Commentary for Friday, May 16, 2014 – Gold closed down $0.20 today at $1293.30 in a very quiet close to a very quiet week. This is odd in the sense that last week at this time the Russian/Ukraine situation was creating action and then as anticipation grows…nothing. And we continue in the familiar sideways pattern in play since March.
It is not like nothing is happening. World tensions are still there and this week economists debated real inflation number which exceeded the Federal Reserve target. Not only did this not raise a red flag most credible sources either ignored the numbers or claimed unreliability.
The Federal Reserve claims things are improving and so tapering will continue, physical demand from China and India still look solid, rumors of China’s economic problems move to the back burner, the EU claims it will do everything possible to create more paper liquidity by summer, the English and Japanese are printing money like there is no tomorrow, the price of oil remains stubbornly high, and finally the stock market looks like it might be on shaky ground. And the physical gold market has gone to sleep down $0.20 on the day (a real snoozer) and up only $6.00 on the week in spite of Ukraine war rumors.
I always get nervous when it gets too quiet – not that business is extremely slow (but it was yesterday) and not that committed physical buyers have deserted the ship. This week saw a number of large gold bullion buys including the Austrian 1 ounce and 1/10 ounce gold Philharmonic (very popular in Europe).
But there is still no buzz and this patch of “quietness” is disarming especially before summer when this type of sticky action is the norm.
Silver was also quiet down $0.15 at $19.29 with the usual silver bullion anomaly. Silver saw big physical buying last year with coin and bar demand up 76% (247 million ounces). Silver bullion investors look like Times Square on New Year’s Eve if prices slip below $19.00 and yet silver has difficulty much above $22.00 even though this modest price is substantially below 2011 highs ($48.00)
Platinum moved down $4.00 at $1465.00 and palladium moved up $2.00 at $814.00.
Henry Bonner (Eric Sprott – Gold Shortage Coming) – I am very excited about developments in the gold and silver markets today. I have been speculating since late 2012 that Western central banks could be running out of gold. I put the sell-off in gold and silver in 2013 to the fact that the Western banks needed a way to generate physical gold supplies. As the metals prices went down, there was a lot of liquidation of gold which increased the supply by an estimated 900 tonnes last year. Let’s look at the figures. The annual supply of gold is around 4,300 tonnes. 3,000 tonnes come from mining and the other 1,300 tonnes or so from recycled material2. In 2013, an additional 900 tonnes came onto the market from ETFs that were being liquidated – a supply increase of around 21%. Quite frankly, I believe this was all orchestrated in order to create this supply. During the time when the price was knocked down, a tsunami of buying started. India bought 336 tonnes from April to June of 20133. I’m sure that the central bankers went to the Reserve Bank of India and said: “You’ve got to stop people from buying gold.” Of course, the Reserve Bank of India went on to create rule after rule to try to stop people from buying gold. They managed to get monthly imports of gold down to around 20 tonnes from its normal imports of around 80 tonnes per month. Obviously, those official numbers leave out smuggling, which probably makes up a very large amount of gold imported into India. At the same time that Indians were buying, the Chinese were jumping in, too. The mine supply, excluding China and Russia which tend not to export any gold, is only around 190 tonnes per month. You had Indians buying 50 tonnes and China buying 90 tonnes4 – that does not leave much left over for the rest of the world. Blogger Koos Jansen, from In Gold We Trust, says that Chinese demand alone last year was 2,000 tonnes5. So demand has far outstripped supply. There is also interesting news coming from Dubai concerning this supply/demand imbalance. A group there is building a gold refinery that can process 1,400 tonnes of gold per year6. Well, the current refining capacity in the world is around 6,000 tonnes. Somebody is going to add another 20 percent of capacity. The supply falls far short of that at only 4,300 tonnes. Why is this refining capacity so much higher than the official supply of gold? I believe that the volume of gold being exchanged must therefore be much higher than the official number of 4,300. To me, it’s just another piece to the puzzle, and it all points to central banks surreptitiously supplying gold to China. Gold from central banks, held in LBMA-sized bars, is being recast into kilogram-sized bars, which are preferred in Asia. It all points to this: gold is flooding out of central banks in the West and into Asia’s coffers.
(Kitco News) – There was no majority opinion toward the direction of gold prices for next week in the Kitco News Gold Survey, but a nominal number of participants said they expect gold to hold in the current trading range between roughly $1,280 and $1,315 an ounce. Out of 33 participants, 25 responded this week. Of those, 11 see prices trading sideways or are neutral, while eight see prices down and six see prices higher. Market participants include bullion dealers, investment banks, futures traders and technical chart analysts. Last week, survey participants looked for prices to fall this week. As of 11:30 a.m. EDT, Comex gold for June delivery was up $6 for the week. Since about late March, gold prices have largely held in that trading range, and with little economic news slated for next week, and tensions between Ukraine and Russia not dominating headlines at the moment, several survey participants said they see no reason for the market to move out of the current range. Charles Nedoss, senior market strategist at LaSalle Futures Group, said the market is stuck between the 100-day moving average, which comes in for the Comex June contract at $1,290, and 200-day moving averages, which comes in at $1,300.90. “Right now this is a pocket-picking trade. People say there are up trends and down trends, but there are also sideways trends and that’s where we are. Eventually we’ll break out of it, but it’s impossible to figure out how, so you have to reduce exposure. The only thing supporting this is the Ukraine, but it’s not going higher on the Ukraine,” he said. Frank Lesh, broker and futures analyst with FuturePath Trading, said gold “is forming a wedge or triangle and as the trading range contracts and the longer it goes sideways the greater the breakout or breakdown should be… Who knows what the catalyst will be as there is enough conflicting news to confuse us all, or at least me. I see an upside breakout to around $1,360 and downside around $1,220. I am neutral until this market makes a decisive move.” Those who see higher prices said gold may benefit from the recent tumble in U.S. Treasury yields. Earlier this week, the yield on the 10-year U.S. Treasury note fell to 2.5%, despite an uptick in certain inflation gauges. The “bond market (is) suggesting something (is) askew, and suggesting flight to safety,” said Jim Wyckoff, Kitco’s technical analyst. Those who see lower prices said gold’s recent trading action may portend at least a move down to test the current trading range support levels. “The succession of lower-highs since mid-April and inability of gold to push through the $1,310 resistance on several attempts leaves me in the bearish camp. Additionally, yen strength may lead to pressure in gold and commodities in general on an unwind of the yen-carry trade. Gold may not break the $1,275 support over the next week but I expect a re-test soon,” said Ken Morrison, editor of online newsletter Morrison on the Markets.
The walk-in trade was slow today but LA is hot and the San Diego fires are worrying. The phones were also slow and even the number of questions seems to be moving lower.
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