Commentary for Wednesday, Nov 19th, 2014 (www.golddealer.com)

richard schwary thumb Gold Market Newsletter : Gold Closes Again Choppy Capped by Lower Oil

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

Gold closed down $3.10 at $1193.60 – a respectable finish considering early trading saw lows at $1173.00.

The much awaited Federal Open Market Committee minutes were released with little fanfare – I guess the market is further assured that the Fed will retain its accommodative fiscal policy.

This from Renick and Bost (Bloomberg) – U.S. Stocks Decline as Fed Minutes Show Concern on Deflation – U.S. stocks fell as Federal Reserve minutes showed some members said the central bank should remain attentive to the possibility prices in the U.S. economy aren’t rising fast enough.

The Standard & Poor’s 500 Index (SPX) fell 0.2 percent to 2,048.68 as of 3:28 p.m. in New York. The Dow Jones Industrial Average lost 2.26 points, or less than 0.1 percent, to 17,685.56. The Russell 2000 Index of smaller companies retreated 0.8 percent.

“The Fed is admitting they have no idea where inflation is going long term,” said Michael Block, chief equity strategist at Rhino Trading Partners LLC in New York. “While I admire their candor, this doesn’t make me want to own stocks this afternoon.”

fomcFed Chair Janet Yellen and her colleagues last month focused on improvements in the labor market when they announced an end to their stimulative bond purchases. They also said that the risk of inflation remaining persistently below their goal had ebbed.

Inflation has stagnated despite a strengthening of main labor-market indicators. Policy makers last month also “pointed to a somewhat weaker economic outlook and increased downside risks in Europe, China, and Japan,” in addition to a stronger dollar.

“Many participants observed the committee should remain attentive to evidence of a possible downward shift in longer-term inflation expectations,” according to a record of the Oct. 28-29 Federal Open Market Committee meeting released today in Washington. “Some of them noted that if such an outcome occurred, it would be even more worrisome if growth faltered.”

Tomorrow we will look at the Consumer Price Index for further information on inflation but I suspect this will not move the gold needle one way or the other.

Silver closed up $0.12 at $16.29.

Platinum closed down $6.00 at $1198.00 and palladium was also off $6.00 at $770.00. Of note is that the price of platinum ($1198.00) is only $4.40 higher than the price of gold ($1193.60). This presents great value over the longer term for those interested in diversification as historically the price of platinum is usually much higher than the price of gold. 

Today gold was weaker moving opposite the dollar and lower oil helped pressure gold. This is also a choppy market so expect sudden upward moves to be countered with profit taking as the short-term paper player is king in a market moving sideways to lower.

Yesterday gold was getting some short-term play with inflation numbers heating up somewhat – the Russians creating grief in Ukraine – the Japanese and European Union creating or promising to create stacks of money out of thin air – and the promise of continued low interest rates in the US because of yesterday’s disappointing numbers.

But there are a few probabilities which make the bearish case for gold on the shorter term. First, the economic US numbers are good enough that the Federal Reserve might just raise interest rates to be contrary. They finally threw in the towel on quantitative easing – for now – and settled for much less than expected – and are willing to ignore collateral damage so why not mess with interest rates – perhaps a change-up pitch is in order.

Even though there was a blip on the inflation rate radar oil is so cheap it’s hard for me to believe anyone will consider inflation a problem – even well into next year.

And with other countries of the world creating fiat paper the devaluation of the yen and euro might make a good case that the dollar looks good by comparison. So let’s not discount the possibility that the dollar will continue firm – perhaps even get stronger in 2015. This will pose another barrier for the physical gold bullion buyer.

And I hate to keep banging on about the notion that you can’t simply continue to print money and not create considerable economic damage along the way. This from David Stockman (Contra Corner) – Why Japan’s Money Printing Madness Matters – “There is a reason this repudiation of Keynesian money printing is not just an anomalous problem relating to Japan’s unique history and economic structure. Namely, the phony “deflation” theory underlying the financial madness of Kuroda and Abe is readily portable. It has already been embraced by European policy-makers and will be arriving in the North American precincts soon.

So it is worth documenting yet again. In the entire 25 years since Japan’s financial bubble burst there has never been a semblance of meaningful consumer price deflation in Japan. Even the core CPI is well above it 1990 level: And on the theory that over any extended period of time, people do eat and warm themselves in winter, it is necessary to view Japan’s long-term trend for the overall CPI. What it shows is not deflation, but near perfect price stability. That is, after the considerable rise in consumer prices during the 1980s, its price index has remained more or less constant ever since its financial bubble was punctured in the early 1990s.

There is not a shred of evidence that this wholesome price stability has caused Japan’s consumers to save too much or defer spending that they could otherwise afford. In fact, Japan’s savings rate has cratered during this period, dropping from more than 20% of household income prior to 1980 to hardly 3% today. That’s the opposite of what the deflation theory implies. What has actually deflated in Japan is its gigantic asset bubble, and that is something that even its prodigious money printing has proved incapable of reversing.

In short, they Keynesian apparatchiks have created a straw man that suits the purposes of their political masters on the fiscal front by rationalizing the monetization of endless amounts of public debt; and it empowers the state’s central banking branch to engage in plenary manipulation of the entire financial system on the misbegotten theory that fiat credit and bubble wealth can cause real production, incomes and wealth to rise.

Stated differently, Keynesian fiscal policies and central banking regimes have buried the public sectors of most of the world’s major economies in unsustainable debt. Now they propose to double down on more of the same because an entire generation of politicians have been house-trained in permanent fiscal profligacy and endless kicking of the fiscal can down the road.

To be sure, in putting off Japan’s day of fiscal reckoning once again, this time until 2017, Prime Minister Abe is proving himself to be a certifiable madman. In short order, however, he will have plenty of company all around the planet.”

The short term technical picture for gold remains cloudy. Granted we threatened the $1200.00 level – which is encouraging. But spread out the price graph and you will see gold has a big overhead hurdle to work off going back to April of 2014.

To me the range between $1240.00 and $1340.00 looks like a killing zone designed to make the short traders richer than they already are – even with the recent pop in prices caused by short traders being too piggy to the downside.

So what do I expect for the rest of 2014? Well the gold action might become thinner and lend itself to “pushing” over the holidays so expect more volatility. And unless an all-out war breaks out between Russia and Ukraine (unlikely) I expect a capped gold price subject to moderate swings one way or the other – but over time little progress as far as real direction.

Today’s gold action was a good example – around 12:00 noon (New York) the domestic market encountered a severe downdraft – gold moved from $1195.00 to almost touching $1175.00 – then recovered just as quickly to $1195.00. This was probably due to some kind of FOMC rumor – they will release their latest wisdom and interest rate suggestions after the market close today.

There is a bottom here somewhere but the shorter term pluses for gold will keep it hidden until perhaps the first quarter of 2015. I would not be afraid to add to either my gold or silver bullion position – I figure these prices will seem cheap over the next few years but over the next few months this market will continue bumpy.

This is our usual ETF Wednesday information – Gold Exchange Traded Funds: Total as of 11-11-14 was 52,179,532. That number this week (11-18-14) was 52,054,336 ounces so over the last week we dropped 125,196 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 – 52,014,411 ounces.

All Silver Exchange Traded Funds: Total as of 11-11-14 was 636,311,574. That number this week (11-18-14) was 640,319,215 ounces so over the last week we gained 4,007,641ounces of silver.

All Platinum Exchange Traded Funds: Total as of 11-11-14 was 2,737,757 ounces. That number this week (11-18-14) was 2,705,127 ounces so over the last week we dropped 32,630 ounces of platinum.

All Palladium Exchange Traded Funds: Total as of 11-11-14 was 3,035,185 ounces. That number this week (11-18-14) was 3,009,445 ounces so over the last week we dropped 25,740 ounces of palladium.

The walk-in cash today looked tired – and the phones were quiet most of the day. What can I say – the public remains unimpressed although small to mid-size buyers continue their interest.

The GoldDealer.com Unscientific Activity Scale is a “5” for Wednesday. The CNI Activity Scale takes into consideration volume and the hedge book: (last Thursday – 4) (last Friday – 8) (Monday – 4) (Tuesday – 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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