Commentary for Friday, June 20, 2014 (www.golddealer.com) – Gold closed higher by $2.50 going into the week at $1316.20 with little fanfare after Thursday’s big jump of $41.30. The aftermarket yesterday was up more than $6.00 so today’s higher price is more settling than follow through excitement.
I think professionals really expected some profit taking in gold considering the market has been generally higher since the beginning of the month. On the week gold finished higher by $43.00 and is now solidly above the important $1300.00 level and technically short-term the bulls are in charge. In the last 3 weeks gold has advanced 5.7% and silver has advanced 12.2%.
The generally higher short-term trend in the price of gold was reinforced by Yellan’s dovish comments earlier in the week claiming interest rates would remain low because inflation remains subdued and the US is still struggling economically.
The fact that the gold price broke through all three key trading averages motivated what short players were left to cover their positions and move to the sidelines adding more excitement to the higher prices rally. From here gold faces solid overhead resistance in the $1350.00 range so most will expect some profit taking and perhaps “backing and filling” action with an eye towards Iraq and the price of oil.
From Peter Hug (Kitco) – What A Day – “Careful what you ask for. The momentum of yesterday’s move was reminiscent of 2011, and I must admit that my figures yesterday morning indicated at $1,292 test with a possible peak at $1,300. Gold blew through every resistance level, until finally running out of steam, at the significant $1,322 range. Some profit taking after a $40 move was to be expected, with gold this morning hovering at the $1,310 level. Silver’s move was extraordinary, putting in a plus print in excess of $1.10 during intra-day trading. This move in silver was extreme primarily because the silver price, relative to gold, was massively undervalued. The cause was most likely a large hedge fund moving capital into a safer space against the back drop of Iraq, and the growing sentiment that the equity markets are looking heavy. But this was not human intervention. The initial pop forced resistance lines to buckle and computer buying was engaged against stops placed by the sleeping bears. The technical picture now looks substantially improved, with all of the daily moving averages taken out. The question will be: will this translate into renewed physical demand? If the funds continue to deploy capital back into the metals, the current physical supply will be deleted in short order. But, a word of caution: the jury here is still out.”
What every commentator wants when prices are moving higher is confirmation. Of course it’s good that gold and silver popped higher yesterday but what is on everyone’s mind is of course whether gold has bottomed?
Saying gold is cheap at the lower end of its current trading range is relatively safe – but saying we can finally call a bottom to this very long unwinding process in gold is another matter. And the reason most will not call a bottom (“the jury is still out”) is because the only thing gold really has going for it now is massive currency expansion.
Now don’t get me wrong – there is plenty of evidence and long standing theory that such fiat money expansion leads to inflation which pushes gold higher. CNBC this morning claimed coffee prices are up more than 40% this year and our own Ed Hodson who knows something about restaurants claims that wholesale food prices are up substantially.
My first job was sacking groceries and I don’t have to tell you that going to the grocery store will have you scratching your head. But mainstream America is stuck – what do they do if the cost of living moves higher? Work harder – put in more hours? They are really on the receiving end of poor government planning but unless the press begins to hammer out real inflation numbers the public pushes on with life.
The seeds of future inflation are already sown into continued low interest rates. The longer “cheap money” continues to be mainstream the more obvious the end result.
And drastic monetary policy leads to other distortions. Yes – drastic is a good word for a Federal Reserve that has created really cheap money since 2008.
I am amazed at the number of billion dollar acquisitions happening on Wall Street because of cheap money. Leveraged buyouts are common – even if they don’t make sense – half of the rise in stock prices is the result of companies buying their own shares – and yet there is little commentary or any red flags. So what does this tell you?
And expansive monetary policy is not the only problem. BEIRUT (AP) — The United Nations refugee agency says that at the end of last year, more than 50 million people have been forced from their homes worldwide, the highest figure of displaced since World War II.
The daunting number is also a stark reflection of the ongoing conflicts and persecutions from Syria to South Sudan. The number includes refugees and asylum-seekers who fled abroad as well as people displaced within their own countries.
These are some of the factors that will set the stage for the next blow-up. And just like no one saw the mortgage melt-down or dot.com collapse coming few will be prepared for the next large scale calamity.
We already have the next perfect storm staring at us – it reminds me of the ingredients which came together in 1929. I am not saying the stock market is going to collapse – the point is that with too much “expansionary cash” deal makers take chances they would not necessarily attempt if the money spigots were not wide open.
So back to when will anyone call a real bottom in gold? It’s easy to say the jury is still out – but I think they won’t be out for long.
(Kitco News) – A strong majority of participants in the Kitco News Gold Survey forecast higher prices next week, as many expect the yellow metal to build on momentum uncovered this week.
Out of 37 participants, 26 responded this week. Of those, 18 see higher prices, six see lower prices and two see prices trading sideways or are neutral. Market participants include bullion dealers, investment banks, futures traders and technical-chart analysts.
Last week, survey participants were bullish for this week. As of 11:30 a.m. EDT, Comex August gold was up about $42 for the week.
“The gold market has finally woken up to the fact that the Federal Reserve is going to continue to be very accommodative. Fed Chairwoman Janet Yellen herself (made) clear that any interest hikes are some time into the future and inferred that higher inflation is not a real concern of hers. So gold jumped after the (Federal) Open Market Committee meeting put out its statement and continued rallying. Iraq supports gold but is not the primary reason gold has moved up,” said Adrian Day, chairman and chief executive officer of Adrian Day Asset Management.
Ole Hansen, head of commodity strategy at Saxo Bank, echoed similar views.
“The triple combination of a slightly more dovish Fed, the crisis in Iraq and the technical break back above the 200-day moving average leaves the door open for higher prices next week. A strong silver close this Friday could signal a break above the downtrend from 2011 and that could spur this metal on to further gains,” he said.
Those participants who call for weaker prices next week said considering the rally came so swiftly, a pullback might be in order. Additionally, they noted little physical demand on the move higher, which has been a problem plaguing gold for a few months now.
“I can see by the gold forward rates that the buying was coming from the hedge fund/spec (speculative) community and not the physical buyers. The physical buyers have actually turned slight sellers at these levels. The buying on Thursday seemed to me to be panic short covering. A settlement above $1,325 should attract some aggressive buying from the fund sector but until them I remain slightly bearish at these levels,” said Kevin Grady, owner Phoenix Futures and Options LLC.
A few participants who are neutral on prices said they believe gold needs to consolidate the current gains before it can make its next move.
The walk-in cash trade was actually less than average which is surprising. Considering the strong aftermarket action yesterday I was expecting more excitement. The phones were steady most of the day and while volume numbers are moving higher the split between buyers and sellers remains about 50/50.
The GoldDealer.com Activity Scale is a “4” for Friday. The CNI Activity Scale takes into consideration volume and the hedge book: (Monday – 5) (Tuesday – 5) (Wednesday – 6) (Thursday – 5). The scale (1 through 10) is a reliable way to understand our volume numbers.
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