Commentary for Friday Sept 13, 2013 (www.golddealer.com) – Gold closed lower again today down $22.00 at $1308.40 which makes for a loss of $78.00 on the week. Which presents a conundrum when you consider the PPI for August represents a nearly 4% inflation rate and add that retail sales came in at a much less than expected number.
So today’s continued losses are driven by the expectation that the Fed will taper next week and yesterday’s break below gold’s 100 day moving average ($1358.00) made the bears happy.
Silver closed down $0.43 today at $21.67 and is now also trading below its 100 day moving average ($21.78). Of course a completed head and shoulders formation for both gold and silver did not help the mood on the trading floor going into the weekend.
Platinum was up $2.00 at $1446.00 and palladium was up $6.00 at $698.00.
So short term what is in store for gold? Don’t be surprised to see some bounce next week in prices as real physical demand reasserts itself. And remember the reason gold has been around for 5000 years is simple: it withstands any assault and is real money.
And now the famous Kitco Gold Survey: Out of 36 participants, 21 responded this week. Of those 21 participants, 10 see prices up, while 11 see prices down and one is neutral. Market participants include bullion dealers, investment banks, futures traders, money managers and technical-chart analysts. Last week, more than half of the market participants were bullish. As of noon EDT Friday, prices on the week were down about $72 on the week. As of Aug. 30, survey participants have been correct three of the past five weeks. Many of the survey participants who expect higher prices said they’re taking a contrarian view of what may occur next week at the two-day Federal Open Market Committee meeting, which concludes Wednesday. The consensus is that the Fed will cut at least a token amount, anywhere from $10 billion monthly on the low end to $20 billion on the high end. Currently the Fed is buying $85 billion a month in U.S. Treasury and mortgage-backed securities. Survey participants with contrarian viewpoints, or who think the Fed might not taper as much as expected, said gold could see a knee-jerk reaction higher as the sell-off going into the meeting has been swift. “I’m going to go out on a limb here and say higher next week,” said Charles Nedoss, senior market strategist with Kingsview Financial. Nedoss said even if the Fed tapers as expected, there’s a chance gold could bounce up on a “buy the rumor, sell the fact” trade on the idea that so many market participants have sold gold ahead of the meeting. Plus, Nedoss said, as did other survey members, that the negotiations on ridding Syria of its chemical weapons are not a done deal. “There is still some event risk tied with that,” he said. Those who see weaker prices said they expect gold to continue its weaker trend as they foresee the Fed starting to unwind its stimulus program. Some also say with more bullion banks and other forecasters calling for lower gold prices – some as low as $1,000 – sentiment in gold is bearish. Richard Baker, editor of the Eureka Miner Report, said he expects gold prices to fall next week, and he’s targeting $1,295. This week’s weakness came as traders removed risk premium related to Syria and on the tapering expectations, he said. “Gold is also threatening to test its July low relative to S&P 500. Importantly, the yellow metal physical demand from Asia has also disappointed during a season that is typically very strong…. Even though the taper may be mild or delayed, QE3 is likely to continue for some months to come and will further erode gold’s value to key commodities,” he said.
I will dispense with the Friday 13th jokes and pose a question: Could traders be taking the taper conversation too seriously relative to gold. I appreciate a significant taper might effect stocks (note the word might) but would say it pays to remember the smart commentaries which claim the taper “result” is overblown perhaps even hyped. So would it be too much out of line to suggest that a modest taper (relative to gold) might produce a rather large yawn after the initial “chicken little” scenario plays out. I am not completely sold on this notion but it might be out of the box enough to get some traction.
This Bloomberg article (Torres and Kolet) is worth reading: Fed Message Muddled as Misunderstood Taper Meets Slowing Growth – “As a central bank, you are lowering your growth forecast, inflation is running low, and hiring is slowing and you are going to taper you asset purchases?” said Julia Coronado, chief economist for North America at BNP Paribas in New York and a former member of the Federal Reserve Board forecasting staff. “That is a communications challenge.”
Both the walk in cash trade and phones were active but not busy so I think the public is still watching and wondering. The strictly cash trade is gaining some momentum and real selling is at a minimum. My informal and nonscientific dealer survey shows that national interest is gaining momentum so we appear better off than the last time I called the physical boys and asked what they were selling. No shortages anywhere in the honest trade.
A word to the wise regarding certified bullion coins. Let’s be careful this section of the market will blow up sooner than later.
The CNI computers place my almost famous LA Physical Trade Business Number at an improving “5”. For those who have asked this scale is actually based on combined volume numbers and anything over “5” would be relatively busy.
Everyone likes treasure but finding treasure is more fun than buying treasure. CNI is giving away (no purchase necessary) a dandy metal detector on our Facebook page: to enter the contest just “like us”. Of course this is a shameless self promotion but the detector is the real deal (Garrett) like the ones used on the reality TV show Diggers. So like us on Facebook and follow us on Twitter @CNI_golddealer. Thanks for reading and enjoy your evening. These markets are volatile and involve risk: Please Read Before Investing
Written by California Numismatic Investments (www.golddealer.com).