Commentary for Wednesday, April 1, 2015 – Gold surged today up $25.00 on the Comex to close at $1208.10. This was a surprise even to insiders – although there has been some positive talk as the technical price picture for gold improves.
The weaker jobs number of course suggests the Federal Reserve may delay the expected interest rate increase. There are other economic factors which also suggest that a rate increase is not the wisest of moves even though our economy is improving.
But I have been saying for some time that a mild interest rate hike will not be a big deal both for gold and the economy. The raising of interest rates mantra has taken the place of the end of quantitative easing mantra. When the US QE spigot was turned off the subject had been talked to death and the results were underwhelming. The same thing will happen with an interest rate hike.
Let’s look at the Moving Averages – 50 DMA $1214.00 – 100 DMA $1210.00 and the 200 DMA $1235.00. Today’s close of $1208.00 is solid psychologically because we are above the important $1200.00 level. And while such a large move to the upside is encouraging we are still short of moving above the 100 DMA ($1210.00).
Any move to higher ground in confirmation of today’s surge will make the bulls smile on the short term. Gold still has some heavy lifting to do as we see a great deal of overhead resistance on either side of $1250.00. Still Bank of America’s higher gold call earlier last month may yet be prophetic as the price of gold remains sensitive to any change in the current Fed model.
This from Paul Davidson (USA Today) – ADP’s March job gains miss estimate by 36,000 – Some economists are bracing for a disappointing employment report this Friday after a closely watched reading on private-sector job growth fell well below estimates.
Private payroll processor ADP said Wednesday that businesses added 189,000 jobs in March, far short of the 225,000 net additions projected by economists’ median forecast.
If ADP’s total roughly holds up after revisions, it would mark the first time since January 2014 that ADP has reported monthly net payroll additions below 200,000.
Many analysts expect payroll growth to moderate this year after notching breakout gains of 260,000 a month in 2014 amid a plunge in energy prices that supported consumer and business spending. This year, a strong dollar is dampening exports and low oil prices have sparked energy industry layoffs and capital investment cuts.
“Job growth took a step back in March,” said Mark Zandi, chief economist of Moody’s Analytics, which helps ADP compile the report. “The fallout from the collapse in oil prices and surge in value of the dollar is hitting the job market.”
Economists surveyed by Action Economics predict the Labor Department’s employment survey coming Friday of both private and public sectors will show 248,000 payroll additions, following 295,000 gains in February.
JPMorgan Chase economist Daniel Silver says the tepid ADP report increases the risk that Labor’s tally will fall short of the firm’s forecast of 250,000 job gains.
ADP attempts to foreshadow Labor’s report. Last year, its initial estimate differed from Labor’s initial private-sector tally by a median 23,000 jobs a month, according to an analysis by High Frequency Economics. But ADP has been a less reliable indicator so far this year. Its estimate was off by 54,000 in January and 76,000 in February, the research firm said.
In March, ADP said, small businesses added 108,000; jobs; midsize ones, 62,000; and large companies, 19,000. Professional and business services led the job gains, with 40,000. Trade, transportation and utilities added, 25,000; construction, 17,000. Manufacturing fell by 1,000.
Silver closed up $0.46 at $17.04 so silver remains reactive to gold. Also keep in mind that just because you may have missed silver’s recent bottom do not get stubborn about buying the physical metal. If gold runs silver will also run and the pop to the upside will surprise. Consider today’s price and figure the discount to silver’s old high is 65% – that’s a big deal and with that much savings on the table – who cares if you missed the recent bottom?
The new Canadian Red Tailed Hawk (1 oz) is in stock at $2.55 per ounce over spot and the Perth Mint Tunnel Webbed Spider (1 oz) is in stock at $2.60 over spot.
This from Ed Steer’s Gold and Silver Daily (Casey Research) – “The U.S. Mint had a sales report for the last trading day of the month. They sold 2,500 troy ounces of gold eagles – 1,000 one-ounce 24K gold buffaloes – and another 314,000 silver eagles.
For the month of March, the mint sold 46,500 troy ounces of gold eagles – 9,500 one-ounce 24K gold buffaloes – and a very healthy 3,519,000 silver eagles. Based on these sales, the silver/gold ratio works out to just under 63 to 1. I would guess that JPMorgan, or other large buyers, own more than half of all the silver eagles produced this year, as they’re not being purchased the general investing public.
Year-to-date [Q1] the mint has sold 12,071,000 silver eagles – 146,000 troy ounces of gold eagles – and 56,000 one-ounce 24K gold buffaloes.”
The above comment is interesting as it relates to the silver bullion trade. Obviously the US Mint continues to produce millions of Silver Eagles and from time to time dealers wonder just where all these coins are going. There are a number of usual suspects – overseas buyers, the American public, coin dealers and brokerage houses.
So let’s consider general distribution – at the beginning of the year coin dealers used to purchase large numbers of freshly minted Silver Eagles and send them to the grading services (PCGS and NGC). This avenue for a time was popular because the public liked the idea of a graded coin being perfect. The general idea however is nonsense because all of these coins are pristine and grading them produces no rarity. Telemarketers use this tactic to exploit the uninformed and sell graded coins at ridiculous prices. Most of this grading nonsense is now history – the public has moved on and certified bullion products have become a dust bowl of near zero premiums.
Overseas buyers are still active but the Austrian Mint products like the Silver Philharmonic probably will win the popularity contest in Europe.
I guess you would include the ETF (Exchange Traded Funds) action here under brokerage houses – this could be significant.
So with lower silver prices you might assume that Monster Boxes are being gobbled up right here in the good old US by American investors. So I looked at our Silver Monster Box (500 coins) sales and found that last year we were steady most of the months – no spikes or valleys. And the first three months of 2015 began at last year’s levels and moved up about 10% a month through March. So the American public is buying more now than the final quarter of last year – at least from us. And I think we are pretty much a mirror of all larger dealers – when we are busy everyone is busy and when we are slow there really is not much going on elsewhere.
Still Ed Steer’s comment claiming that more than half of these newly minted coins are being bought by the big brokerage houses is interesting. There are more efficient ways of investing in silver than Monster Boxes especially for big players like JP Morgan – so I wonder what they are doing with all these Silver Eagles?
Finally consider that storage of these boxes – for the average across the counter investor the Monster Box is a win-win because you are talking about 5 or 10 boxes. But how does a commercial house like JP Morgan store millions of coins?
Just something to think about over your morning coffee – but one thing is sure – US Mint Silver Monster Boxes (500 coins) are disappearing as fast as the US Mint can produce coins. And the same is true of the Canadian and Austrian Monster Boxes.
Platinum also followed gold higher up $22.00 at $1165.00 and palladium was up $13.00 at $748.00. It is still a scramble to find any significant supply in the physical platinum bullion market.
This is our usual ETF Wednesday information – Gold Exchange Traded Funds: Total as of 3-25-15 was 52,255,983. That number this week (4-1-15) was 52,060,294 ounces so over the last week we dropped 195,689 ounces of gold.
The all-time record high for all gold ETF’s was 85,112,855 ounces in 2013. The record high for Gold ETF’s in 2015 is 54,094,507 and the record low for 2015 is 51,057,082.
All Silver Exchange Traded Funds: Total as of 3-25-15 was 620,275,105. That number this week (4-1-15) was 616,601,590 ounces so over the last week we dropped 3,673,515 ounces of silver.
All Platinum Exchange Traded Funds: Total as of 3-25-15 was 2,579,675 ounces. That number this week (4-1-15) was 2,575,414 ounces so over the last week we dropped 4,261 ounces of platinum.
All Palladium Exchange Traded Funds: Total as of 3-25-15 was 2,880,574 ounces. That number this week (4-1-15) was 2,895,179 ounces so over the last week we gained 14,605 ounces of palladium.
This from Kira Brecht (Kitco) – Eastern Demand Remains Key Driver for Gold Long Term – The latest Gold Investor report from the World Gold Council highlights the importance of Eastern gold demand in the overall marketplace. China, India and Southeast Asia account for 59% of all global gold demand, according to the World Gold Council.
Demand from this region in the world is a timeless tradition with much older and deeper roots that Western demand. There is a cultural affinity in the East to gravitate toward gold as a vehicle to store, preserve and grow wealth.
While we are currently in the rising US dollar environment, the World Gold Council report highlights the lack of impact of the level on the US dollar on Eastern gold demand. “Non-dollar gold demand is not overly sensitive to dollar movements. Gold demand outside the US has no clear-cut link to dollar movements,” according to the World Gold Council report. In recent decades the Asian global gold demand has grown significantly. See Figure 2 below, via the World Gold Council.
Additionally, the World Gold Council highlighted the dynamic that the world is moving toward a multi-currency world.
The US dollar is the world’s reserve asset currency right now, but history shows that there are shifts. In previous centuries, the Venetian ducato was a reserve currency, and then the Dutch Guilder was a reserve currency, which shifted over to the British pound sterling and now the dollar.
Another important trend to consider in relation to the global economy on a longer-term basis is the declining dollar share as a part of global reserve assets. Simply put, global central banks are diversifying away from the US dollar toward other currencies and also toward gold. Since 2000, the dollar’s share of global reserves has fallen from 61% to 55% in 2014, according to the World Gold Council. Meanwhile, the euro’s share increased from 15% to 22% and currencies including the Canadian and Australian dollar are also gaining as a percentage of global reserve assets. Interestingly, the Canadian and Australian dollar also have ties to the gold market via mining.
Two takeaways for long-term gold investors are that: 1) the majority of the world’s gold demand emerges from the East, which is less dependent on the level of the dollar and 2) the dollar is declining as a percentage of global reserve assets.
Don’t underestimate the power and influence of the rising East when it comes to gold.
The walk-in cash trade was active but not hurried and the phones were steady.
The GoldDealer.com Unscientific Activity Scale is a “ 6” for Wednesday. The CNI Activity Scale takes into consideration volume and the hedge book: (last Thursday – 5) (last Friday – 6) (Monday – 3) (Tuesday – 5). 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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