Commentary for Thursday, April 16, 2015 – Gold closed down $3.50 on the Comex today at $1198.00.
It could have been better – the dollar was generally stronger in early trading but weakened considerably later in the day. The Dollar Index traded between 97.38 and 98.72 and as of this writing is 97.55 so it is weakening – this alone should have been worth a few bucks north of $1200.00 but it did not happen.
The dollar took a bath today on early news that both housing starts and permits were a “miss” meaning they came in under expectations – housing of course is greatly affected by interest rate policy. If poor housing numbers continue a rate hike becomes less likely. Some see this conundrum as a major argument against any rate hike in 2015 but after initial interest the gold market went back to sleep.
Also keep this in your notebook – we are about to begin discussions about that pesky 18.2 trillion dollar debt ceiling – this has been conveniently ignored for 6 months.
It’s discouraging that gold settled lower in spite of a weaker dollar. Gold also did not react to new concerns over a possible Greek default today. So one would assume that if the Greek dilemma did not come up on the radar today gold would have fared even worse.
Silver closed unchanged at $16.26 and remains unusually quiet.
Platinum was higher by $3.00 at $1158.00 and palladium was up $13.00 at $779.00.
The usual factors which will push the price of gold seem to have taken a short vacation. More trouble in Greece – perhaps even a default – no problem, gold remains steady. The dollar weakens – no problem, gold remains steady. The Iran nuke deal may crumble – no problem, gold remains steady. A spike in Ukraine violence – no problem, gold remains steady. The technical picture for gold is on shaky ground – no problem, gold remains steady. Rumors of a Chinese gold backed renminbi, no problem, gold remains steady.
If you consider the 30 day gold chart you will see the price of gold has flattened out considerably since mid-March and prices have remained trough-like between $1180.00 and $1210.00 This very tight trading zone is actually not bad if you consider the real backdrop of an interest rate hike and the improving US economy.
And as far as physical demand is concerned this $30.00 war zone was enough to convince investors that it was time for caution. The paper traders remain mixed – bulls versus bears – but I think the professionals think the gold market is soft and anticipate lower prices.
The average guy on the street is not a seller at these levels unless he needs the money. We did not even see much tax selling this year – which is unusual. Under normal conditions it would be typical to see a dozen 6 figure trades of one metal for another or simply tax selling with a consideration of reestablishing a position at some future date.
This tax strategy is especially common when prices are flat or little changed because the chance of taking the write off and reestablishing the position is cheap. This year April 15 th planning took a vacation.
So why has everything quieted down? There are still hundreds of billions of dollars in fiat money floating around and the governments of the world continue to inflate their money supplies. The rogue regimes of the world continue to torment those who want to live in peace – and there is always a threat of an oil breach somewhere in the Gulf.
I wonder if gold is acting more each day as though it has reached or is approaching a real bottom – perhaps somewhere between $1140.00 and $1200.00 and we are building a nice base for a summer rally in gold.
This is our usual Thursday Chicago Mercantile Exchange reports for the last 5 trading days – so we are looking at the trading volume numbers for the June Gold contract: Thursday 4/09 (263,692) – Friday 4/10 (264,543) – Monday 4/13 (263,623) – Tuesday 4/14 (265,828) – Wednesday 4/15 (264,256). These numbers remain consistently high so there is plenty of action in both directions.
This from Neils Christensen (Kitco) – No Ammunition For Fed Rates Hikes Will Be Positive For Gold – ETF Securities – Gold held its own during the first quarter in the face of a stronger U.S. dollar and it’s that resilience that could create some momentum if the conversation about potential interest rate hikes turns to “if” from “when,” according to one analyst.
Tuesday, ETF Securities released its Precious Metals Quarter for the first quarter of 2015. They noted that in the first three months of the year, the yellow metal was relatively flat, losing 0.1% in U.S. dollar terms, compared to a 9% gain in the U.S. Dollar Index.
Looking forward, if it proves that the greenback topped out in mid-March on interest rate expectations, Mike McGlone, head of U.S. research at ETF Securities, wrote that gold could eventually revisit $1,400 an ounce.
He noted in the report that the correlation between gold and the fed funds futures is near its historical highs. In an interview with Kitco News, he said that there is growing outlook that the Federal Reserve will be unable to raise interest rates in 2015.
He added that the Fed has said consistently that potential rate hikes will be data dependent; however, most of the recent data has been much weaker than expected.
“The Fed appears to have relatively little actual inflation ammunition to pull the trigger on rate hikes,” he said. “If things keep going the way they are, it will be clear that the Fed won’t be able to hike rates.”
McGlone added that in an environment of weaker economic data, and an uncertain interest rate outlook, it makes sense to have a more diversified portfolio, which should include a portion of precious metals.
“Investors should be prepared for the potential volatility a Fed misfire might have on financial markets. The [European Central Bank] misfired in 2011 and is now focused on Quantitative Easing (QE). The risk of a Fed rate hike misfire is quite high…,” he said.
Silver: The Shining Metal in PM Space – Although McGlone is bullish on gold in the current environment, he is even more positive on silver. In the report he noted that silver gained 6% in U.S. dollar terms in the first quarter.
But even despite these gains, McGlone said silver still looks relatively undervalued.
McGlone added that the investment firm is expecting the gold:silver ratio to fall as it neared 71 at the end of the first quarter. He noted that in December 2014 the ratio was at 78, the highest level since the global financial crisis in 2008.
“The gold/silver ratio is more likely to decline unless prompted by a stumble in the global economy,” he said.
McGlone noted that stronger industrial demand in a low price environment should create long-term potential for the precious metal.
“Lower prices should continue to entice increasing demand for one of the best conductors of electricity,” he said.
Although it is difficult to predict mine supply, as silver is often produced as a by-product, McGlone said that they are expecting to see a strong decline in the “elastic” scrap supply market.
The walk-in cash trade was quiet until around noon then the bus showed up – the downstairs was filled and there was action all over the place. By 3:00 the place was quiet as a church so this market is all over the place. The phones today were below average.
The GoldDealer.com Unscientific Activity Scale is a “ 2” for Thursday. The CNI Activity Scale takes into consideration volume and the hedge book: (last Friday – 3) (Monday – 4) (Tuesday – 5) (Wednesday – 2). 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”.
Our “activity” is better understood from a wider point of view. If the numbers are generally increasing – it would indicate things are busier – decreasing numbers over a longer period would indicate volume is moving lower.
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