Commentary for Tuesday, July 7, 2015 – Gold closed down $20.50 at $1152.40 today – a technical sell-off really, probably the result of a stronger dollar created by the Greece debacle.
And the China stock market backdrop has everyone nervous – at one point this year up 122% it is now up 36% so the drop has been substantial – worrisome especially because of the behind the scenes work from the Bank of China. The Chinese problem has created a big drop in the price of copper (down another 3.3% today) and has also dragged the platinum group metals lower.
What is gold doing? The 60 day chart reinforces the notion that we have visited these lower prices a number of times. During this time frame gold has moved generally lower from above $1200.00 and settling in the $1170.00 range – yesterday’s close being $1172.90. Gold today closed at $1152.40 so we are once again testing recent lows in the $1150.00 range which we saw in October of last year and again in March of this year. All this should tell you that gold continues technically weak and we might once again test the most recent low of $1148.00 made in March of 2014.
From a technical standpoint on the shorter term the bears are in charge but like I said we have visited this range a number of times and it still remains to be seen if gold will bounce higher supported by physical demand or will we remain defensive and perhaps move lower. If gold once again fails to break to the downside this would further support the bullish notion that we have bottomed and today’s discount from all-time highs will remain steady.
Also keep in mind that in negative markets investors always beat themselves up because a negative expectation rules. Today is a good example – before I made coffee this morning the phones were ringing off the hook – why? Sure the market was down but look at the numbers – they are really no big deal – we closed up $9.90 yesterday so today’s “big” down day really only amounted to a little over a $10.00 change in two trading days and the aftermarket was up another $4.00 so the real short-term change amounted to $6.00 – why all the ruckus?
Remember that gold’s peak close happened in 2011 ($1880.00) and if we compare that to the low close ($1148.00 / March 2014) you get the very nice discount of 40%. Now there will always be those who look for cheaper prices – fair enough, but I believe the reason you see that consistent bounce to higher ground is because this is sufficient incentive for the physical world to take action.
Looking at the price of gold from across our counter we have seen virtually no large selling in our 60 day descent from $1200.00. And I can’t say safe-haven buying has played much more than a supportive role. So it’s not Greece, it’s not oil, it’s not political unrest – the Iran nuclear bad deal has barely been mentioned – it’s not the European Union.
Traders have their complete focus on the US Federal Reserve as minutes from the June FOMC meeting are scheduled for release on Wednesday afternoon.
Just because gold did not react much to the Greek crisis does not mean Greece is not in trouble. And that trouble is closely related to European Union – the result of the collective debt problem can be moved forward but it cannot be solved without drastic change.
Still this poses little immediate threat which can be seen in relative bond yields and no chance of a contagion. The debt problem is not overwhelming but it continues to simmer. Look at bond values – the US yields are a little above 2% – now compare the yields of Italy and Spain around 2.25% with Greece at 18%. If other small EU countries were in trouble their bond rates would not be on par with the United States.
Still most are scratching their heads as to why with all the trouble in Greece gold is not at least threatening $1200.00?
Like I suggested this past week, gold is kept on the defensive because of the perfect trifecta – the great Federal Reserve rate hike – a growing China problem and a dollar which remains stubbornly strong (the Dollar Index above 96.00 for a week and today moving above 97.00).
This from Barry Norman (FX Empire) – Gold Traders Preparing For Federal Reserve Moves – Gold showed very little reaction to the weekend headlines on the Greek referendum and the intensified possibilities of Grexit, in fact it was just about the opposite gold traders sold off the commodity sending prices down over $4 during the day on Monday. Late in the US session after news from the ECB some traders moved to the safety of gold as the precious metals turned to the green. But Tuesday morning told the story as traders sold gold again pushing down prices by $6.30 to trade at 1166.90 leaving gold flat over the past weeks trading. Later today, all the parties will begin meetings and intense negotiations which most believe will bring an end to the Greek situation. Silver fell 100 points this morning to 15.653 and platinum was flat at 1063.45 showing little market stress. In fact prices are pointing to a total disinterest in the ongoing negotiations.
Data showed that the hurdle for a lift-off in rates is quite low, but the pace will be very gradual. The FOMC’s 1.9% growth forecast for this year implies average growth of 2.5% during Q2-Q4 and according to the “dots” this is good enough for at least one rate hike.
While the FOMC appears to be ready to lift rates relatively soon, maybe before September, the Committee is collectively trying to shift market focus to the pace of tightening and promising that it will be very gradual.
This message is expected to be reinforced in the FOMC minutes; with the caveat that “gradual” is not the same as the “measured” pace of tightening during the 2004-2006 tightening cycle. Yellen communicated this during the press conference, insisting the rates are not on a pre-set course and the path will be adjusted as the data evolves.
The speed of the tightening cycle might be being tied to the labor market and inflation. Things to look for in the FOMC minutes include any additional color on the timing of the lift-off and any discussion on how to communicate ahead of the first rate move.
In other metals copper continued to decline falling to a multi-month low at 2.528 as problems brewing in China weigh on metals demand, while Chinese stockpiles continue to climb. Industrial metals were also pulled lower after top base metals consumer China rolled out emergency measures to halt the stock market’s slide. Chinese shares have fallen as much as 30 percent since June due in part to the economy growing at its slowest pace in a generation. The news triggered a sell-off in steel and iron ore futures, as investors worried that slower economic growth may hurt demand for materials used in infrastructure and building.
Silver closed down $0.75 today at $14.97. This place has been a zoo all day and the big action is in silver bullion. The US Mint announced delays in delivery of product and premiums on the $1000.00 Face 90% Silver Bag continue to rise – when I first pointed this out premiums on 90% bags were around $2.50 an ounce over spot – today they are $3.25 over spot and we can sell every bag we can get our hands on – so demand remains solid even at these higher rates.
Platinum closed down $24.00 at $1044.00 and palladium closed down $3.00 at $652.00. Platinum is now trading at $108.00 below the spot price of gold. Product availability remains steady but we did a lot of Baird Platinum bar 1 oz – there really is not a lot of this stuff in dealer’s safes but there is also no big rush to trade gold bullion for platinum bullion which I think makes sense. The price of rhodium closed down $25.00 at $775.00 and we are selling the popular Braid Rhodium 1 oz bar for $905.00 delivered – they are in stock.
This from Associated Press – Greek PM Tsipras races to restart talks after vote win – Greek Prime Minister Alexis Tsipras heads Tuesday to Brussels, where he will try to use a bailout referendum victory to obtain a rescue deal with European leaders. Tsipras faces intense pressure from creditors abroad and banks at home who all demand what Greece lacks: money.
As the Greek leader readied proposals to restart bailout talks, the situation was complicated by the European Central Bank’s refusal late Monday to increase assistance for Greek banks desperately needing cash and facing imminent collapse unless a rescue deal is reached.
A supporter of the No vote waves a Greek flag in front of the parliament after the results of the referendum at Syntagma square in Athens, Sunday, July 5, 2015. Greeks overwhelmingly rejected creditors’ demands for more austerity in return for rescue loans in a critical referendum Sunday, backing Prime Minister Alexis Tsipras, who insisted the vote would give him a stronger hand to reach a better deal.
A hastily called meeting of eurozone finance ministers is slated for Tuesday afternoon, and a full summit of the leaders of the 19 euro countries was to be held that evening.
With Greece’s future in the European Union and its euro currency at stake, a Monday meeting between German Chancellor Angela Merkel and French President Francois Hollande in Paris set the tone for the Brussels talks.
“Time is of the essence,” Merkel said afterward. “(Greek) proposals have to be on the table this week.”
Tsipras scored a bigger than expected win in Sunday’s bailout referendum, with 61 percent of voters rejecting the economic measures creditors had proposed in exchange for loans Greece needs to remain afloat, including further cuts to pensions.
In a sign of compromise, Tsipras appointed a new finance minister to lead talks with creditors and replace Yanis Varoufakis, who clashed with his European counterparts.
Euclid Tsakalotos, a 55-year-old economist, has appeared more willing to engage with creditors. He will be tested as soon as Tuesday, in Brussels.
“I won’t hide from you that I am very nervous and very anxious. I am not taking over at the easiest moment in Greek history,” Tsakalotos said after being sworn in.
Greek banks are running out of cash even after the government placed limits on how much depositors can withdraw. The ECB has been providing emergency credit to the banks, but on Monday said it could not increase the amount offered because the banks’ collateral was weaker now, after the “no” vote.
Normal commerce is now impossible in Greece. Small businesses, lacking use of credit cards or money from bank accounts, were left to rely on cash coming from diminishing purchases from customers. But Greeks are holding tightly onto what cash they have. And suppliers are demanding that businesses pay cash up front.
In Paris, Merkel and Hollande both expressed respect for Greek voters, but urged swift action from Athens.
“I stress that there is not lots of time left. There is urgency for Greece. There is urgency for Europe,” Hollande said.
Spanish Prime Minister Mariano Rajoy said that if Greece is to remain part of the eurozone, it needs to enact reforms that will spur economic growth and pay off its debt.
“We’re inclined to help Greece but Greece must follow Europe’s rules,” he said in an interview on Spain’s Telecinco evening news program.
The ongoing Greek drama hurt stocks around the world, particularly in Europe. The losses were not as great as some had feared, however, suggesting investors think that a possible Greek exit from the euro would be manageable for the global economy, though devastating for Greece and destabilizing in Europe.
“The ‘no’ vote in Greece’s referendum on Sunday dramatically increases the risk of a slide toward a disorderly Greek exit from the eurozone,” ratings agency Fitch said. “An agreement between Greece and its official creditors remains possible, but time is short and the risk of policy missteps, or that the two sides simply cannot agree on a deal, is high.”
Tsipras has agreed to imposing more harsh austerity measures, but he wants eurozone lenders to grant the country better terms for bailout debt repayments.
“The prime minister is … committed to starting a fundamental debate on dealing with the problem of sustainability of the Greek national debt,” a statement signed by the government and three pro-European opposition parties said in a rare sign of solidarity.
Greece, after years of crippling recession and spiraling unemployment, has already been granted 240 billion euros in loans from other eurozone countries. But the spending restraint demanded as a condition for the loans hurt economic growth, and reforms to make Greece more business-friendly have been slower than hoped. European officials remain split on Greece’s demand for easier debt repayment — with lead eurozone lender Germany still reluctant.
James Nixon, chief European economist at Oxford Economics, said there’s “a narrow trajectory from here that sees an emboldened Greek parliament accepting the need for reform in return for a debt write-down.”
“The next 48 hours will be crucial.”
The walk in cash trade was crazy most of the day – once again silver bullion takes center stage – Monster Boxes, 90% Silver Bags and all the usual suspects. The phones were also busy – the usual story – not much in the way of selling and there has been a broad range of interest.
And there was another line at the back door. We apologize for the wait and by the way your animals are welcome in the store – no need to wait in the car especially in the summer months. We also provide fresh water for them.
The GoldDealer.com Unscientific Activity Scale is a “ 9” for Tuesday. The CNI Activity Scale takes into consideration volume and the hedge book: (last Wednesday – 7) (last Thursday – 7) (closed last Friday) (Monday – 7). 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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