Commentary for Thursday, April 30, 2015 ( www.golddealer.com) – Gold closed down $27.40 on the Comex today at $1182.00 – once again showing weakness as yesterday’s FOMC talk appeared hawkish and the US economy seems to once again be improving.
This latest drop however has taken a great deal of buzz out of the physical market. Safe haven demand has evaporated even with the real potential of a Greek exit from the European Union. The power held by the Federal Reserve is amazing – they only have to hint at an interest rate increase this summer and gold weakens. Parking at Dodger stadium is $20.00 ($50.00 for preferred) – peanuts are $5.50 and domestic beer is $11.00 – but there is no price inflation.
So weakness in gold is again the result of two factors – the perceived hawkish tone of yesterday’s FOMC information release and this morning’s news from Reuters that job’s benefits have tumbled to a 15-year low.
WASHINGTON ( Reuters) – “The number of Americans filing new claims for jobless benefits tumbled to a 15-year low last week and consumer spending rose in March, signs the economy was regaining momentum after stumbling badly in the first quarter.
The economic outlook was brightened further by another report on Thursday showing a solid increase in wages in the first quarter, which should keep the Federal Reserve on track to raise interest rates this year.
Initial claims for state unemployment benefits fell 34,000 to a seasonally adjusted 262,000 for the week ended April 25, the lowest reading since April 2000, the Labor Department said.
It was the eighth straight week that claims remained below 300,000, which is usually associated with a strengthening labor market, suggesting March’s moderation in job growth was likely an aberration.
Economists polled by Reuters had forecast claims falling to 290,000 last week. The four-week moving average of claims, considered a better measure of labor market trends as it irons out week-to-week volatility, fell 1,250 last week to 283,750.”
But there is more to this weakness than just jobs or FOMC information. This weakness is not necessarily technically driven – although it is that – and has been in place since April of 2013. Before this flattening out of the gold market we were in the blow out phase and reorganization of gold prices from the $1888.70 high close in gold April 22, 2011. By April of 2013 the fall in prices had begun to weaken and gold began to consolidate in the $1200.00 to $1400.00 range.
Since that time any positive news which may have indicated we were moving higher and the consolidation was over was eventually discounted. So gold has been in a rather large trough – something between $1400.00 and $1200.00 with a few significant tests at lower numbers.
So we are back to the usual defensive gold price scenario in which commentators wonder if the strong support gold has seen in the $1140.00 range will hold. And as we know the jury is still out there also because of the real support provided by the very active physical market.
Curiously the stock market is deflating even as economic news improves. There are many who take this to mean that this asset class could be as much as 30% over-valued. Any significant weakness will be a plus for the physical gold market.
Even more curious is dollar strength. The Dollar Index this past week has moved from around 98.00 to around 95.00 and this has not supported gold prices. I would not short the dollar but some might make the case that this latest run in dollar strength is over – this too would support the price of gold as we once again test lower levels.
If you are wondering about whether this latest weakness will lead to a final bottom you are in the wrong investing place. Cheaper prices always attract real buyers (China/India) – it might take a few days to assure them gold is not falling off the cliff – but the cash money is always there.
For the “falling off the cliff” crowd consider whether the price of gold is now a real value. There is plenty of evidence that gold is cheap in relationship to inflation adjusted prices versus the last big bull market in 1980.
And even if you are a pessimist the physical demand from Central Banks around the world is a fact – so is the immense number of dollars held by other world powers (China/Japan) which at some point should be hedged with real gold.
I think gold has represented real value since this market began to bottom. It’s true that global gold demand was down 9% in 2014 but so was production. Sooner or later it will begin again to act like a reserve asset – its price will stabilize. Whether you add to your holdings now or simply wait until this shake-out is over is not important. In the longer term everyone will eventually recognize the true nature and value of gold bullion. Relative price – while important will become a secondary factor.
Silver followed gold lower off $0.55 at $16.12.
Platinum was down $20.00 at $1140.00 and palladium was down $8.00 at $776.00.
This is our usual Thursday Chicago Mercantile Exchange reports for the last 5 trading days – so we are looking at the trading volume numbers for the June Gold contract: Thursday 4/23 (264,861) – Friday 4/24 (273,964) – Monday 4/27 (260,457) – Tuesday 4/28 (258,766) – Wednesday 4/29 (253,725). These numbers remain consistently high so there is plenty of action in both directions.
The walk-in cash trade was on the slow side – typical really with a big drop in the price of gold. But there was some action with “traders” – folks who want to rearrange the deck chairs now that premiums are cheap. This is especially true of those trading gold bullion for platinum bullion – this trade of late has been intermittent sometimes there sometimes not – but today there was solid action.
And believe it or not the cash trade for US Eagle Monster Boxes across the counter remains brisk – this is interesting considering silver has once again moved above $16.00 but there is something very unique about Monster Boxes. The phones were on the quiet side – today so we all decided it was time for Johnnie’s Pastrami – a sure fire remedy for a dissapointing market – feel-good food.
The GoldDealer.com Unscientific Activity Scale is a “ 4” for Thursday. The CNI Activity Scale takes into consideration volume and the hedge book: (last Friday – 4) (Monday – 3) (Tuesday – 5) (Wednesday – 4). The scale (1 through 10) is a reliable way to understand our volume numbers. The Activity Scale is weighted and is not necessarily real time – meaning we could be busy and see a low number – or be slow and see a high number. This is true because of the way our computer runs what we call the “book”.
Our “activity” is better understood from a wider point of view. If the numbers are generally increasing – it would indicate things are busier – decreasing numbers over a longer period would indicate volume is moving lower.
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