Commentary for Thursday, March 12, 2015 – Gold closed up a tepid $1.40 on the Comex today at $1152.10 after bouncing higher on the open by $14.00. Not much of a response considering the hammering gold has taken since last Friday. Still this persistent $1150.00 balance remains in place despite a dollar that is stronger than lye soap.
In the past 24 hours gold has bounced off the $1150.00 number twice in both overseas and domestic trading. So the short players are pushing this support level very hard and dollar strength is helping the gold bears. But keep in mind if that number is not broken down the spring to higher ground could be sudden as the short traders cover their bets.
Now consider the good old American buck – at the moment this is everyone’s plan. The last time I talked about the Dollar Index was Wednesday and the daily trading range was 98.49 through 99.67. Today the trading range was 98.65 through 100.06 and the Dollar Index is trading at 99.39 as of this writing. So we are above yesterday’s levels by a considerable amount but the market is a bit softer – perhaps traders believe the buck is now overbought but I doubt it.
The usual thinking here is that the dollar will continue higher as the euro sinks in value. Perhaps this will play out but there is also another less traveled road. There are people who live in Europe who claim the economic situation there is not that bad and Mario Draghi should be applauded for his work with the euro. Additionally some thinkers believe quantitative easing will work in Europe just like it did in the US and so parity between the dollar and the euro will be maintained. If Europe responds to QE the dollar may not continue to soar and so gold will be supported around current levels.
That being said there is precedent which indicates the dollar could move higher – so gold struggles not only with a strong dollar but the notion that this strength may not soon fade. The 10 year Dollar Index chart officially broke to the upside when it moved above 88.00. In the longer term the Dollar Index came in at 123.00 in March of 2003 and 131.00 in December of 1986.
Silver closed up $0.15 at $15.49. The buying patterns here might be interesting to the reader. By any standard silver at $15.49 is cheap especially when you consider recent highs in the $50.00 range and this price range (mid-15.00) has prompted solid physical buying in the past. But this time around the average order is smaller – 500 ounces or so – perhaps a Monster Box or two but we are missing the whales. On the last big leg upward in silver is was common place to see orders in the $50,000.00 to $100,000.00 range – not so today.
I think this is an important point – American Silver Eagle Monster boxes which used to sell for over $25,000.00 are now offered around $9,000.00 and there is no stampede – for now.
Platinum closed unchanged at $1115.00 and palladium was down $3.00 at $786.00. Action here is also on the quiet side today even though platinum bullion supplies remain thin.
Chicago Mercantile Exchange reports for the last 5 trading days – so we are looking at the trading volume numbers for the April Gold contract: Thursday 3/05 (251,003) Friday 3/06 (251,675) – Monday 3/09 (239,160) – Tuesday 3/10 (226,123) – Wednesday 3/11 (217,295).
I have never been a big fan of the monetary collapse theory – it’s well intended but in my mind there are better reasons to own the metals. Unfortunately it is also co-opted by unscrupulous gold telemarketers and used to sell junk at ridiculous premiums.
But there are legitimate gold dealers who believe it is only a matter of time before this entire world financial system is crushed under its own uncollateralized debt load. And legitimate industry leaders like Jim Rickards have been warning the rank and file of this threat for years.
Here is a post from The Daily Reckoning – why it holds weight is because if there was a financial collapse this is exactly how it would play out – Rickards is right – no one will see this coming so fear mongering aside preparing before with honest gold and silver bullion makes great insurance sense. You don’t have to make this point to someone like me – I just like owning the stuff because gold and silver bullion is a stand-alone money form.
This from Jim Rickards (The Daily Reckoning) – Avalanche Ahead: How to Survive the Monetary Collapse – The two questions I’m asked most frequently about the monetary collapse are: what’s the event that’s going to take down the system and when is it going to happen?
Those are logical questions, but the event that triggers the collapse doesn’t matter — and here’s what I mean by that.
Imagine you’re on a mountainside and there’s snow building up and it’s still snowing and you’ve got some avalanche danger… it’s windswept, it’s unstable. You’re watching the snowpack, and if you’re an expert, you know it’s going to collapse and it could kill some skiers or wipe out the village.
Well, here comes a snowflake, it disturbs a few other snowflakes, that spreads, it starts to shoot, it starts to slide, it gets momentum, it comes loose and the whole mountain comes down and buries the village.
Who do you blame? Do you blame the snowflake or do you blame the unstable pack of snow?
I say the snowflake’s irrelevant. If it wasn’t that one, it could have been the one before or the one after or the one tomorrow.
The same goes for the collapse of the monetary system. It’s the instability of the financial system as a whole. So, when I think about the risks, I don’t focus so much on the snowflake, it could be a lot of things that trigger the event. It could be a failure to deliver physical gold because gold’s getting scarce. It could be a Lehman type of collapse of a financial firm or another MF Global. It could be a prominent suicide. It could be a natural disaster.
It could be a lot of things, but my point is, it doesn’t matter. It will be something that causes the system to collapse. What matters is that the monetary system is so unstable. The blunders have already been made. It’s not as if we’re going to do some bad things that’s going to create risks. The risk is already there. It’s embedded. We’re just waiting for that catalyst.
So as to what will cause the global monetary system collapse, my answer is it could be a lot of things, but it doesn’t matter. What matters — and what investors need to be concerned about — is the instability is already baked in the pie.
Now, as to when this will happen, it will be sooner than later. By that I mean three, four years. This is not necessarily something that’s going to happen tomorrow, (although it could) but that’s not a ten-year forecast either, because we’re not going to make it that far and we never do.
These things do happen every four or five years. The dynamics, what we call the scaling metrics, and the size of the financial system and risk. One definition of risk is: What’s the worst thing that can happen?
It’s not a linear function. It’s an exponential function. What that means is that when you triple the system, you don’t triple the risk. You increase risk by ten or a hundred times.
That’s what we’re doing. We’re out there making the San Andreas Fault bigger so we can have even bigger earthquakes in the future. That’s exactly what’s going on.
So, I would say two things about the monetary collapse. No. 1, it could happen very suddenly — and likely it will — and we won’t see it coming, so investors need to prepare now.
Investors almost say to me, ‘You know, Jim, call me up at 3:30 the day before it happens and I’ll sell my stocks and buy some gold.’
First of all, it doesn’t work that way for the reasons I just explained, but secondly, you might not be able to get the gold and that’s very important to understand. When a buying panic breaks out, you know, and the price starts gapping up, not $10.00, $20.00 an ounce per day, but $100.00 an ounce then $200.00 an ounce and then all of sudden, it’s like up $1,000.00 an ounce and people say oh, I got to get some gold. You won’t be able to get it. The big guys will get it, you know, the sovereign wealth funds, the central banks, the billionaires, the multibillion-dollar hedge funds, they’ll be able to get it, but everyday investors won’t be able to get it.
You’ll find that the mint stops shipping it. That your local dealer has run out so there’ll still be a price somewhere. You’ll be able to watch the price on television, but you won’t actually be able to get the gold. It’ll be too late.”
The walk-in cash trade was again moderate – not hurried and the phone action was either fast paced or quiet.
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