Commentary for Monday, Fed 9, 2015– Gold closed up $6.90 on the Comex at $1240.80 – not much of a comeback from Friday’s shellacking and the Dollar Index came in around 94.50 – flat most of the day.
Considering Germany and the US are in conference about arming the Ukrainians against the Russian backed fighters I would have expected more gusto.
Silver followed gold up $0.38 at $17.05.
Platinum was down $1.00 at $1222.00 and palladium was down $3.00 at $780.00.
A reminder that we will be closed this Monday the 19th for President’s Day – the same is true for the US commodity markets, the Post Office and the banks.
The Chinese Lunar New Year begins on February 19 th and this is usually good news for gold but there have been some rumblings Asia’s exports were disappointing in January and so economists are somewhat skeptical relative to this normally solid gold buying season.
Always a chuckle from Chuck Butler (EverBank) – Koos Jansen reported on Google+ that the amount of Physical Gold withdrawn from the Shanghai Gold Exchange (SGE) for the month of January was 255 tonnes, up 4% from the record amount in January of 2014. Let’s see 255 x 12 would be 3,060 tonnes IF China continued to accumulate Gold at this pace for the year. That’s crazy, and there’s no way that will happen, for the world’s output of physical Gold is only about 2,000 tonnes. But since the U.S. Gov’t gets to play games with numbers I thought I would too! See? It’s easy, go on make up your own number game!
The fact that gold has sold off above $1300.00 is obviously a technical negative – and this failure at the higher levels also takes all the oxygen out of the room when it comes to the physical, across the counter market. But the longer this up and down rhythm continues the less “weak hands” – those not convinced gold is a reasonable bet.
This is an important dynamic within what I consider to be the lower end of gold’s trading range. At this point those who have not already sold are more likely not to sell and simply wait this latest consolidation out.
On the short term the bears are back in charge – waiting for a resolution about interest rates. This too is uncertain but the bear case remains the stronger of the two possibilities. Consider however that while the main upward trend in gold above $1300.00 has been broken there remains a positive upward price channel which is still in place. And there is solid price support around $1220.00 going back to early December of 2014.
So is today’s close at $1240.80 a “dead cat bounce” or light bargain hunting? It looks like the former to me – but remember we are at the lower end of the consolidation pattern and “lower” prices are relative. Meaning the closer to a real bottom we get the less relative price adjustment the investor should expect.
The big negative for gold at the present is that pesky potential rise in interest rates by the Federal Reserve because our economy seems to be recovering. But sometimes Washington is the proverbial River City so doing something is much harder than saying something – and raising interest rates willy-nilly will make the dollar even stronger.
This from MarketWatch (Steve Goldstein) – What Yellen says this month could hurt corporate profits – A number of companies are already complaining about the impact of the U.S. dollar on their profits, and it might get worse depending on what Federal Reserve Chairwoman Janet Yellen says later this month.
That’s the nub of a research note from Steve East, chief economist and market strategist at Height Securities. He looked at the dollar’s impact on corporate profits, using both GDP and trade data.
The most recent data on corporate profits for the entire U.S. economy is only available through the third quarter. (Fourth-quarter data will come on March 27.)
Receipts from the rest of the world accounted for 28% of gross corporate profits. Between the second and third quarters, the dollar DXY rose over 4%, and yet, receipts from the rest of the world actually rose, East noted.
That suggests that companies hedged the currency moves, that other factors dwarfed it, or that it takes some time for currency fluctuations to impact the economy. DXY, -2.6%
East also examined the dollar versus the trade deficit excluding petroleum, to get a sense of whether foreign competitors of American competition are obtaining market share here in the U.S. The trade gap excluding petroleum has widened to $31.8 billion from $26.7 billion between June and December. If that widening is annualized, that’s $61 billion in forgone revenue, or assuming a 12% profit margin, $7.4 billion in lost profits, he says.
Putting the two figures together — the rest of the world receipts, as well as the impact to domestic businesses – East arrives at a potential drag on profits of 3.9% for the 12.7% appreciation in the dollar between June and January.
Positives for gold are still important for the longer term accumulator – the short term speculator being gone long ago.
The volatile situation in Greece – they could repudiate debt and exit the European Union. Not likely but possible and getting out is much more difficult than getting in.
The defined European Central Bank quantitative easing program looms large although there are some who believe it will not have the same results as we have seen in the United States.
The still unresolved Russian/Ukraine problem and the Jordan retaliation for the ISIS murder frame all of these uncertain outcomes. But all of this is secondary to a possible monetary deflation worldwide. This fear keeps the printing presses running 24/7 and so my bet is that while gold is still bottoming – once the bottom is in the result will be easily seen worldwide.
I would not sweat the day to day up and down prices we have seen in gold. Take advantage of broad moves to the downside, but if a generally weak gold market bothers you simply step aside and wait – gold’s long term story has yet to be told.
This from RT Question More / Ed Steer’s Gold & Silver Daily – World record debt of $199trn could drag economies into another crisis – study – Global debt has soared by $57 trillion since the outbreak of the financial crisis in 2007, with the debt to GDP ratio jumping to above 500 percent in Japan. This raises questions about financial stability and poses a threat of another crisis.
“After the 2008 financial crisis and the longest and deepest global recession since World War II, it was widely expected that the world’s economies would deleverage. It has not happened. Instead, debt continues to grow in nearly all countries, in both absolute terms and relative to GDP. This creates fresh risks in some countries and limits growth prospects in many,” according to new research carried out by consultants McKinsey in 47 countries.
The amount of world debt reached $199 trillion at the end of 2014, with the growth rate exceeding the pace of global economic expansion and the debt to GDP ratio increased from 269 to 286 percent.
“Higher levels of debt pose questions about financial stability and whether some countries face the risk of a crisis.”
“We conclude that, absent additional steps and new approaches, business leaders should expect that debt will be a drag on GDP growth and continue to create volatility and fragility in financial markets,” the McKinsey report says.
Deleveraging remains limited to a handful of sectors in some countries. The only countries that managed to cut their debt were Argentina, Romania, Egypt, Saudi Arabia and Israel.
Geographically, Ireland was the country where the debt to GDP ratio saw a record increase – of 172 percent. The ratio in Japan added 64 percent and remains the world’s highest at 400 percent. In Russia, the debt to GDP ratio saw a moderate growth by 19 percent, remaining relatively low at 65 percent.
China is one of the key concerns as debt there has skyrocketed almost quadrupling, from $7.4 trillion in 2007 to $28.2 trillion in mid-2014. The debt-to-GDP ratio reached 282 percent comparing to 269 percent of the US. Although total Chinese debt is still manageable, experts are concerned with worrisome levels of debt in the property sector and the rapid expansion of shadow banking.
“China’s total debt, as a percentage of GDP, now exceeds that of the United States.”
Falling debt in the financial sector and a retreat in many of the riskiest forms of shadow banking are the only bright spots in the report. But the overall global debt burden “has reached new levels despite the pain of the financial crisis,” the report said.
Households across the world have also significantly increased their debt, with their debt relative to income having decreased in only five advanced economies – the United States, Ireland, the United Kingdom, Spain, and Germany. In such developed countries as Australia, Canada, Denmark, Sweden and the Netherlands, as well as Malaysia, South Korea and Thailand, the debt exceeds the pre-crisis level.
To avoid another crisis, the governments might take recourse to new ways of reducing the national debt such as larger sales of assets, non-recurrent wealth taxes and more effective programs of debt restructuring, the report said.
“Policy makers will need to consider a full range of responses to reduce debt as well as innovations to make debt less risky and make the impact of a future crisis less catastrophic.”
This from Customs Today ( SharpesPixley) – Four big Swiss refineries process 70% of global gold, Russia store 55 tons of gold in Switzerland – MOSCOW: Russia stored 55 tons of gold in Switzerland last year. A staggering 70% of global gold is processed by just four big Swiss refineries: Valcambi, Argor Heraeus, Pamp and Metalor. Raw gold, often of low purity, is refined, melted down and recast into smaller bars in the country.
While calming down considerably from the torrid pace of previous years, the movement of physical gold and silver from West to East continues unabated.
ETF investors in the US and other developed markets offload their gold holdings allocated to them and held in the UK, where most of the world’s gold vaults are to be found.
Then the bullion is shipped to China and India and other growing gold consuming nations in Asia led by Vietnam and Indonesia.
Evidence of the dramatic slowdown in these flows come from new export statistics from Swiss customs officials which show the European nation’s gold exports falling 37% in last year compared to 2013, according to Goldreporter.de.
According to Swiss trade statistics published this week, Switzerland exported 1,746 tonnes of gold worth $65 billion Francs (just over $70 billion). The decline is also due to the fact that 2013 was a banner year for Swiss refiners – exports topped 2,777 tonnes, worth a whopping $132 billion. The decline in the average price of the metal in 2014 and the strong franc, meant that the Swiss also received less for their bars – with the average price per kilogram pegged at $40,334 versus last year’s $47,459.
Russia is the world’s second largest producer of gold behind China.
Roughly a third of Switzerland’s imports came from the UK, followed by the US with 211.5 tonnes. As expected India was the top importer with 471.2 tonnes, followed by Hong Kong and China which combined topped the subcontinent with 590 tonnes. Singapore was third with 134 tonnes. The flows of Russian gold raises questions (if not eyebrows): Russia exported 58.3 tonnes to Switzerland, but only 2.6 tonnes made its way back into the country.
The 55 tonnes of Russian gold that stayed behind is worth some $2.3 billion. Goldreporter asks the question: “Are they stored in the high security vaults in the Swiss Massif Central?”
Russia is the world’s second largest producer of gold behind China, with an estimated 272 tonnes mined last year – an increase of 9% from the year before. Switzerland produces no gold itself. In 2012 an Alpine village turned down a $1.2 billion project which would’ve been the country’s first and only gold mine.
The walk-in cash trade was fairly busy today – mostly on the average to small side – no whales. The phones were steady but not busy – some new customer questions are encouraging.
The GoldDealer.com Unscientific Activity Scale is a ” 4” for Monday. The CNI Activity Scale takes into consideration volume and the hedge book: (last Tuesday – 2) (last Wednesday – 4) (last Thursday – 3) (last Friday – 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”.
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