Commentary for Friday, Fed 6, 2015 – Gold closed down $28.40 at $1233.90 on the Comex today but flattened out into “steady” to slightly higher in the aftermarket as the dollar headed for higher ground.
Gold took a vacation this morning as the government released its much heralded Jobs Report – which suggested that an even better than expected picture would lead to the dreaded short-term interest rate hike. The Dollar Index was steady in early trading around 93.52 before the numbers were released – about mid-morning after the news release it moved to a high of 94.60 before settling at 94.54. Stocks also loved the news as gold moved to a 3 week low.
I think the selloff in gold was expected because earlier in the week the ADP numbers hinted at something big on Friday. And as I said yesterday gold’s failure about $1300.00 and narrow trading range since suggests lower prices were in the making.
Also note that gold paid no attention to news that the Russians continue to add to their stockpile. The World Gold Council announced that Russia recently added 20.70 tonnes to their holding and the price of gold yawned.
Because of these factors and we have moved below gold’s 200 Day Moving Average ($1251.00) the bears are back in charge and gold is now in another defensive posture.
Also keep in mind my “boogie man” principle relative to higher interest rates – the bad news (good news if you are unemployed) is out but physical demand will step up to the plate as gold winds down from gains this year. This demand includes real double threats like the Lunar New Year and lower interest rate tariffs in India – so the downside – like the upside earlier this year is overstated – and as of this writing the phones here in the store are very active – all buyers.
Silver followed gold lower off $0.51 at $16.67. It is important to note that over half of the silver produced is used in industrial applications – the other half is sought out by the jewelry trade and investors. This dynamic paints a much different picture than we see in gold and the lower entry level creates an interesting dynamic. Everyone can play so as we reenter the $16.00 range the physical silver bullion action heats up.
Platinum was down $28.00 at $1223.00 and palladium was down $12.00 at $783.00.
Our Patented Employee Survey – Gold’s Direction Next Week?
Of course it’s not really patented but we do have some fun along the way. This is what the GoldDealer.com employees think – 7 believe gold will be higher next week – 5 think gold will be lower and 1 believes it will be unchanged.
Our Patented Customer Survey – Gold’s Direction Next Week?
Like the employees our customers were given three choices – up – down – unchanged. We limited the survey to a random sampling of 100 transactions – unscientific but worth considering because these people took action: 37 people thought the price of gold would increase next week – 41 believe the price of gold will decrease next week and 22 think prices will remain the same.
Precious Metal Closes & Dollar Strength – Feb 2 – 6
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From the Wall Street Journal (Josh Mitchell) – Jobs Report: U.S. Adds 257,000 Jobs; Unemployment Ticks Up to 5.7% – WASHINGTON – U.S. employers hired steadily last month and workers’ wages picked up, suggesting the labor market is nearing full health and boosting the likelihood of the Federal Reserve raising short-term interest rates this year.
U.S. nonfarm payrolls grew by a seasonally adjusted 257,000 jobs in January, the Labor Department said Friday. And job creation was far stronger in prior months than previously thought, with the government raising its estimates of new jobs in November and December by a combined 147,000. November’s reading of 423,000 jobs added marked the strongest month of private-sector hiring since 1997.
The unemployment rate, calculated from a separate survey of households, climbed to 5.7% in January from the prior month’s 5.6%. The rate rose because the labor force grew as more Americans searched for jobs, a sign of growing confidence among households.
And in a closely watched development, the average hourly wage of private-sector workers rose 0.5% from December, above the market expectation of a 0.3% rise. Wages are up 2.2% over the past year, a sluggish pace historically but a notable pickup from prior months.
The figures boosted expectations among analysts that the Fed will proceed as early as this summer to raise short-term interest rates. Rates have been pinned near zero since the recession in efforts to kick-start the economy.
“In one line: Employment growth is astonishingly strong,” Pantheon Macroeconomics chief economist Ian Shepherdson said in a note to clients. “It will have consequences for the Fed.”
Many analysts said the report could nudge the Fed to lift interest rates at its June policy meeting.
Economists surveyed by The Wall Street Journal had expected payrolls to rise 237,000 in January and the jobless rate to fall to 5.5%.
Analysts at Janney Capital Markets noted, “January’s employment report overcame 100mph headwinds of oil, the dollar, and post-holiday cuts to post the strongest jobs showing in years.”
But the labor market still faces hurdles, including troubles in the global economy and cuts in the energy sector tied to the sharp drop in oil prices.
The monthly jobs numbers are volatile, and the January figures are likely to be revised in coming months. But the broader trend suggests a pickup in job growth in recent months. The report suggested employers maintained enough confidence to keep expanding in 2015 following the best year of job growth in 15 years, even as other reports suggested the broader U.S. economy lost a step at the end of 2014.
The government reported last week the economy expanded 2.6% in the final three months of 2014, about half of the third quarter’s blowout 5% rate. That largely reflected global developments—slower growth in Asia and Europe, along with the strengthening dollar—that hurt U.S. exports and boosted imports.
Chicago Mercantile Exchange reports for the last 5 trading days – so we are looking at the trading volume numbers for the April Gold contract: Thursday 1/29 (289,233) – Friday 1/30 (295,256) – Monday 2/02 (294,668) Tuesday 2/03 (291,548) and Wednesday 2/04 (287,541). Trading volume remains on the high side – so three is plenty of action.
This from Reuters (Tom Polansek) – Ending an era, CME Group to shutter most futures pits – (Reuters) – The world’s largest futures market operator will shutter almost all of its open-outcry futures pits by July 2, ringing the closing bell on a once-raucous tradition that has been in decline since the rise of computerized trading.
The decision by CME Group Inc (CME.O), announced on Wednesday, ousts traders of products ranging from grain and livestock in Chicago to gold and oil in New York. Once the only way to buy or sell a futures contract to hedge against price moves, open-outcry trading is now only 1 percent of total futures trading volume, according to the exchange operator.
Options pits, which have stayed active in the face of electronic trading, will mostly remain open in both cities. CME is expected to provide more details on its decisions when it reports quarterly earnings on Thursday.
Traders had braced for the closures of the futures pits after watching more and more business migrate to machines over two decades. Still, many said they were disappointed the day had finally come and felt uncertain about the future.
“We all knew it was going to end,” said Jerry Israelov, who has spent 25 years in CME’s open-outcry pits in Chicago, including the last 10 years trading wheat futures. The closures will mark the end of an era for the futures industry, which built itself around the pits in Chicago. Traders made and lost fortunes there and treated the trading floors like a schoolyard.
When markets were slow, typically around the holidays, pit traders would find other ways to entertain themselves, like making bets on how many cheeseburgers or chicken nuggets a clerk could eat in a few minutes. And when conflicts arose, they sometimes came to blows, earning their reputations as a rough-and-tumble group.
“My best memory is 20 years ago when it was much busier. The pits were vibrant,” said Scott Shellady, who is in his 28th year of trading and wears a trademark cow-patterned jacket on CME’s agricultural floor in Chicago.
The walk-in cash trade was moderately busy and the phones were active all day. We are also seeing an uptick in the physical buying of gold. Normally when gold prices move lower the phones get quiet – this was not the case today so perhaps the public senses opportunity. Keep in mind however we need to get this “interest rate” question resolved before a solid bottom in gold can be established. Once it’s generally conceded that gold has bottomed this market will attract more speculative money – so watch the ETF numbers.
The GoldDealer.com Unscientific Activity Scale is a ” 4” for Friday. The CNI Activity Scale takes into consideration volume and the hedge book: (Monday – 3) (Tuesday – 2) (Wednesday – 4) (Thursday – 3). 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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