I don’t believe for a minute that all the gold bullion bars we sell stay here in the US. Just how they get the stuff overseas and into India is also a mystery. But something is going on and my bet has been some type of underground mule system is used right under everyone’s noses. Such has always been the case when governments decide to step on the rights of the citizens who work and actually pay the bills.
This from Kira Brecht (TraderPlanet/Kitco) – Too Much Debt: The Debt-To-GDP Tipping Point – “While debt-to-GDP ratios aren’t your standard dinner table talk, the advanced economies continue to rack up significant levels of debt, which remains a long-term underlying economic concern for the global financial system. The Big Three global central banks — the U.S. Federal Reserve, the European Central Bank (ECB) and the Bank of Japan (BOJ) all remain in a historically accommodative and easy money policy position. Meanwhile, all three of these major economies are boasting huge debt-to-GDP ratios. The economics behind this all and the sheer size of the numbers can tend to be overwhelming and beyond comprehension for many individuals. Debts and deficits don’t seem to impact the average Joe in their day-to-day lives, so why worry about it? Right? Wrong. The high levels reveal the massive levels of debt that have been accumulated by the major economies. As anyone with a credit card knows —in general debt is a problem. The bigger the debt, the bigger the problem—and the longer it will take to pay it off, generating even more interest payments.
Let’s start with Japan. Through the first quarter Japan’s debt-to-GDP ratio stood at 210.5%, the highest in the world. “Slow economic growth and large fiscal deficits in Japan over the past 20 years have caused the Japanese debt to GDP ratio to balloon,” wrote economists at Wells Fargo Securities. “The ongoing primary budget (along with other factors like the size of the total debt, the interest rate paid on it and growth rate of the economy) is a key factor in examining a nation’s debt sustainability. For that reason, improvement in reducing the primary budget deficit and would help improve the probability of long-term debt stabilization and reduce the default risk,” Wells Fargo economists added. Reduce default risk.
Yes, that is an important issue for countries with large debt-to-GDP ratios ahead and argues in favor of diversification into a safe-haven hedge such as gold. Could this be a glimpse into the future of the U.S. debt-to-GDP ratio over the next 10 to 20 years? It’s not a far stretch to imagine a similar scenario developing in the U.S. with the Social Security Trust Fund and Medicare obligations currently promised by the U.S. government. The U.S. debt to GDP ratio through the first quarter stands at 110.7%, according to Wells Fargo. The euro zone debt to GDP ratio stood at 106 for 2013. What do these levels mean? There is one train of economic through, posited by Carmen Reinhart, a professor at Harvard Kennedy School and Kenneth Rogoff, an economist at Harvard University, that once government debt levels climb above 90% —that in and of itself weighs on economic growth prospects. The U.S. (and other major advanced economies) are already struggling with slow growth for a multitude of reasons. Faster economic growth can help bring in revenues to in turn pay down debt. For now, that is not happening. The U.S. and the other major economies are over the 90% tipping point. It’s time to get concerned. Gold continues to maintain an underlying bid. Dips to the $1,240 per ounce level were seen as a buying opportunity in early June. There’s many reasons to own gold, and high and rising debt levels may just be another one.”
This is an interesting question from a reader – “What’s your take on Dodd-Frank Act regarding Gold Bars in the USA? Can we buy them from non-DRC (or adjoining countries) in Africa and legally possess them here in the USA?”
President Obama singed Dodd-Frank in 2010 in response to the financial meltdown of 2008. It was considered a sweeping reform of the financial system and supposedly included banking and derivative reform. It also included consumer protections and a whole passel of tools regarding the ability of the Treasury to extend credit. I seem to remember that the package contained 2400 pages of what is essentially government oversight.
Of course it was passed by Congress and the President signed it into law because the politicians needed something to show the public that this financial mess will not repeat itself. But the problem with Dodd-Frank is they took a complicated American financial system and made it incomprehensible.
Not to sound glib but in the process there was a great deal of latitude given to the Federal authorities. This interpretation has given way to paranoia – and perhaps rightly so when it comes to freedoms we all enjoy. Some in the precious metals trade ran with stories which were concocted in my opinion but laws which allow for judgment calls can be dangerous.
More specifically to your question – any monetary asset like gold might run into trouble when crossing international borders because it is the same as cash. It is common practice to hold gold in friendly European countries – in your name. But it becomes inconvenient to move gold into the US because depending on the country you have now exposed a valuable asset to customs.
This also gets tricky in those countries with Value Added Taxes (VAT). And if you are considering moving gold across international borders in countries which are not friendly it is dangerous and not recommended.
If you own gold in any country and want to move it to the US – it’s easier and safer to sell it there – wire the money here and repurchase the position within the US. Spreads are cheap and you avoid all the international paperwork. Remember that gold, like cash will raise attention even if you follow the rules.
In the end I always suggest that if you want to own gold – the good old USA is the best show in town. Laws here are more than liberal – banks are federally protected (don’t laugh) and the rule of law still holds – in most places. Owning gold – because of its very nature carries some risk so let’s not get carried away with Dodd-Frank stipulations – international trade and ownership – and what big brother might have in mind.
A simple relationship with your local bullion dealer and a bank deposit box will provide all the protection against government intervention that most people require. The transaction is safe and secure and you don’t have to worry about whether your gold actually exists or is being used to finance a Russian yacht.
The walk-in cash trade today was quiet and so were the phones. There is some activity but not what I would have expected given there seems to be a slight whiff of bullishness these days. It might just be my afternoon coffee and these markets change attitude as quickly as they change price – still there is something in the air. Suppose I told you gold bottomed in 2014 like Bank of America seems to indicate – see what I mean about attitude?
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