Commentary for Tuesday, July 2, 2013 – Gold began trading higher for the third day in a row but the stronger dollar would not be denied so gold finished the day down $12.30 at $1243.00. US economic news continues to ignore a few flaws but with Factory Orders up 2.1% and higher car sales for June everyone seems encouraged. Problems in Egypt and the possible overthrow of President Morsi had little effect on sentiment which is hard to believe but probably centers around the fact that most consider the Egyptian military capable and not subject to extreme.
This close of $1243.00 is decidedly above recent low close last week of $1211.00 but gold must rally above $1360.00 before anyone would say the technical downturn is over. GLD holdings have been steady at 969 tons and I think traders are suspicious as to the physical trade at these lower levels and would like to see more action.
Silver closed down $0.26 at $19.30 and even with close trading ranges the physical demand remains steady.
Platinum was the big surprise down $14.00 at $1366.00 despite evidence of robust car sales. Palladium finished the day up $2.00 at $687.00.
This from Chuck Butler (Everbank) is big relative to future Fed Action: “Did you see that the U.S. ISM Manufacturing Index did indeed climb back above 50 in June? Yes, the report yesterday showed an index number of 50.9 (May’s # was 49). This was a good print for the U.S. and the dollar, but in reality, the manufacturing sector has taken such a HUGE hit in the past 5 years, that I just don’t see this sector recovering to what it once was, and the jobs? They’re gone, folks. But don’t let that thought get in the way of a feel good piece of data like the ISM.”
I don’t want to bang on about Federal easing and sooner or later the Fed will cut back which is the big stick hanging over gold at the moment but the job recovery is dismal. And dismal after an unprecedented amount of money has passed from the government sector into the private sector in an effort to turn this recession around. Now couple the specter of rising interest rates if the Fed stops buying its own paper and you see the problem? I don’t have a ready solution but the Fed does have a tiger by the ears and engineering a favorable outcome is tricky. That is why whatever they do it will be done carefully and over a longer period that anyone might think at the moment.
Unwinding this hurricane of paper currency is not so easy especially because the cause and effect scenario can become blurred during a severe recession. At any rate look for continued Fed “tinkering” to help the economy and one way or the other this means continued easing which will support gold through this consolidation.
This longer term advice from trader Kira Brecht (Kitco) is valuable: “Gold has been hammered this week as a deluge of selling emerged from Western traders dumping exchange traded products like ETFs and also from fund managers who sold ahead of quarter-end for book squaring purposes. However, significantly, the yellow metal did touch the bearish triangle target at the $1,200 per ounce level and the downside technical objective has been achieved. Investors have been spooked by talk of U.S. Fed “tapering” or a reduction in level of monthly asset purchases seen each month. However, tapering (which hasn’t even started yet and might not even be seen until December according to some analysts) is not tightening. It is merely the start of a pullback of the Fed’s ultra-loose and extraordinary monetary policy. Gold investors need to remember that holding physical gold is not simply tied to Fed policy. There are numerous reasons to hold gold including simple portfolio diversification. Besides, while the Fed has indicated that tapering of its asset purchases could begin this year, other major global central banks are maintaining ultra-easy monetary policies. The Bank of Japan (BOJ) has hurtled full steam ahead with its “three arrows” program designed to wipe out deflation. The BOJ has enacted monetary policies even more aggressive than the U.S. Fed including outright purchases of exchange traded funds and REITS. The European Central Bank and the Reserve Bank of Australia recently cut rates. Global liquidity remains high. Markets go in cycles and prices never go in a straight line. Picking bottoms in a downtrend is dangerous business. But, this week’s sell-off in gold has achieved an important technical target (the triangle objective at $1,200). Once the quarter-end selling is out of the way, calmer heads will man the trading screens. Gold investors who buy physical gold have long-term time horizons and big picture macro reasons for wanting to own and hold the yellow metal. The gold market remains in the midst of a bear market. The market may have found a floor to stabilize at this week. But, maybe not. Despite that it is important to remember your long-term time horizon, your investment goals and reasons for holding gold. It remains a diversification tool and a hedge against a variety of economic dislocations that may emerge in the future. These include inflation and political instability. Gold is a store of wealth and it is recognized across the globe. A government can’t print more gold and devalue its worth. Longer-term, Chinese and Indian investors are expected to continue building their own personal portfolios of gold as these countries continue to grow and more citizens there rise to the middle class. The demand for gold will be voracious from these countries in the years ahead for reasons having nothing to do with the U.S. Federal Reserve, but more deeply rooted in cultural traditions thousands of years old. Long term gold investors will be best served by keeping their long-term view and perhaps even avoiding looking at gold prices for now. After all as the famous American financier J.P. Morgan said—markets will fluctuate.”
The phone business was not exactly quiet so there is action but again the surprise was the walk in trade which was busy all day with solid two way action. This week however figures to be wonky because Thursday is the 4th of July and domestic markets are closed and traders like long holiday weekends. Still the European markets are in play and subject to mischief so sudden moves higher or lower out of nowhere should not be considered anything more than boys at play. Thanks for reading and enjoy your evening. These markets are volatile and involve risk: Please Read Before Investing
Written by California Numismatic Investments (www.golddealer.com).