Commentary for Monday Aug 19, 2013 – Gold closed down $5.50 today at $1366.20 after trading higher in overnight action and reaching its 100 day moving average ($1382.00). The New York market decided to lock in a portion of last week’s gains ($59.00) as gold is very near 2 month highs. Even the Exchanged Traded Funds saw some gains rising from lows of 907 tons to 915 tons, granted not overwhelming but at least they are not liquidating the farm as we have seen since gold began receiving bad publicity.
Silver was lower for the first time in 8 trading sessions closing off a modest $0.15 at $23.16.
And while both gold and silver were definitely happier these days remember we are still trading the summer doldrums replete with vacation time around the world.
Platinum was down $19.00 at $1508.00 and palladium was also down $10.00 at $753.00.
The Federal Reserve will meet this week at Jackson Hole to discuss policy absent Chairman Bernanke which might be interesting.
This from Swansy Afonso (Bloomberg) by way of Kitco – Gold Seen Rallying on Physical Demand to Counter Paulson Selling – Gold may extend a rally to the end of December, paring its first full-year loss since 2000, as rising Asian physical demand helps counter a selloff in exchange-traded funds led by billionaire investor John Paulson. Prices may reach $1,450 an ounce by the year-end, according to a median of estimates in a survey of 11 traders, jewelers and analysts who attended the India Gold Convention in Jaipur on Aug. 16 and 17. The metal fell 18 percent this year, poised for the first annual decline in 13 years. Bullion rebounded 17 percent since reaching a 34-month low in June as demand for jewelry, bars and coins soared from India to China and Turkey. The rally may help stem the outflow from exchange-traded products, or ETPs, after gold plunged 23 percent last quarter, the most since at least 1920. Consumer demand in India soared 71 percent in the second quarter, while in China it jumped 87 percent, according to the World Gold Council. “The fact that the market has done so well and technically moved above $1,350 an ounce is very positive,” said Jeffrey Rhodes, managing director of the financial institutions division of the Kaloti Jewellery Group, a Dubai-based gold trader and refiner. “This suggests quite a strong end to the year,” supported by strong physical demand, particularly from India and China, he said. ETF Outflows – The metal rallied to $1,376.87 an ounce on Aug. 16, rebounding from $1,180.50 on June 28, the lowest price in almost three years, after entering a bear market in April. The Standard & Poor’s GSCI gauge of 24 commodities rose 0.5 percent since the start of January and the MSCI All-Country World Index of equities gained 10 percent. Treasuries declined 3.6 percent, the Bloomberg U.S. Treasury Bond Index shows. “There is some evidence in the gold market that demand is starting to stabilize following the huge outflows from ETFs and futures in the first half of the year,” JPMorgan Chase & Co. said in a report Aug. 16. “Spot gold is above forward prices, which is very unusual and likely reflects strong demand in the physical market bidding up spot prices,” the bank said. Physical demand helped push August futures on the Comex in New York above the December contract for the first time on Aug. 2, compared with trading at a discount before then. Backwardation, when nearby contracts are more expensive than longer-dated futures, can signal concern that near-term supplies are tightening. Fed Speculation – Prices will advance to $1,600 by year-end because investors “overreacted” to speculation that the Federal Reserve will trim monthly bond purchases and as governments maintain efforts to boost economic growth, Adrian Day, president of Adrian Day Asset Management in Annapolis, Maryland, said last week. Investors sold 682.4 metric tons from ETPs this year, including 404.4 tons in the second quarter, as unprecedented money printing by central banks failed to accelerate inflation. Paulson & Co. cut its SPDR Gold Trust stake to 10.2 million shares in the three months ended June 30 from 21.8 million at the end of the first quarter, a Securities and Exchange Commission filing showed. “Since April, when prices fell sharply and rose and fell right back, a lot of investors have pulled back from the market and are waiting to see how low price can go,” said Jeffrey Christian, managing partner at CPM Group. “Once you get to September and October a lot of investors, central banks and fabricators who have been waiting to see how low price can go, will step up and buy.” Prices may rally to $1,420 an ounce by the end of the year and trade in a range of $1,300 to $1,500 for the next two years, Christian said in an interview on Aug. 16. Money Printing – Prices fell in eight of the past 10 months on speculation the U.S. Federal Reserve will slow stimulus as the economy recovers. A Bloomberg survey this month showed 65 percent of economists expect Fed Chairman Ben S. Bernanke to reduce the $85 billion of monthly asset purchases in September, probably starting with a cut of $10 billion. The metal will fall to $1,050 by the end of next year, Goldman Sachs Group Inc. estimates. “The impact of so much money being printed globally in the long term is positive for gold,” said Chirag Mehta, a fund manager at Quantum Asset Management Co. “Some tapering will be there but still they are going to print money. The result of this monetary inflation will be price inflation going forward” and that should benefit gold, he said.
The reason I shared this entire Bloomberg posting is that besides its content it also highlights that background noise concerning gold might be changing in a big way. One of the real problems with calling a bottom in gold in a fiercely negative environment is that the paper trade becomes “heavy” meaning there is so much negative publicity that it creates a huge headwind. The same thing really happens when gold is moving higher and higher in that investors believe the momentum trade will never change. Well change it does and so when we are in a transition phase (perhaps like we now see) any positive publicity about owning gold carried a great deal of weight because most of what you see are short players knocking the product.
I would say both the phone trade and walk in business are still a bit sleepy given the generally higher nature of the precious metals. My unscientific and unpatented LA Physical Trade Business (LAPTB) might be showing promise. Actually I will be quoting this running average on a regular basis which is based on high/low totals of actual invoices completed (an average based on both buying and selling product). The number will be a single digit (1 through 10) the lower numbers indicating action is moving lower and the higher numbers indicating things are cooking along. This should be fun and educational because the pure number is based on real data and not just the impression of “things are busy” or “it has been slow today”. Today the LA Physical Trade Business was a “5”. Like us on Facebook and follow us on Twitter @CNI_golddealer. Thanks for reading and enjoy your evening. These markets are volatile and involve risk: Please Read Before Investing
Written by California Numismatic Investments (www.golddealer.com).