Commentary for Monday, March 31, 2014 (www.golddealer.com) – Gold closed down $10.40 today at $1283.40 finally making up its mind. So we continue the downtrend established March 17th when gold reached a recent high of about $1380.00. We are looking at a short term loss of $100.00 which puts the bears in charge. And we remain range-bound between the two extremes ($1200.00 and $1400.00) this past year.
Today’s weakness is especially frustrating because the dollar was weaker and Fed Chair Yellen’s comments to Congress this morning indicated the US economy still needs lots of help. This is also the first time she moved away from Bernanke’s stoic approach and included stories similar to what the President might offer during a State of the Union speech. This is more human and perhaps she is trying to say the government is not oblivious to the human tragedy caused by unemployment.
Gold was pressured by further technical selling today as paper traders watched carefully the 50% Fibonacci retrenchment of $1285.00. Gold also moved below its 50 day moving average ($1304.00) and 200 day moving average ($1298.00) last week so let’s be grateful this market finally ran into some short-covering and bargain hunting.
Before you jump out the window however consider that today is the end of the first quarter of this year and gold has managed a year to date advance of 6.7%, silver was also higher during this first quarter up 2%, platinum was up 3.4% and palladium was higher by 6.6%.
This might also be interesting to readers in that our fiscal year end is today. I ran some products numbers for relative comparison. Our silver sales have been strong even though the news and prices day to day might underwhelm: US Silver Eagle sales were up 31% over last year and 100 oz RCM silver bars were up 55%. The 10 oz silver bar sales were up 93% and 1 oz silver rounds jumped an impressive 141%! The sale of American Gold Eagles 1 oz actually decreased 4% so it appears the public is more interested in silver bullion relative to gold bullion during this time period.
Gold is still a mixed bag even after Yellen reaffirmed her commitment to a fiscal program which must eventually turn inflationary. Gold was somewhat weaker in Hong Kong reversing higher in London and reversing again lower into the domestic market. Gold even in New York could not make up its mind – first lower then higher then lower and finally finishing on lows for the day but finding support just above the $1288.00 mark (the range top to bottom being about $10.00).
This would indicate we are still buying time relative to the struggle between the bulls and bears and there does not seem to be a dominate short term force. I thought the Yellen speech would have been more bullish for gold but the trading psychology remains glum.
Everyone is waiting for the physical market to pick and that is why I posted the Barclays article. I hate to keep banging on about the demand from both China and India but this is where it’s at for now at least. Also note that the Barclays post is not just about gold imports but provides valuable information about what the Chinese consumer is doing.
And gold is not the only tangle they are buying as the LA Times claims the Chinese are getting aggresive in California real estate. I guess all of this figures when you look at their economic numbers, after all they have to do something with all that loot.
This commentary is rather long but worth the read because it points to underlying strength in gold over the longer term created by the Chinese. Barclays sees a steady growth in Chinese Gold jewellery demand in medium term – LONDON (Scrap Register): British banking giant Barclays expects a steady growth in Chinese gold jewellery demand in the medium term. Chinese jewellery demand was strong in 2013, largely on the back of strong demand in H1 13 (April and June). Likewise, Chinese jewellery fabrication has defied world jewellery fabrication trends, increasing steadily since around the early 2000s. In fact, 2013 proved to be strong year for gold jewellery demand in China, as despite heavy buying in H1, demand resumed during the last two months of 2013 in advance of Lunar New Year, closing the year at a new sales record of RMB187bn (WGC). In 2014, according to the latest Gold Demand Trends report from the World Gold Council, almost 80% of Chinese consumers plan on spending the same or more (35% and 44%, respectively) on gold jewellery in 2014. The Chinese jewellery market is made up of many participants, the largest of which is Chow Tai Fook. The world’s largest solely-focused jewellery maker by market capitalisation, commanding 15% market share in China, is seeing a gradual and steady pick-up in the greater China retail market. Chow Tai Fook’s management expects that the “mass luxury jewellery segment will continue to drive growth,” with continued optimism likely in the medium and long term”. In its latest fiscal half-year report, same store gold product sales volume increased 5.4%, and particularly relevant, was that mainland sales upsurged, driven by gold products. Part of the optimism around the mainland market was “continuous urbanisation and strong domestic demand, powered by the government’s measures to shift the economy to an internal consumption-driven model.” Luk Fook, another Chinese jewellery retailer noted in its latest interim report that the sharp new lows in gold prices last year triggered ‘gold rushes’ in April and June. This resulted in “soaring demand” for gold products, thus driving up sales volumes, particularly of gold items as they were the most favoured among Chinese consumers. Mainland Chinese tourists visiting Hong Kong were a strong driver of overall revenues – a trend seen across the jewellers. Luk Fook said that it maintains a “prudent yet positive” attitude towards overall business growth, and believes that low prices will sustain gold demand, with heightened purchases triggered by sharp moves lower in prices, which we attribute to noticeable price sensitivity among Chinese consumers. Of note, Luk Fook expects to benefit from wedding and celebration-related sales, given that 2014 on the Lunar Calendar is a year with ‘double spring’ and a ‘leap month’ in the Chinese calendar, which is an auspicious time for weddings, while Valentine’s Day and the Lantern Festival are on the same day. In Chow Sang Sang’s latest interim report (H1 fiscal 2013), it cautioned that a slowing economy in China, among other warning signs, pointed to continued softness in high-priced jewellery and watches. That said, in 2013, the deep fall in gold prices underpinned a buying spree by both mainland visitors and locals in Hong Kong, and a surge in mainland Chinese jewellery sales. According to Chow Sang Sang, demand focussed on gold jewellery rather than on collector items such as slabs and wafers. A similar surge also occurred in June, when gold prices fell again, bringing customers back. The company’s outlook highlighted that slowing economic growth should result in demand for top-end luxury goods slowing or stagnating. It went on to say that “there is also little doubt that for gold as an investment, the bulls are no longer running, but the craving for gold jewellery on the part of consumers in April and June seems to indicate that speculation on gains may not be the driving force in consumer behaviour.” In China, overall gold jewellery demand has grown significantly since 2006, having seen double-digit growth for the seven years since then, averaging 28% growth y/y over that period. Most notable is the aforementioned price sensitivity among Chinese consumers. Over the last few years jewellery demand has surged for this group, as retail price growth fell significantly y/y, a price dynamic which spread across both rural and urban China. Given that their expectation for lower USD gold prices over the next few years will likely outweigh any change in the USD/RMB exchange rate (Barclays FX strategists 1 year target is 5.95, 1 month: 6.07), Barclays expects steady growth in Chinese gold jewellery demand in the medium term.
Consumers need to be heads up before doing business on the internet. In the old days you could just walk into a good dealership and put down cash and walk away with product. This is still true with us and a few others but most of the volume business is done nationally using the internet. The gold and silver market is not regulated so everyone (even dealers) must do their homework before spending money.
To avoid problem dealers (there are at least two still out there) look for precious metal dealers who belong to ICTA (Industry Council for Tangible Assets) and the PNG (Professional Numismatists Guild). Dealers who are members of both organizations insure a happy consumer face because they are held to a higher ethical, financial and professional standard. Look for membership in ICTA and the PNG from any national dealer and avoid headaches.
The walk-in cash trade was off today and the phones were also somewhat quiet. I think this activity level (slow to moderate) will remain until this push-pull market finds a real reason to break either higher or lower. Until then expect less action but the number of new accounts is once again moving higher with us so perhaps this lower trading range is attracting new money.
The GoldDealer.com Activity Scale is a “4” for Monday. The CNI Activity Scale takes into consideration volume and the hedge book: (last Tuesday – 5) (last Wednesday – 4) (last Thursday – 3) (last Friday – 5). The scale (1 through 10) is a reliable way to understand our volume numbers.
On the new GoldDealer.com site: Comex closing prices are posted on the home page and individual product landing pages. Live pricing on the site moves all bullion products up or down during the day.
We reworked the All Bullion Products link on the home page. It now includes our Bid (blue) and Ask (green) prices. Premium quotes vary with product and look like this – “spot plus $15.00” or “spot plus $50.00” and bullion products list them under the live prices on their respective landing pages.
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Our four flat screens downstairs with live independent pricing (BullionDesk.com) are a big hit with the cash trade. This live stream moves all buy/sell prices so the cash buying or selling public can see the markets move on a real time basis. Our site uses the same pricing model so no more guessing.
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