Commentary for Friday, July 11, 2014 (www.golddealer.com) – Gold closed off $1.70 at $1337.00 today as talk focused on comments from Federal Reserve insiders as to when an interest rate hike might be in the cards. I suspect they will stay the “low interest rate course” (an emergency mode) until inflation becomes an issue.
The overnight gold markets in Hong Kong and London were flat as a pancake and the domestic market was as well – amazing really considering the escalation in Gaza.
Still the 60 day gold chart tells a bullish short term story. In early May gold failed to hold the $1300.00 and began to test $1240.00 support – then quickly turned around in early June and moved higher placing the bulls in short-term control – moving over $1300.00 and holding on dovish Fed talk and the possibility that inflation was becoming a worry. The recent Gaza tragedy is supporting gold and so is oil over $100.00 a barrel. The precious metals market however remains skeptical – but not overly so and sentiment has improved.
In my mind however we are still in a short-term bullish holding pattern – waiting for the other shoe to drop even though we are approaching highs on the year ($1379.00). If you like gold here – it never hurts to increase your position on weakness. If you are waiting for “cheaper” gold – that is OK too – especially if your core position is in place.
But there are a lot more eyes watching this next attempt at higher prices perhaps above $1400.00. Most would then believe the real bottom of this bear market is in and we could see a flood of smaller to midsize players return – this is the key. As long as volume numbers among real bullion dealers remain uncommitted we will see more of the same up and down market.
So what is causing this financial nervousness? The pop in the price of gold yesterday was sparked by a bond default within a bank in Portugal (Banco Espírito Santo SA). The problem here is that Portugal does not have much oversight in case things go south – and the bank involved is actually owned by a multinational corporation. So this was a wakeup call for Europe – the same as the real estate crisis only in microcosm. Portugal is not going over the cliff and this morning European stocks look steady – but we all know real gold makes a great government foil.
The US stock market has been on a tear because money is cheap but look at the Europeans. Debt levels are ridiculous even though many of their bond rates approach that of the United States. This alone should make your head spin but what has happened? Because their bond rates are low everyone believes they have dodged the bullet – they have not.
You could make this case in the US because we have a real economy. In many countries over there unemployment is 15% and there is no real plan on the table – except a patchwork of debt reduction.
So interest rates better stay low or the dominos could create the next big blow up. And as Europe goes so goes the United States. Note that I have not even mentioned inflation – they – like us have no other option but to create more fiat paper money. Even Japan has the spigot wide open and that is why Central Banks continue to accumulate gold bullion.
As the world economies expand so does their monetary base – but gold reserves remain relatively fixed. And as more paper chases world development the relative value of gold – in terms of that paper must increase. So there remains a high degree of uncertainty in world financial markets and this supports at least a core holding in gold bullion by the small investor. And that core holding will grow quickly if things get out of hand.
Silver closed down $0.04 at $21.41 in quiet trading.
Platinum was off $3.00 at $1512.00 and palladium was up $1.00 at $872.00. Sales of the Baird 1 oz Rhodium Bar ($1280.00) remain solid.
This from MineWeb – MUMBAI (MINEWEB) – “Eagerly awaiting the Indian Budget on July 10 for growth oriented policies, the gold market has come in for some major disappointment. The Union government in India has kept the import duty on gold and silver unchanged at a record 10% in the Budget. While expectations were high that India would cut the gold import duty to 8% from the prevailing 10%, India’s finance minister did not bother to even mention the bullion industry in his budget speech.
The gold jewellery sector is still reeling from the shock of having being completely ignored in this year’s budget, though some said this would amount to a fresh revival in gold smuggling. Manish Kedia, bullion retailer said, “The World Gold Council had earlier said that smuggling would rise if imports remained. The Council’s research at the end of last year had suggested that 75% of Indian households would either continue or increase their current gold buying in 2014. But by ignoring the sector, the government has shown that it is not interested in our problems and that it is not really concerned if smuggling jumps.” The introduction of the curbs last year has ensured that legal gold imports have slid by nearly two-thirds. However, official data from the Ministry of Commerce has noted that “unofficial gold will undoubtedly continue to supplement official inflows.” Many jewellers were hopeful that the government would lower import duties on bullion as well as do away with the 80:20 rule altogether in the budget. However, that has not come through.”
(Kitco News) – Higher gold prices are expected by a majority of survey participants in the weekly Kitco News Gold Survey, following strong technical chart performance and geopolitical worries.
Out of 37 participants, 25 responded this week. Of those, 17 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 mildly bullish for this week. As of 11:30 a.m. EDT, Comex August gold was up about $18 for the week.
Many of those who forecast higher prices next week cite both firm technical chart patterns or expect that gold will hold a geopolitical premium.
“The divergence between copper and crude oil relative to gold has widened to levels not seen since mid-March. This four-month period overlaps Comex gold’s four-month intraday high of $1,346.80 per ounce. More ominously, the divergence spike … repeats a ‘double-peak’ characteristic that preceded the Great Recession and market turmoil following Arab Spring 2011. The witches brew this time includes multi regional conflicts — Ukraine/Russia, Iraq/Syria, Israel/Hamas — re-emerging anxiety about the financial health of Europe’s peripheral countries and concerns about China’s recent import/export data,” said Richard Baker, editor, Eureka Miner.
Those who see weaker prices said if the U.S. dollar strengthens, gold will retreat.
“The market remained in the $1,310-$1,340 closing-basis range as I expected, but with the dollar showing signs of strengthening, I’m inclined to stay with a $1,325-$1,350 range in the week ahead. You can put me in the bearish category for the week ahead,” said Ken Morrison, editor of the online newsletter Morrison on the Markets.
Just a few participants are neutral on the market or see sideways trade.
“I see gold trading unchanged over the next week; it may retest its $1,330 breakout point but should finish near current levels. Gold had a very nice breakout this week but RSI (relative strength index readings) have become overbought, so it may take some time to consolidate the gains as is normal following a big rally. Growing concerns about the European banking sector and (Federal Reserve) Chair (Janet) Yellen’s testimony to Congress, which is likely to … come off as dovish, may keep a floor under gold at a higher level in the near term,” said Colin Cieszynski, senior market strategist at CMC Markets.
The walk-in cash trade was again quiet to moderate. Nothing to write home about and about the same as we have seen since the “days of summer” arrived. Every large physical dealer in the US is telling the same story. The national phones were also mixed.
The GoldDealer.com Activity Scale is a “3” for Friday. The CNI Activity Scale takes into consideration volume and the hedge book: (Monday – 3) (Tuesday – 3) (Wednesday – 2) (Thursday – 2). The scale (1 through 10) is a reliable way to understand our volume numbers.
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