Commentary for Friday Oct 18, 2013 – Gold closed down $8.40 today at $1314.40 so paper traders took a bit off the table going into the weekend but gold did have a good week being up $46.00.
Third quarter Chinese Gross Domestic Product (GDP) came in at 7.8% so larger than her second quarter (7.5%) but some feared a slowdown. So the recent Chinese threat goes out the window which bodes well for all commodities including gold. I think the American buyer still does not understand how big China is in the physical market. They mine and keep all they produce, they are huge importers and in fact since 2008 demand has increased 350%!
And gold demand from India has doubled in the same time period. So I get the question with all this Asian demand for gold why aren’t we heading higher? Gold is going through a titanic demographic change and the large economic shift behind this growth takes time to mature. Believe me the Chinese and Indian trade is just beginning to move and ultimately will dominate prices.
Silver was quiet today down $0.03 at $21.87 and also finished the higher by $0.66.
Platinum was up $3.00 at $1437.00 finishing the week $28.00. Palladium was also higher by $4.00 at $740.00 up $28.00 on the week and the only precious metal in the green so far this year.
It looks like a bit of profit taking for gold today after yesterday’s big short-covering rally. Still the safety-hedge aspect of gold is reasserting itself but my bet is that gold will remain range-bound and resume the same trading pattern we have seen since early October: $20.00 either side of $1300.00 so a $40.00 spread in relatively lackluster activity. The Congressional decision regarding spending is perfectly timed to make sure we don’t run into a problem with consumer spending for Christmas.
The stock market is wound up and ready to set new highs making President Obama’s term almost as good as that of Ronald Reagan and Barack does not seem that interested in Wall Street. Something about that does not make sense to me but there is a great deal about Wall Street and the gold market which remains to be seen.
And now the famous Kitco Weekly Look into the Crystal Ball: (Kitco News) – “Participants in the Kitco News Gold Survey are split over their view on gold’s direction next week, given the sharp rally on Thursday and some nervousness ahead of the expected release on Tuesday of delayed U.S. employment data. In the Kitco News Gold Survey, out of 34 participants, 25 responded this week. Of these, 10 see prices up, while seven see prices down and eight see prices sideways or unchanged. Market participants include bullion dealers, investment banks, futures traders and technical-chart analysts. Last week, a majority of survey participants were bearish. As of noon EDT Friday, December gold on the Comex division of the New York Mercantile Exchange was up about $47 for the week. Those who see higher prices next week said they believe gold will benefit from investors who are rethinking their views of the U.S. government and the dollar after another last-minute deal by Congress to fix a stalemate. Late Wednesday, U.S. Democrats and Republicans agreed to a temporary lift of the debt ceiling and to reopen the government. “A weak dollar, no tapering (of quantitative easing by the Federal Reserve) and lack of confidence in the U.S. after the three-week drawn-out budget and debt ceiling arguments produced nothing of substance other than the parties agree to fight again in January,” said Ira Epstein, director of the Ira Epstein division of The Linn Group. Those who see weaker prices said nothing with gold’s price outlook has changed now that the congressional stare-down is over, while others said the Thursday rally has made gold seem a bit pricey. Sterling Smith, futures specialist at Citibank Institutional Client Group, said he is bearish.”The excitement from the government deal is passing and gold should be returning to its path of least resistance, which is downward,” he said. A number of survey participants said they were either neutral on the market, wanting to wait until after the nonfarm payrolls report to get back into gold, or they said that gold will continue in a sideways range. Spencer Patton, founder and chief investment officer of Steel Vine Investments, said gold is likely to spend part of next week consolidating “its large gains from this week” and he said that could mean the market could set itself up for a rise. Darin Newsom, senior analyst, Telvent DTN, said he’s sticking with sideways, saying next week’s direction is a “tough call.” Gold and the U.S. dollar index could consolidate next week, “waiting for next technical signals,” he added.” I believe this get together on the debt ceiling will stop the gradual unwinding of the paper gold market and place an artificial floor on prices until investors get a clear picture of what will be done with quantitative easing. According to CNBC – Citi says next “hard” debt ceiling deadline is in March – “When the debt ceiling is lifted, it not only pushes back the date when the U.S. will reach the limit—it also restarts the clock on the “extraordinary measures” that Treasury can use to keep things chugging along while lawmakers pummel each other. According to Citigroup’s Andrew Hollenhorst, the current deal would move the hard deadline until March 2014. Based on press reports, the short-term debt ceiling extension expected to be passed by Congress would suspend the debt ceiling until February 7. However, Feb. 7 would only be a “soft” deadline since Treasury would then be able to engage in “extraordinary measures” to open up “headroom” under the debt ceiling. These measures may be worth around $200 billion of additional debt capacity. Based on a rough estimate, described below, we think the new “hard” debt-ceiling deadline, when Treasury is at risk of being unable to pay all its obligations, is likely to be in March 2014.”
Now look at the price of gold over the last year: It topped in the $1700.00 range in October and November of 2012 and was technically weak until July of 2013 hitting what appeared to be a hard bottom in June. Then made a run at $1400.00 (quantitative easing news) and settled around $1300.00 waiting for fresh news which turned out to be the debt ceiling talks. My feeling is that because Congress just moved the hard financial decisions to March of 2014 gold will continue to bounce around current levels waiting for resolution in the first quarter of next year.
Up or down is impossible to say at this point (before this latest decision my bet was a gradually lower market eventually supported by physical demand) but this delay could mature into an entirely different outcome for gold. If in March we go through the same kind of uncertainty and possible default gold could find that new energy it dearly needs as the stock market makes new highs.
I still don’t expect a charge to higher ground at this point but gold is back to its traditional role as “protector against crazy government decisions” and could develop nicely as the New Year brings further quantitative easing, more big spending, and further financial challenges both here and in Europe.
The walk in cash trade was off a bit today but the phones were steady including one very large gold bullion order and the most popular gold bullion choice was the US Gold Eagle. Silver bullion sales were just average (virtually no sellers) with the US Silver Eagle and 1 ounce silver rounds coming in about the same this week. Our new CNI Activity Number will take into consideration volume, open and closed orders (buying and selling), the cash trade, and the hedge book: (Thursday – 4) (Friday – 5). The scale is 1 through 10 (5 being relatively busy and this approach considers today’s business so it will be more intuitive). We believe this is a reliable way to give you an idea of what a real bullion business is doing without the sales pitch.
Phase One of our new golddealer.com web site will soon be complete (Oct 28th best guess) and includes a new look along with live pricing. It will also include Live Chat, you will be able to set up your own customer account, and you will receive automatic email confirmation on buying or selling. Look for further improvements before year end which makes accounting, shipping and tracking easier (check to see if we have your email in the new system). We now offer the choice of USPS or FedEx Ground.
Our new flat screens within the CNI Building are up and operational and the cash trade loves this idea. The feed and graphs are live and bullion products are programmed with premium spreads so your choices are easier. There is nothing like this on the West Coast and visitors enjoy complete transparency when buying or selling.
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Written by California Numismatic Investments (www.golddealer.com).