Commentary for Wed, Jan 21, 2015 ( www.golddealer.com) – Gold finally closed down virtually unchanged – off $0.50 at $1293.70. But the action was telling because in early trading it saw follow through momentum from yesterday’s big move to the upside. At one time gold reached $1307.00 before profit taking set in and the market lost its mojo.
The profit taking part of this market was expected. Around the 26 th of December gold began the push to higher ground which eventually placed the bulls in charge on the short term.
And within three weeks gold had broken out – above its falling tops line so technically things were improving very fast. This latest run above $1300.00 was prompted by the usual suspects: possible Greece default, Swiss Franc capitulation relative to the euro and more importantly the European Union claiming to define their quantitative easing plan.
This places about $125.00 profit on the long side of the board – finally – after being beat over the head from the short trade (Feb through Nov of 2014). I’m actually surprised we have not seen more profit taking but a dire Europe and the Swiss capitulation did get everyone’s attention.
This short term price wobble was created when 2 ECB members discussed plans to buy bonds in March. The European Central Bank would purchase some 50 billion euros worth of bonds per month until the end of 2016. This is the first concrete plan discussed that would begin monetary stimulus in Europe and the plan might be officially announced on Thursday.
I would be careful about making assumptions relating to this announcement. Gold may have rallied on the rumor and could easily sell off on the fact given the strength of the dollar. Most recent commentary has called the expected ECB quantitative easing to be a boon for gold but consider what happened to gold after our own balance sheet was inflated by 4 trillion dollars.
At this point I’m still suspicious – there is plenty of gold moving into China and India but this is a much larger plan. Both these countries like cheaper gold and have infinite patience.
I do like the gold bottom for now – a weaker euro will support additional safe haven buying in Europe. And it’s encouraging to note that all the Exchange Traded Numbers moved higher relative to the numbers we posted last week.
Silver closed up $0.23 at $18.17 so continued strength should lead to some profit taking.
Platinum closed down $10.00 at $1277.00 and palladium was also off $10.00 at $768.00. Note that the price of platinum is now $16.00 below the price of gold. It’s important to note that the Canadian Mint is the only one producing a platinum bullion coin. The US Mint (US Platinum Eagle) and the Perth Mint (Australian Platinum Platypus) have stopped production.
This update from Reuters – Financial markets have been nervous about Thursday’s ECB meeting, at which the bank is widely expected to unveil a quantitative easing programme, and a Greek election on Sunday, which polls suggest anti-bailout party Syriza will win.
Adding to worries, the IMF on Tuesday cut its forecast for global growth in 2015 to 3.5 percent from 3.8 percent, and called on governments and central banks to pursue accommodative
monetary policies and reforms.
Gold gained despite stronger equities and the dollar, and a weaker yen, another safe-haven asset.
Improving investor confidence was seen in the holdings of SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund. The fund saw holdings jump 1.55 percent to 742.24 tonnes on Tuesday.
For Wednesday’s trading cues, investors will be watching news from Japan, where the central bank is set to make a statement after a two-day rate review. The Bank of Japan is under growing pressure to increase its already massive stimulus programme as slumping oil prices drag inflation away from its 2-percent target.
In other industry news, Zimbabwe’s gold mining firms are making losses due to weak bullion prices and could collapse unless the government reduces royalties for producers, the Chamber of Mines said. Striking South African miners at Northam Platinum’s biggest mine agreed to return to work, ending a week-long work stoppage, the National Union of Mineworkers said on Tuesday.
This is our usual ETF Wednesday information – Gold Exchange Traded Funds: Total as of 1-14-15 was 51,456,351. That number this week (1-21-15) was 52,748,150 ounces so over the last week we gained 1,291,799 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 52,748,150 and the record low for 2015 is 51,440,553.
All Silver Exchange Traded Funds: Total as of 1-14-15 was 618,588,033. That number this week (1-21-15) was 623,259,897 ounces so over the last week we gained 4,671,864 ounces of silver.
All Platinum Exchange Traded Funds: Total as of 1-14-15 was 2,620,944 ounces. That number this week (1-21-15) was 2,626,983 ounces so over the last week we gained 6,039 ounces of platinum.
All Palladium Exchange Traded Funds: Total as of 1-14-15 was 3,042,215 ounces. That number this week (1-21-15) was 3,043,495 ounces so over the last week we gained 1,280 ounces of palladium.
This from Sharps Pixley (David Smith) – China’s Undisclosed Gold Reserves: A Dagger Pointed at the Heart of the Dollar – China has a 4-way global gold supply domination strategy. And it’s starting to corner the market.
First, China buys physical gold in world markets, fabricates it where necessary into “good delivery” bars – in Switzerland or the Middle East – then ships the bullion, transparently through Hong Kong or Shanghai (or quietly through Beijing and other ports of entry).
Second, it keeps virtually all domestically mined gold “in house.”
Third, China partners with or buys high grade, in-situ gold (and silver) projects around the globe. One of the most well-known recent actions has involved negotiations to partner with Barrick Gold on its massive cost-overrun-plagued Pascua Lama project, which straddles the Chilean-Argentine border.
Most recently, China’s largest gold producer, Zinjin Mining Group, made a strategic investment in Pretium Resources’ high-grade Brucejack gold Project in northwestern British Columbia to the tune of $80 million. This latter investment will facilitate eventual construction of a 2,700 tonne-per-day underground mine.
Fourth, and virtually impossible to quantify with a reasonable level of accuracy, are China’s efforts to purchase “off the books” gold production from what are known as informa or artisanal gold miners in Africa and South America. This gold, which will never show up on an import manifest, nevertheless adds one more acquisition stream to the literal river of bullion flowing directly into the coffers of China’s golden hoard.
U.S. intelligence advisor Jim Rickards, author of The Death of Money, recounts an episode told to him by a friend who is a senior officer of a high-security transporter of physical metals who had brought gold into China at the head of an armored column, guarded by heavily-armed troops.
One of these days, at a time of its choosing, China may reveal just how much gold it does hold, alongside a possible decision to enable a newly gold-backed currency, the Yuan, to make its debut on the world’s financial stage. Such an event would have profound implications for the primacy of the U.S. dollar, as well as America’s ability to continue running printing press deficits, long financed by Chinese purchases of U.S. debt instruments, to the tune of several trillion dollars.
When this event takes place, it will become evident to the world’s financial players that, as Rickards so poignantly remarks, China’s true gold reserves will have become “a dagger pointed at the heart of the dollar.”
Most Westerners fail to appreciate the methodology by which China has traditionally pursued – and often successfully achieved – its geopolitical ends.
Have you ever wondered how billionaires continue to get RICHER, while the rest of the world is struggling? “I study billionaires for a living. To be more specific, I study how these investors generate such huge and consistent profits in the stock markets — year-in and year-out.”
China is “surrounding” the global gold supply, analogized by this “seki” from the game known as “Go.” China’s strategies are oriented from the perspective of many years or even decades, unlike Western governments, who often judge success or failure based upon quarterly or annual progress reports. They are not likely to be concerned if the Pascua Lama project is not in production 10 years from now. They know that the gold – and silver is in the ground, so it’s just a question of when – not if – they can acquire a substantial amount, adding it to their continually-growing stash.
Some Westerners are familiar with a Japanese board game of strategy called “Go.” Few know that this game actually originated in China more than 2,500 years ago. Though the two player game has fairly simple rules, the number of possible games is several times that of chess. The objective is to outmaneuver the opponent, surrounding the largest area of the board with one’s own stones.
China Is “Surrounding” the Global Gold Supply – In the figure above, a situation known as “seki” or “mutual life” has taken place. The player with the black stones – labeled here as the Chinese currency, the Yuan, has positioned in such a way that if its opponent moves first – in this case, the U.S. dollar, he will be captured.
This Go board move offers an excellent analogy for the U.S. dollar competition with the Chinese Yuan. In order to be “dethroned,” the dollar does not have to be eliminated from global currency completion. It may not be necessary for China – using chess terminology – to fully checkmate the dollar. Instead, simply relegating it to “first among equals” might be enough to effectively cripple its historic full-spectrum functionality, because at that point, the Federal Reserve would no longer have the ability to issue unlimited, un-backed, U.S. dollar-denominated debt instruments.
A Game of Stones and Silk – “Surrounding” global gold production is just one aspect of China’s grand strategy for achieving political and economic dominance in Central Asia and beyond. The revitalization of modern-day trade routes, throughout direct spheres of influence, integrated with connections into Europe – once known as The Silk Road – is well underway.
Think of this term as a plural. These “roads” will see Chinese companies investing along their paths in dozens of countries, a significance that is almost impossible to overestimate.
Pepe Escobar, the roving correspondent for Asia Times/Hong Kong, describes it this way: The Yiwu-Madrid route across Eurasia represents the beginning of a set of game-changing developments. It will be an efficient logistics channel of incredible length. It will represent geopolitics with a human touch, knitting together small traders and huge markets across a vast landmass. It’s already a graphic example of Eurasian integration on the go. And most of all, it’s the first building block on China’s ‘New Silk Road,’ conceivably the project of the new century and undoubtedly the greatest trade story in the world for the next decade.
Meanwhile, the systemic issues which drove gold to $1,900 and silver to almost $50 in 2011 – deficit spending, leveraged derivatives expansion, and misallocation of money due to artificially low interest rates – continue to worsen. Divining the exact timing when all these things reach a crisis point is less important (provided you are not too late!) than making sure you have “laid in” some financial protection to help keep you safe from the inevitable fallout’s worst effects.
The progression of China’s Go game strategy – and rising affluence among Asian nations which enables them to buy increasing amounts of gold and silver – are all positive factors supporting higher precious metals prices.
When push finally comes to shove, David Galland of Casey Research seems to have nailed it when he said, “The dollar is headed toward the sacrificial altar, with a knife made of gold. Sooner or later, the central bankers will have to throw in the towel, and just let gold run.”
When that happens, the only question – other than trying to find some metal to buy – will be “How high is high?” Having enough gold and silver within arms’ reach before then may be one of the best decisions you can make.
The walk-in cash trade was about average – nothing to write home about and the phones were also no big deal. So for my money the American public is still waiting on the sidelines wondering if this latest move to the upside is real or just another bull market trap.
The GoldDealer.com Unscientific Activity Scale is a ” 3” for Wednesday. The CNI Activity Scale takes into consideration volume and the hedge book: (last Thursday – 5) (last Friday – 2) (Monday – closed) (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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