Commentary for Wednesday, Oct 8, 2014 (www.golddealer.com)

Richard Schwary
Richard Schwary

By Ken Edwards and Richard Schwary of California Numismatic Investments Inc.………

Gold closed down $6.40 today at $1205.30 in a market which really cannot make up its mind. It actually traded as high as $1220.00 before reversing itself as oil prices came down – WTI crude oil moved lower by $1.15 at $87.47 a barrel and the dollar lost half a point in late trading.

What pushed the later gold market much higher was the release of the September Federal Open Market Committtee (FOMC) minutes.

This from Kitco (Neils Christensen) – ‘Several’ FOMC Particpants Wanted Change In Forward Guidance: FOMC Minutes – Dissension appears to be growing within the Federal Reserve as to how fast interest rates should start to rise once its monthly bond-purchase program ends, according to the minutes of the Sept. 16-17 Federal Open Market Committee meeting.

The central bank left its forward guidance unchanged in its monetary policy statement following the September meeting and left the phrase “considerable time” in the statement; however, the minutes revealed some committee members considered changing it.

“Several participants thought that the current forward guidance regarding the federal funds rate suggested a longer period before liftoff, and perhaps also a more gradual increase in the federal funds rate thereafter, than they believed was likely to be appropriate given economic and financial conditions,” the minutes said.

federal_reserve_dollarBesides gold watching dollar strength carefully the above comments on possible interest rate hikes is also in the “gold price” dialogue. The longer the Federal Reserve delays interest rate hikes the more encouragement will be provided the gold bulls.

Silver closed down $0.18 at $17.01 and the physical markets remain very active at these lower levels. The physical market in thin is a few areas but for the most part there appears to be no shortages – which is a bit odd because we see no very large sellers at these lower levels.

Platinum closed up $5.00 at $1266.00 and palladium was higher by $9.00 at $796.00. Rhodium was again unchanged at $1215.00. This market remains quiet but has been one of my favorite diversifications.

Gold Exchange Traded Funds: Total as of 10-01-14 was 53,891,667. That number this week (10-08-14) was 53,459,778 ounces so over the last week we dropped 431,889 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 high was 56,456,599 and a new low was set today – 53,459,778 ounces.

All Silver Exchange Traded Funds: Total as of 10-01-14 was 645,340,316. That number this week (10-08-14) was 640,249,005 ounces so over the last week we dropped 5,091,311 ounces of silver.

All Platinum Exchange Traded Funds: Total as of 10-01-14 was 2,750,397 ounces. That number this week (10-08-14) was 2,710,091 ounces so over the last week we dropped 40,306 ounces of platinum.

All Palladium Exchange Traded Funds: Total as of 10-01-14 was 2,923,850 ounces. That number this week (10-08-14) was 2,980,608 ounces so over the last week we gained 56,758 ounces of palladium.

Gold remains susceptible to a number of factors on the short term so claiming the bears are still in control is true but not the complete story. In Wednesday trading Reuters claimed a number of cross currents – “on Tuesday, investors bought gold after the International Monetary Fund cut its global economic growth and weak German industrial data stoked further concerns. However gold nearly gave up its early gains as US crude oil futures tumbled and the dollar index erased its early losses hovering at near a four year high. “Despite a pause in the recent sell-off for gold and the possibility of a short-covering rally, the bullish outlook on the U.S. dollar is likely to constrain any potential bullion rallies,” said James Steel, chief metals analyst at HSBC.”

The Federal Open Market Committee
The Federal Open Market Committee

Like I said yesterday the good old US dollar rules for now – and with the euro looking for lower levels this stronger dollar trend will remain in place for the near term. But most traders will question whether a higher dollar is in the cards long term. Both the dollar and the euro must move lower if you believe government cannot create currency out of thin air and enjoy a strong currency at the same time. This theme has been beat to death over the last decade – and for the most part this axiom has been true.

Reuters also considers physical demand – this is the big game changer today. When it will surge and who will be the prime movers. “As Chinese markets returned from a one-week holiday on Wednesday, traders said the metal could benefit from fresh physical demand. Bullion investors were keenly watching the Shanghai Gold Exchange to gauge buying interest in China, the top consumer of the metal.”

So it is pretty clear that gold will remain soft – even testing new recent lows but the $1180.00 support still remains big. Even if you are a gold bear at this point there remains some reasonable doubt as to how much cheaper gold might become.

Big gold and silver bullion sellers have once again become scarce at the store. I can’t say buyers are standing in line…they are not. This is not the old days – but big sellers have disappeared. This of course supports the contrarian notion that “those who want to sell have already done so” and so we are approaching a bottom.

This is not exactly my thought because – at least in my mind – we still have not seen the complete blow out scenario appear. This always happens at the bottom of the market and is expressed something like this – “gold is a complete loser and I have no further interest”.

So we remain somewhere in the middle of “gold is cheap” and “gold will move lower” and that is why the average guy on the street remains cautious. Still there has been plenty of action these past 5 days as our Activity level has generally been 5 or higher reaching an 8 yesterday. Someone is doing something for these numbers to sustain themselves.

Business continues to pick up from the summer months – web site volume is back to almost old highs which show there are a few hundred thousand people a month at least watching the action. So all in all the gold market is not dire – it is just confused.

Trying to find the exact bottom is a fool’s errand and once this dollar strength begins to ebb and we get back to depreciating currency gold will once again take its premiere place as a safe-haven choice which protects against unbacked paper currency.

The walk-in cash trade was again busy all day as our dollys deliveried silver bullion to an eager public. The national phone trade was just average.

The GoldDealer.com Unscientific Activity Scale is a “6” for Wednesday. The CNI Activity Scale takes into consideration volume and the hedge book: (last Thursday – 6) (last Friday – 7) (Monday – 5) (Tuesday – 8). 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 very busy and see a low number – or be very 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 – perhaps a week or two. 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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