Gold Remains Weak as the Dollar Surges

Gold Remains Weak as the Dollar Surges

Commentary for Wednesday, March 11, 2015 ( www.golddealer.com) – Gold closed down $9.40 today on the Comex at $1150.70. This is the lowest close this year and is within $8.00 of its 2014 low so gold remains shaky – still with continued day to day weakness traders will be looking for the short trade to cover and take some profits – translation – look for a short term bounce to higher ground in the price of gold.

There is a buying frenzy for the US dollar despite deficits and an 18 trillion debt that dwarfs the entire American retirement savings pool the Dollar Index reached a 12 year high up a whopping 1% today alone! The euro fell to as low as 1.056 as traders are convinced that higher US interest rates prompted by the Fed will drive the dollar even higher. The IMF is doing its usual business announcing a $17.5 billion bailout for Ukraine whose economy is on the verge of collapse.

This from Reuters – Venezuela's central bank is in talks with Wall Street banks to create a gold swap that would allow it to monetize some $1.5 billion of the metal held as international reserves, according to government sources familiar with the operation.

Silver closed down $0.27 at $15.34. Is the price of silver cheap enough for you? Sales today of silver bullion picked up but I would have thought the downstairs would be packed. But here is where lower prices works hard for both gold and silver buyers.

Yes – these markets are weak and yes the precious metals are out of favor but there are always buyers at some price – if it is cheap enough. The CNI Activity level as of this writing is a whopping 9 so the public is interested in cheap regardless of how the dollar or euro preform. And this unexpected pop in activity is reported from other larger US dealers – remember we talk with each other much more than the public suspects.

Platinum closed down $15.00 at $1115.00 and palladium was lower by $14.00 at $789.00. This market too is cheap and the public is buying some product but I wonder if the lack of deliverable platinum bullion products is hurting the across the counter trade? The only large platinum bullion coin available is the Platypus and even the supply of these is getting thin.

Again from Reuters – The platinum market is expected to be in deficit of 235,000 ounces this year, a report by the World Platinum Investment Council estimated on Wednesday, down 66 percent from 2014 levels, on stronger mining and recycling supply growth.

This is our usual ETF Wednesday information – Gold Exchange Traded Funds: Total as of 3-3-15 was 53,523,639. That number this week (3-11-15) was 53,514,021 ounces so over the last 2 weeks we dropped 9,618 ounces of gold.

The all-time record high for all gold ETF's was 85,112,855 ounces in 2013. The record high for Gold ETF's in 2015 is 54,094,507 and the record low for 2015 is 51,057,082.

All Silver Exchange Traded Funds: Total as of 3-3-15 was 623,296,752. That number this week (3-11-15) was 624,677,809 ounces so over the last 2 weeks we gained 1,381,057 ounces of silver.

All Platinum Exchange Traded Funds: Total as of 3-3-15 was 2,570,556 ounces. That number this week (3-11-15) was 2,594,571 ounces so over the last 2 weeks we gained 24,015 ounces of platinum.

All Palladium Exchange Traded Funds: Total as of 3-3-15 was 2,961,197 ounces. That number this week (3-11-15) was 2,945,012 ounces so over the last 2 weeks we dropped 16,185 ounces of palladium.

I love this headline – Sarah Benali (Kitco) – If You Want a Rainbow, You Gotta Put up with Rain – TD Securities – As gold continues to suffer amid a strong U.S. dollar rally and chatter of Federal Reserve rate hikes, TD Securities says the metal is fully in a “rain” period but hopeful for a “rainbow to emerge soon.” “Today was the lowest PM fix since Nov 2014 and it seems very likely gold now targets $1130 and then $1100,” says Steve Scacalossi, head of sales of global metals at the bank. “The shorts are in full command with little reason for a rally other than the usual dovish Fed inspired short covering rally,” he adds. However, it is not all bad news for the metal as Scacalossi says Asian demand has been strong and physical bars are starting to move again in the region. “Gold now needs to form a convincing base to see a rebound.”

Again gold is being pounded by a stronger dollar – look at the quoted range I was talking about on Monday – 97.29 through 97.78. Today gold remains in a completely defensive position and consider the range of the Dollar Index this morning – 98.49 – 99.67. If you compare the low (97.29) to the high (99.67) we get a spread of 2.38 points to the upside. This is a locomotive and should be avoided unless you don’t like your money.

Does the Fed like this amazing run to the upside in dollar strength? No – it actually throws a wrench in Fed Chair Yellen’s plans – it hurts the stock market and US companies which export. And worse it puts us on a terrible course relative to Europe. With the European Central Bank inflating with bonds they want a weaker euro – actually any country who owes a lot of loot loves a weaker currency over the longer term. It’s all about paying back long term debt with cheaper dollars or yen or euros – but what happens when the synergies between Europe and the US oppose one another instead of complementing each other? Don’t ask me – I’m just a coin dealer but even the smart guys don’t have a ready answer.

There are a few common traits you should keep in mind as world currencies and economies clash. A strong dollar will hurt gold and already has done considerable damage. Higher interest rates will also not play well in the gold bullion industry.

Until the “hot” or speculative money comes back into gold this market will seek some sort of equilibrium with real physical demand and central bank buying. Where that number settles is unknown today – it could be further defined if inflation is once again introduced into this closed system – but as of today actual physical possession of gold bullion will define price. And with no “scare” factor – which has always been big in the physical market this settling process continues.

But don’t underestimate the power of physical buyers – a common factor when your viewpoint is solely from this side of the ocean. The American across the counter bullion dealer is hard pressed to make this current system work. The old favorites will remain in business but we have already seen a number of closed doors (some for reasons other than demand – fraud for example).

The real future for gold I’m afraid will be defined by China and India – the American buyer will go along for the ride. This long term transfer of gold wealth from the West to the East still has not been developed into a tipping point – but with literally trillions of dollars being manufactured in cyberspace – computer ledger entries really – the price of gold will do what is always does – reflect the true confidence level normal people have in paper money.

A continued confidence vote in the US dollar like we have now and gold will trade sideways to lower. When this confidence moves lower as it always does, gold will once again be in the headlines and making new highs.

This from MineWeb – UBS lowers gold price forecast – "The bank expects the precious metals complex to come under pressure mainly on the back of gold. UBS has downgraded its one and three month forecasts for precious metals, it said in a note on Monday.

“Within a three-month time-frame, we expect the precious metals complex to come under pressure mainly on the back of gold, as market participants anticipate the first Fed rate hike,” the bank said.

The one-month gold price forecast was revised to $1,200 per ounce, from a previous $1,240, while the three-month estimate was altered to $1,170 from $1,200.

It was last at $1,172/1,173, having come under pressure from a stronger dollar.

The dollar found support Friday after US total non-farm payroll employment increased by 295,000 in February and the unemployment rate edged down to 5.5 percent from 5.7 percent, which was significantly better than the forecast for the addition of 240,000 jobs and a 5.6 percent unemployment rate.

“We think some consolidation is now warranted at this point as the market awaits fresh catalysts,” said the bank.

“Seasonality suggests that gold may be vulnerable to the downside up ahead. According to historical patterns, physical demand tends to be slow during this period, but some restocking in China and the anticipation of the Akshaya Tritiya festival in India in late April could offer some support to the market in the weeks ahead, limiting further downside,” it added.

Silver’s one-month forecast was lowered to $16.25 from a previous $17.4, and the three month price was put at $15.8 from $16.5.

Silver is expected to continue to take direction from gold as there are limited internal drivers at this point.

Platinum, which is trading around the lowest since July 2009 at $1,150 per ounce, saw its one-month average downgraded to $1.250 from $1,300 and three month to $1,200 from $1,350.

The previous forecasts, said UBS, were overly ambitious, and while new forecasts reflect a downgrade from previous, they still show uplift from spot.

“This reflects our view that there are decent near-term upside risks after platinum shorts aggressively added to positions in recent weeks and reached an all-time high,” the note said.

Palladium was the only one to see an increase higher, one month was changed to $820 from a previous $800, but three months was downgraded to $790 from $850.

“Although our new one-month price expectation shows a lift from our previous forecasts, relative to spot it reflects more the view that palladium is likely to see some consolidation around recent levels following the sharp rally in late February,” said the note."

Considering the poor technical picture in gold after last Friday's big $31.80 drop I'm surprised UBS is not more negative on this market. This may indicate a general change in background sentiment which includes the new QE European picture into the closely watched physical demand.

Remember that while gold is moving lower in dollar terms it is soaring in value relative to the euro. Like I have said before – who knows exactly where the Europeans are heading with this massive increase in liquidity? Informed commentators think their equities may move higher (like our stock market during QE). This may encourage those in a profit position to take something off the table and hedge their bet in the physical gold market. Remember the Europeans are more likely to seek a gold hedge in uncertain times than their American counterparts. Just something to ponder as the fiat currency genie hurls around the world looking for mischief.

The walk-in cash trade was brisk and so were the phones – the public is especially interested in cheaper prices and may be testing the waters at these levels.

The GoldDealer.com Unscientific Activity Scale is a “ 9” for Wednesday. The CNI Activity Scale takes into consideration volume and the hedge book: (last Thursday – 4) (last Friday – 5) (Monday – 4) (Tuesday – 4). 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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