Commentary for Tuesday, June 3, 2014 – Gold closed up $0.60 today at $1244.30 and the trading range was a tight $4.00 – a virtual carbon copy of yesterday’s action. You could say the market is waiting on the European Central Bank meeting this Thursday but I think any possible move relative to interest rates in Europe has already been discounted.
It is not that Draghi can’t do anything – it is just he can’t do much considering they are already giving away the farm. They could go negative, or begin a fresh bond buying program, or come up with another way to get more euros into circulation but in the end any such move will weaken the euro and encourage inflation. Which is of course what all inflating nations really want – they just don’t want to look like that’s what they want.
At any rate a weaker euro will push the dollar higher short-term and this would not be good for gold. But again, because gold is trading at the lower end of this most recent bear raid – the chances of a big pop to the downside is small. The bears still rule for sure but keep in mind that gold must breach the now double bottom at $1200.00 and that looks just as difficult as moving above the entrenched $1400.00 overhead resistance we have seen this past year. So more patience is needed and coin dealers have learned over the years to develop a great deal of patience in the summer months.
Manufacturing numbers out later this week might be interesting especially if we come in above expected levels. Anything which might suggest the US economy continues to improve in baby steps will be welcomed by the public but will also be a negative for gold short-term.
According to the US Mint their present gold holdings are 147.3 million ounces and except for small testing samples no gold has been transferred to or from the Depository for many years. Also of note is that the gold which is held as an asset of the United States carries a book value of $42.22 per ounce.
Now there have been a number of questions lately about what gold the US owns, where it is stored and even if it still exists. All of this goes under “conspiracy theory” and the US Mint has even been publically audited, once famously in the 1970’s but to no avail. Apparently government credibility is also something which has fallen on hard times.
Silver closed up $0.02 at $18.73 so is now within a few cents of this year’s low.
Standard Bank sees silver moving lower based on CFTC (Commodity Futures Trading Commission) data which indicates that silver speculative shorts are at their highest level in 5 years. They also note that such short positions could also produce a short covering rally. This is the common “pop” in prices to the upside which happens all the time if short paper players are spooked. And the “pop” is big because of the highly leveraged positions – all of which scramble to the sidelines running for cover.
This type of commentary is what weighs on the silver market but fails to point out that a completely independent physical market is still alive and well. It also fails to note that the summer months have traditionally been a slow period for coin dealers. At any rate Standard Bank goes on to say that they would not short silver until a clear break below $18.50 is established and while I am not a big silver bull the last thing I would do is short the silver market at the low end of its current trading range.
In fact I am betting lunch that if silver moves into the low $18.00 range you won’t be able to get into our parking lot. The preverbal buying bus will show up and everyone on board will have cash to spend on monster boxes and 100 ounce bars. Just an observation on my part but “short” at this discounted stage in the silver pricing model is the last place I would want my money.
Platinum moved lower by $3.00 at $1433.00 and palladium was up $3.00 at $836.00. Try putting some Platinum 1/10th oz Eagles in your collection today.
This from Allen Sykora (Kitco) – U.S. Mint sales of gold bullion coins fell in May but sales of silver coins were higher. Combined sales of American Eagle and Buffalo coins last month were 48,000 ounces. This was down from 56,000 in April and 82,500 in May of 2013. However, the larger fall in the year-on-year comparison can be explained at least in part by the strong demand – or “buying frenzy” – that was occurring at this time last year when gold prices fell in the wake of the Cyprus crisis and hedge-fund selling, says Edward Meir, commodities consultant with INTL FCStone. Meanwhile, American Eagle silver coin sales in May came to 3,988,500 ounces. This was up from 3,569,000 in April and 3,458,500 in May 2013.
The production numbers coming out of the US Mint are available on their website but the eye catching part of Sykora’s post are the American Silver Eagle mintages. Millions of 1 ounce silver bullion coins are being produced and most are finding homes with American silver bullion investors. Depending on the price of silver the cost of a silver eagle monster box runs close to 11 grand today which is a large sum of money by any standard. Yet these monster boxes go flying out of here – there are no shortages but inventory levels are very fluid meaning the public has no problem buying all we stock. My point is that even at 11 grand a pop there is little buying resistance relative to price. This physical factor is the biggest selling point silver bullion presents today even in a defensive market.
The walk-in trade at the building was either very busy or very slow all day. Mostly smaller to mid-size cash players interested in buying physical silver bullion. The phones were on the slow side but there were a few rather large gold sellers. All in all just about what I would expect for the summer months.
The GoldDealer.com Activity Scale is a “6” for Tuesday. The CNI Activity Scale takes into consideration volume and the hedge book: (last Tuesday – 5) (last Wednesday – 6) (last Thursday – 6) (last Friday – 7) (Monday – 7). The scale (1 through 10) is a reliable way to understand our volume numbers.
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