Commentary for Wednesday, Aug 20, 2014 – Gold actually traded within a very narrow range overnight in Hong Kong and London – continuing flat into the domestic close – down $1.60 on the day at $1293.50.
But the aftermarket in gold weakened as talk of Federal Open Market Committee minutes suggests improving economic conditions in the US will support continued tapering through year end.
Gold has been somewhat lower these past 4 sessions but trading seems thin – it’s August in Europe and that means vacation time. The geopolitical situation continues to cool in the papers and the dollar has been strong as lye soap (82.04 on the Dollar Index) which caps any bullish consideration for now.
Watch for any suggestion that the Federal Reserve will raise interest rates. This will be negative short term for gold. The Fed has been changing talk from inflation and unemployment to wage levels and the labor market. This change in focus may provide the reasoning behind why they will delay raising rates but the situation is fluid especially as Europe devolves.
Do not dismiss the Middle East – it’s still a powder-keg regardless of the positive press. And Europe is still a wild card – noone really has an inside line on what is happening – one thing is sure – Draghi will follow the US lead and make more money available by whatever means possible. This over time will further support gold.
Finally remember this is summertime and the physical market (China and India) are sleepy. This too will not last for long. Look for renewed physical interest to boost demand in September.
Silver closed up $0.09 at $19.47 – with muted physical activity.
Platinum closed down $10.00 at $1428.00 and palladium was also lower by $11.00 at $868.00.
From Business Day (Clara Denina) – Gold Down on Dollar Strength – “Gold obviously didn’t like the US CPI (consumer price inflation) and housing data, which boosted the dollar,” Mr Hansen said. The dollar extended earlier gains against a basket of main currencies after data showed US housing starts rebounded after two straight months of declines, putting up a strong showing in July.
Separately, US consumer prices barely rose during the same month.
The market was awaiting the annual meeting of central bankers in Jackson Hole, Wyoming, on Thursday, which includes a speech on Friday from US Federal Reserve chief Janet Yellen that could give clues on the timing of any rate rise.
The US central bank is expected to raise rates in the middle of next year, depending on the strength of the economy. Higher interest rates would encourage investors to withdraw money from non-interest-bearing assets such as gold.
“Traders will be watching eagerly later in the week at the FOMC (Federal Open Market Committee) minutes and Jackson Hole address to gauge any clues to the timing of a Fed rate hike,” MKS said in a note.
“Any major developments at these events could provide the catalyst to tease gold out of the monotonous $1,290 to $1,320 range we have traded over the past two months,” MKS said.
Gold was also pressured by a return in risk appetite that saw equity markets rise on easing international political tensions.
Tensions in Ukraine and the Middle East have largely contributed to gold’s near 8% gain this year, igniting bouts of demand when investors turned to assets perceived as an insurance against risk. However, any impetus that these events have provided has not lasted long, analysts said.”
Our usual Wednesday recap of action within the Exchange Traded Funds looks like this – and of note is that the Gold, Silver and Platinum funds were higher meaning people added to their holdings in all metals except palladium.
Gold Exchange Traded Funds: Total as of 8-13-14 was 55,307,986. That number this week (8-20-14) was 55,412,344 ounces so over the last week we gained 104,358 ounces of gold.
It might also be interesting to note that in 2013 the record high for all gold ETF’s was 85,112,855 ounces. In 2014 the record low was 54,773,273 ounces.
All Silver Exchange Traded Funds: Total as of 8-13-14 was 626,673,177. That number this week (8-20-14) was 629,983,308 ounces so over the last week we gained 3,310,131 ounces of silver.
All Platinum Exchange Traded Funds: Total as of 8-13-14 was 2,817,655 ounces. That number this week (8-20-14) was 2,841,672 ounces so over the last week we gained 24,017 ounces of platinum.
All Palladium Exchange Traded Funds: Total as of 8-13-14 was 3,087,387 ounces. That number this week (8-20-14) was 3,078,802 ounces so over the last week we dropped 8,585 ounces of palladium.
So time for some fun with conspiracy! The questions surrounding the gold in Fort Knox have been raised since I got into the coin business in the 1970’s. Those were the days of the Nixon Administration so government mistrust was all over the place and after initial allegations of a government cover up Uncle Sam let a congressional delegation into the sacred vaults and I remember reading the news which was published in Coin World at the time. The cameras recorded our elected representatives actually in one of the vaults and you could see the required 400 ounce bars of gold stacked neatly behind the photo op.
But rumors about the gold’s existence persisted and in the ensuing 40 years a number of people claimed the gold did not really exist – it was either faked or hypothecated or in some other way stolen. Theories arose blaming successive Presidents beginning with Johnson.
And from time to time there was a government response – but in the end Uncle Sam closed the doors on the subject.
More recently Ron Paul has raised concerns but the American public seems content with the idea that our gold in Fort Knox is accounted for and secure.
Within the real physical gold community however there have always been suspicions about a cover up. Why – because to my knowledge there has never been an independent audit. From my point of view the amount of gold held in Fort Knox is so small relative to the currency in circulation that the point is moot. Read the following work by Gary Christenson and decide for yourself.
This from GoldSilverWorlds – The Truth about Our Money – Gary Christenson (Sharps Pixley) – The US Gold in Fort Knox is Secure, Gone, or Irrelevant?
In 1950 the US owned about 20,000 metric tons of gold – approximately 640,000,000 troy ounces. By August 15, 1971 when President Nixon “temporarily” closed the “gold window” that hoard had decreased to about 8,100 tons (Fort Knox, the NY Fed, and other locations). The US government had been overspending, exporting dollars oversees, and other governments had “cashed in” those dollars for gold. At that rate of decrease, the US gold hoard would have been entirely dissipated by now. Perhaps it is gone!
President Nixon had a choice – default on the US promise to redeem dollars with gold, or reduce spending. Like any prominent politician he chose to continue spending and to blame the problem on someone else – the “international money speculators” but it might as well have been the Russians, Democrats, the French, Communists, an ethnic group, or the weather – anyone but those responsible – The President, Congress, and the bankers.
Forty three years later (since August 15, 1971) the “temporary” policy is still in place, the US government has officially redeemed no dollars for gold, and the US economy has deteriorated.
Option One: Assume all the US gold is still in the vaults and unencumbered.
- An audit would dispel considerable concern and increase the credibility of the Federal Reserve, Wall Street, and the US government. Congress should demand an audit (and that is as likely as flying pigs, Middle East peace, and Wall Street donating their 2013 bonuses to charity).
- The US national debt is approximately $17.6 Trillion – about fifty times the current market value of the US gold. Clearly selling all the US gold would not fix the insolvency or debt problems of the US government.
- Hint: This option is not viable.
Option Two: Assume all the US gold is still in the vaults but leased or hypothecated once or perhaps many times.
- Don’t expect anyone at the Fed or the Treasury to admit leasing or hypothecation.
- However an audit would still improve the credibility of the Fed, the Treasury, and the US government. Probably not going to happen…
- This option, that the US gold remains in the vaults, seems unlikely but remotely possible.
Option Three: Assume almost all the US gold is gone – leased, sold, lost, stolen, whatever.
- There is nothing for the Fed or the US government to gain and much to lose by admitting the truth. Hence the truth will not be forthcoming.
- Don’t expect anyone to be indicted or prosecuted.
- Massive theft and the resulting cover-ups do not sound unlikely or impossible, especially after the revelation of multiple other scandals and thefts.
- The sale of millions of ounces of gold into the market over the past two decades certainly helped control the rising price of gold and helped mitigate the weakening of paper currencies.
- Option three makes the most sense to me. It probably can’t be proven, but it is plausible that central bankers and government officials have chosen this option.
Does The US Gold Really Matter?
The US government spends roughly $3.5 Trillion per year and adds nearly $1 Trillion each year to the national debt. The official 260,000,000 ounces of gold are currently valued at about $340 Billion. The President and Congress would burn through the market value of that gold in slightly more than a month.
The Federal Reserve has “printed” well over $3,000,000,000,000 since the financial crisis of 2008 – about ten times the current market value of all the gold that the US supposedly still has in its vaults. Global annual gold production is about 2,500 tons, about 80,000,000 ounces or about $105,000,000,000. One hundred five billion dollars in global gold production is produced through the considerable efforts of the global gold mining community. But the Fed chose to “crank up the printing presses” and effortlessly created over $3 Trillion in new digital dollars since 2008. The Fed has temporarily saved the banks, the US credit rating, the bond market, the S&P 500 Index, and the upper 1%, and will continue to do so for as long as they can sell the recovery story to manage the crisis.
All the US gold, when priced in current dollars, seems rather unimportant in relation to the QE1, QE2, QE3, QE to Infinity, and “print or die” economics. The crystal clear implication is that the market price of gold is undervalued and the dollars, yen, pounds, and euros are considerably overvalued. That realization has not reached mainstream media, but it will eventually become common knowledge.
I assume that from the perspective of the Federal Reserve, all the US gold is merely a legacy asset with minimal significance. And since the US gold has little or no significance, then it seems likely the gold has not been preserved, and that there is no benefit to the Treasury, The Fed, Wall Street, or the US government in performing an audit, admitting or denying gold leasing, or even discussing the subject. Business as usual.
The Fed recently refused to allow Germany to inspect their gold which supposedly had been safely stored in the NY Fed vaults for several decades. Clearly, the implication is that the German gold is also gone, there is much wrongdoing to conceal, and telling the whole truth is not a viable option. Business as usual…
Bottom line: In my opinion the US gold is largely gone and probably the gold supposedly stored at the NY Fed for other countries is also mostly gone. Sadly, it matters to very few people, and the world will continue to print many more paper and digital dollars, euros, pounds, and yen. Long live the value of paper, or so we should hope, since the inevitable reckoning and proper valuation of all paper assets, when it occurs, will be ugly, distressing, and dangerous.
The game won’t last forever, but governments and central bankers will do whatever it takes to maintain the illusion of the solvency of paper assets, the status quo, the global bond bubble, and the global currency bubbles.
The walk-in cash trade was again modest – nothing special. The phones were also lackluster – and a few investors are growing tired of the lack of direction in this market.
The GoldDealer.com Unscientific Activity Scale is a “4” for Wednesday. The CNI Activity Scale takes into consideration volume and the hedge book: (last Tuesday – 2) (last Wednesday – 2) (last Thursday – 3) (last Friday – 4) (Monday – 3) (Tuesday – 3). 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.
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