Commentary for Thurs, Aug 7, 2014 – Gold closed up $4.10 today at $1310.80 after trading relatively flat overnight holding the $1305.00 level. Yesterday’s rise in gold happened because there was talk of pushback over further Russian sanctions.
Here is what happened according to Forbes – “Russia has escalated an economic battle set off by the crisis in Ukraine with a ban on all food imports from the U.S. and on fruit and vegetables from the European Union, dropping any pretense this might be for food safety reasons.
The import ban, reported by state news agency RIA Novosti on Wednesday, comes after Russian President Vladimir Putin ordered retaliation for Western sanctions against Moscow.
Russia is a major buyer of European fruit and vegetables but ranks 23rd among buyers of food from the U.S., accounting for less than 1 percent of America’s farm exports.”
How this relates to the internet stories that such a move develops the case that the Russians are going to invade Ukraine escapes me – even if they are building up troops on the border.
Gold traded very flat over-night in the Hong Kong and London markets holding the $1305.00 level into domestic trading. It remained flat during early trading in the US but developed a small upward bias towards the end of the trading day probably in reaction to ECB President Mario Draghi comments that “interest rates will remain low for an extended time.”
The December 2014 COMEX Gold contract is the most active future month and provides insight into how “hurried” or “not hurried” traders become over world events.
Volume of paper contracts traded for the previous 5 days is as follows: Thurs 7-31 (143,363) – Fri 8-01 (144,988) – Mon 8-04 (67,872) – Tues 8-05 (150,683) – Wed 8-06 (160,366).
These volume numbers are consistent except for the drop off on Monday so activity among traders is typical.
Like I said yesterday the upward pop in the price of gold was a welcomed follow through especially because yesterday’s close was above all of gold’s moving averages (50 day – 100 day and 200 day) but the overnight market in Hong Kong went flat – holding gains but not much more and so we should look at the 60 day price chart for gold.
Since mid-June the $1320.00 overhead resistance looks formidable – so if gold cannot really break to the upside – the short term technical picture still encourages the bulls but may be only temporary. The flatness of the price graph after yesterday’s strength worries me in that we have broken the downward generally negative trend seen since mid-July but seem to have run out of gas for the present.
A guess at this point would be that gold could break either way depending on what Russia actually does about further sanctions. An escalation in the already tense world situation could trigger a further run to the upside – not just technical short covering but real safe haven buying.
If this does not happen gold will continue to wander between $1250.00 and $1350.00. The good part of this latest scenario is that much of the negative talk about gold has taken a back seat for the moment. Let’s be patient and see how this latest move may develop.
For now gold remains on the financial back burner. But there is a cadre of folks looking for the next Black Swan to push the price of gold to a new record high. Some are looking for inflation or some variation on the 2008 financial meltdown to place gold back in the spotlight. Some consider a flight to quality begun in Europe because changes were not possible. Let’s add this post from John Morgan to the list of possibilities.
MarketWatch’s Arends: Beware the Sizzling US Corporate Debt Bomb (John Morgan) – Investors should watch out for the explosion of a corporate debt bomb because U.S. business borrowing and debt is at perilous levels, according to MarketWatch columnist Brett Arends.
America’s non-financial businesses have racked up the kind of debt that would wreck most households. Corporate debt is equal to 50 percent of businesses’ actual net worth — far above their historic averages, Arends noted.
“All that talk you hear about how corporate balance sheets are in great shape is a bunch of hooey,” he wrote. “Corporations borrowed $993 billion just in the first quarter of this year. Corporate debts have actually doubled since 1999. ”
By Arends’ estimation, investors should be wary of the bond market just as they are worried about the high-flying stock market.
Another set of telling statistics, this time from the Federal Reserve’s own data: In 2007, at the peak of the last credit binge, U.S. nonfinancial corporations owed $7.2 trillion. Today, after years of easy money and artificially low interest rates, they owe $9.6 trillion.
“For the past five years, U.S. corporations have been living in a financial paradise. Interest rates have been on the floor. Wages have been flat,” Arends noted.
“Companies have been able to lay off workers and slash costs. Profits have skyrocketed to record levels. And they’ve spent almost nothing on new capital equipment, either.” Arends conclusion is that U.S. companies have used their profits and their debt in recent years to drive up their own stock prices.
A shakeout in the junk-bond market, where corporations have piled some of their least attractive borrowings, is sparking fears those securities increasingly could be hard to unload, The Wall Street Journal reported.
Investors yanked more than $5 billion in July from U.S. junk-bond mutual and exchange-traded funds, according to Lipper, a fund tracker, raising concern that the recent selloff could intensify.
“Everyone is hoping to be first through the exit,” Matt King, global head of credit strategy at Citibank in London, told The Journal. “By definition, that’s not possible.”
Veteran economist Ed Yardeni, chief investment strategist at the eponymous Yardeni Research, is also cautious about U.S. corporate debt, in part because Fed rate hikes eventually lie ahead.
“The US economy appears on my worry list only indirectly and only because it is performing well, showing no signs of a recession,” he wrote on his blog. “A rush out of corporate bond funds could be one of the consequences with recessionary consequences, or maybe not. It’s something to watch.”
Silver closed down $0.03 at $19.95 – again in quiet trading.
Platinum pushed higher by $17.00 at $1482.00 and palladium was up $8.00 at $856.00. This upward pressure on prices may be the result of continued problems in South Africa as strikes and earthquakes have hurt production.
Mine owners are also publicaly second guessing whether mining can still be profitable – an old canard usually reserved only for the strikingly rich.
This comment from Chuck Butler (Everbank) is worth noting – “Well, the U.S. Data Cupboard printed the June Trade Deficit yesterday, and instead of increasing it weakened from $44.7 Billion to $41.5 Billion. Now, this looks good on the outside, right? I mean the Trade Deficit weakened, what could be bad about this? Ahhh grasshopper, this is where the markets, and pundits get this stuff all wrong. You see, this drop in the deficit wasn’t caused by an increase in exports that outweighed imports. No, it was caused by a huge drop in imports. Uh-Oh! That means consumers aren’t buying. Now, this very well could be a one-month blip, and things get back to normal in July. But for now, the markets should be worried that the economic engine in the U.S. has stalled.”
The above should remind us all that promises from Uncle Sam about economic recovery should always be watched carefully. They are probably right and the numbers support improvement – but remember the warnings which come from many legitimate economists – excessive quantitative easing creates problems.
The walk-in cash trade was average today and so were the phones…nothing special here especially when you consider recent rises in the price of gold.
My guess at this point is that the public is aware of higher prices but there is not enough concern to move the big needle when it comes to buying.
The GoldDealer.com Activity Scale is a “3” for Thursday. The CNI Activity Scale takes into consideration volume and the hedge book: (last Thursday – 2) (last Friday – 2) (Monday – 2) (Tuesday – 3) (Wednesday – 4). The scale (1 through 10) is a reliable way to understand our volume numbers.
Email confirmation using a PDF File when buying or selling is functional. It also includes the various forms of payment and includes bank wire instructions. And you can now see your actual invoice or purchase order on your computer screen.
When you buy or sell please check to see if we have your current email on file and that your computer will accept our email (no spam).
About shipping information – when buying or selling your rep will walk you through your current mailing information. Thanks for keeping us up to date if you have moved.
Our four flat screens downstairs with live independent pricing (BullionDesk.com) are a big hit with the cash trade. Live pricing moves all the buy/sell product prices on a real time basis. Yes – you can visit the store with cash and walk away with your product. Or you can bring product to the store and walk away with cash. When buying from us remember if you exceed $10,000 in cash (the real green kind) a Federal Form is necessary.
In addition to our freshly ground organic coffee offered visitors throughout the day we have added cold bottled water, cokes and Snapple. We have also added fresh fruit in a transparent attempt to disguise our regular junk food habits – which seem to grow when things get this quiet. And it does not help that the world famous Randy’s Donuts is just down the street.
Like us on Facebook and follow us on Twitter @CNI_golddealer.
Thanks for reading from your friends at GoldDealer.com and enjoy your evening.
Disclaimer – The content in this newsletter and on the GoldDealer.com website is provided for informational purposes only and our employees are not registered financial advisers. The precious metals and rare coin market is random and highly volatile so it may not be suitable for some individuals. We suggest before deciding on a course of action that you talk with an independent financial professional. While due care has been exercised in development and dissemination of our web site, the Almost Famous Gold Newsletter, or other promotional material, there is no guarantee of correctness so this corporation and its employees shall be held harmless in all cases. GoldDealer.com (California Numismatic Investments, Inc.) and its employees do not render legal, tax, or investment advice.