Commentary for Friday, August 12, 2016 (www.golddealer.com)
By Ken Edwards and Richard Schwary of California Numismatic Investments Inc ……
Gold closed down $6.70 on the Comex today at US$1,335.80 – what a roller coaster ride this turned out to be. Gold moved dramatically higher in price on the open – at one time trading over $1,354.00 and held steady at these levels for most of the trading day. As we approached the closing the price of gold dropped from $1,352.00 to $1334.00 before settling a few dollars higher.
Early gains were the result of weak retail sales numbers released with other data today while the markets were active. This is the old story – the information helped encourage the trader idea that the Federal Reserve will not raise interest rates as predicted and so the dollar lost value and pushed gold higher in early trading.
But what triggered the sell-off in gold? The Dollar Index also erratic – we traded firm slightly less than 96.00 for most of the day and then fell off a cliff – trading to as low as 95.20 before recovering to above 95.60. It’s not crude oil – we have been trading between $42.00 to $44.00 a barrel this week and there is little in the way of news that could have created this sudden drop.
It’s possible (guessing) that traders re-read the tape – and came up with a different conclusion. Like I said the trade initially called the sales numbers weak and so moved to the dovish side of the Federal interest rate question. But if you read the data it actually looks more flat than anything else so they may have changed their minds in midstream.
Even with today’s higher then lower prices the gold market will ultimately be driven by interest rate hikes. The fireworks we saw in early January through February of 2016 are a fading memory. Gold’s trading range this week has been flat – $10.9 top to bottom – so it not like the fire trucks are blasting their sirens.
Keep in mind however that even when things were cooking the market did flatten out above $1,200.00 in February before attempting new yearly highs which we saw in June. Then like always just the talk of an interest rate hike took the buzz out of the gold conversation.
Which brings me to a question – does gold have to be moving higher before it gets interesting? Well, of course but there is another side of this picture which you might consider. Let’s stop looking at the price of gold in terms of dollars and see what happens to the “busy” dynamic when you are talking about the price of gold in a foreign currency.
When prices are flat the American buyer loses interest quickly but foreign traders may see a different picture. A typical situation might be a country where the paper currency is moving lower and the price of gold in that currency is moving higher.
This is a typical situation today – and foreign owners of gold have been large sellers to some of America’s largest precious metals dealers – keeping their European operations very busy indeed – even through the average bullion dealer in the US may not be selling much across the counter there can be considerable activity below the surface.
Silver closed down $0.31 at $19.67.
Platinum closed down $27.00 at $1127.00 and palladium was off $1.00 at $689.00.
This from Lucia Mutikani (Reuters) – Weak retail sales, inflation data dim prospect of Fed rate hike – U.S. retail sales were unexpectedly flat in July as Americans cut back on purchases of clothing and other goods, pointing to a moderation in consumer spending that could temper expectations of an acceleration in economic growth in the third quarter.
Other data on Friday showed producer prices recorded their biggest drop in nearly a year in July amid declining costs for services and energy goods. Cooling consumer spending and tame inflation suggest the Federal Reserve will probably not raise interest rates anytime soon despite a robust labor market.
“The Fed has a consumer demand-centric view of economic activity and this report is one more hurdle to a rate hike in September,” said John Ryding, chief economist at RDQ Economics in New York.
July’s unchanged retail sales reading followed an upwardly revised 0.8 percent increase in June, the Commerce Department said. Retail sales in June were previously reported to have increased 0.6 percent. Sales rose 2.3 percent from a year ago.
Excluding automobiles, gasoline, building materials and food services, retail sales were also unchanged last month after rising 0.5 percent in June. These so-called core retail sales correspond most closely with the consumer spending component of gross domestic product. Economists had forecast overall retail sales rising 0.4 percent and core sales climbing 0.3 percent last month.
U.S. Treasuries were trading higher, while the dollar fell against a basket of currencies. Wall Street stocks were lower after the weaker-than-expected data.
WEAK PRODUCER INFLATION – In a separate report, the Labor Department said its producer price index for final demand dropped 0.4 percent last month, the first decline since March and the largest since September 2015. It increased 0.5 percent in June.
In the 12 months through July, the PPI slipped 0.2 percent. That was the biggest drop since December 2015 and followed a 0.3 percent increase in the 12 months through June.
A strong dollar and cheaper oil continue to keep price pressures muted, leaving inflation running persistently below the Fed’s 2 percent target. Fed officials have repeatedly expressed concern about low inflation.
The U.S. central bank raised its benchmark overnight interest rate last December for the first time in nearly a decade. Although a Reuters poll on Thursday found that most economists expect another rate increase in December, financial markets currently anticipate such a move only next year. Interest rate futures after Friday’s data placed only a 43 percent probability of a December rate hike, compared to 47 percent before the data.
Robust consumer spending has helped to cushion the blow on the economy from an inventory correction and the prolonged drag from lower oil prices that have restricted GDP growth to an average 1.0 percent annualized rate in the last three quarters.
Friday’s data suggested consumer spending was cooling after the second quarter’s brisk 4.2 percent rate of increase.
ALSO IN BUSINESS NEWS – Wall Street flat as rise in oil offsets impact of weak data – U.S. producer prices fall on services, energy costs – U.S. business inventories rise marginally as sales jump – U.S. third-quarter GDP seen slowing to 2.43 percent: N.Y. Fed
Despite the surprise weakness in retail sales in July, consumer spending remains supported by a strong labor market as well as rising home and stock market prices. The economy created a total of 547,000 jobs in June and July.
A third report showed consumer sentiment stable in early August, though households’ views on income softened a bit. Most of the weakness was among younger households who cited higher expenses than anticipated as well as somewhat modest income gains, the University of Michigan said. The Atlanta Fed is currently forecasting the economy to grow at a 3.7 percent annualized rate in the third quarter. Growth is expected to be driven by a rebound in inventory investment, as well as consumer spending.
A fourth report from the Commerce Department showed businesses made significant progress in June in their efforts to reduce an inventory overhang that has weighed on economic growth since the second quarter of 2015. The inventory-to-sales ratio fell to a seven-month low of 1.39 months in June.
Automobile, furniture and online sales were bright spots in the July report. Sales at auto dealerships increased 1.1 percent last month after rising 0.5 percent in June. Demand for autos is pulling spending away from discretionary items.
Online retail sales jumped 1.3 percent, while receipts at clothing stores fell 0.5 percent. Sales at sporting goods and hobby stores fell 2.2 percent, the largest drop since January 2015. Receipts at building materials and garden equipment retailers fell 0.5 percent.
There were declines in sales at electronics and appliance outlets and service stations. Americans also cut back on spending at restaurants and bars and sales at food and beverage stores recorded their largest drop since May 2011.
Our Patented Employee Survey – Gold’s Direction Next Week?
Of course it’s not really patented but we do have some fun along the way. This is what the GoldDealer.com employees think: 5 believe gold will be higher next week – 2 think gold will be lower and 1 thinks it will be unchanged.
Our Patented Customer Survey – Gold’s Direction Next Week?
Like the employees our customers were given three choices – up – down – unchanged. We limited the survey to a random sampling of 100 transactions – unscientific but worth considering because these people took action: 48 people thought the price of gold would increase next week – 42 believe the price of gold will decrease next week and 10 think gold prices will remain the same.
This from Allen Sykora (Kitco) – Credit Suisse Reiterates Forecast Of $1,475 Gold In 4Q – Credit Suisse has reiterated its late-June outlook that gold will rise to $1,475 in the fourth quarter. The view was included in a research note citing highlights from the World Gold Council’s report this week on quarterly demand trends, which showed that second-quarter demand rose from a year ago. Credit Suisse says its outlook is “primarily due to continued investment demand through ETF (exchange-traded-fund) purchases and bar/coin hoarding on prolonged macro uncertainty and negative real interest rates – (with) 39% of sovereign debt traded with a negative rate on July 27th — along with our view for declining mine supply.” As of Thursday, the third-quarter average price of $1,342 an ounce “thus far is tracking in-line with our $1,350/oz forecast for Q3,” the bank adds.
The walk-in cash business was active today and so were the phones. There were no really big hitters but a great deal of small to mid-size deals in both directions.
The GoldDealer.com Unscientific Activity Scale is a “4” for Friday. The CNI Activity Scale takes into consideration volume and the hedge book: (Monday – 4) (Tuesday – 4) (Wednesday – 4) (Thursday – 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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