Commentary for Friday, Nov 7th, 2014 (www.golddealer.com)

richard schwary thumb The Gold Newsletter : Gold Buckles Again as the Dollar Continues Strong

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

Gold closed up $27.30 today at $1169.60. This jump in price was caused by two factors – first a warming up geopolitical situation as Russian army tanks once again threaten Ukraine – and second the dollar began weakening which helped enforce a short-covering rally.

We have seen 7 straight days of declines in gold so the paper “short” is large and now showing a considerable profit – short traders have hair triggers so a short covering bounce was already in the cards – the tanks and the dollar sealed the deal.

The Hong Kong and London markets last night were quiet for the most part as gold seemed happy and steady around $1140.00 – during the London session however gold began to wake up and pushed to higher ground – this momentum carried over into the domestic market.

Dollar weakness also contributed – the Dollar Index (DXY) moved from a daily high of 88.19 to a daily low of 87.64. It was firm at the beginning of the session – actually rallied somewhat on the jobs number and then began trending lower.

Still one day does not make a trend – poor gold sentiment remains intact – as metals have been pressured by fund liquidation, strong dollar, expectation of higher US interest rates, lower oil prices, strong equities, expectations of global slowdown, and fears on deflation.

On the other hand let’s remember that everyone is adding monetary stimulus – the US, China, Japan, and the ECB. Diluted values of currencies will eventually lead to monetary inflation.

Silver followed gold higher – silver up $0.31 on the day at $15.70. We have seen a few larger silver bullion liquidations today but buyers outnumber sellers 10 to 1 easily. Actually some physical product for immediate delivery continues to be tight – there is plenty of silver bullion but some specific products are not nearly as handy as a few weeks ago.

Platinum closed up $14.00 at $1212.00 and palladium was up $19.00 at $772.00.

Precious Metal Closes & Dollar Strength – Nov. 3 through Nov. 7 – 2014

               Gold             Silver             Platinum                Dollar Index     

Mon    $1169.30         $16.17             $1242.00                     $87.41

Tues    $1167.40        $15.93             $1224.00                     $87.09

Wed    $1145.40         $15.41             $1210.00                     $87.57

Thurs  $1142.30         $15.39             $1198.00                     $88.13

Fri       $1169.60         $15.70             $1212.00                     $87.86

 

           Palladium       Rhodium    

Mon    $804.00           $1240.00

Tues   $791.00           $1240.00

Wed    $758.00           $1230.00

Thurs  $753.00           $1230.00

Fri       $772.00           $1230.00

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 – 4 believe gold will be higher next week – 4 think gold will be lower and 1 believes it will be unchanged.

Our Patented Customer Survey – Gold’s Direction Next Week?

Like the employees our actual customers were given three choices – up – down – unchanged. We limited the survey to a random sampling of 100 transactions – unscientific yes but worth considering because these people actually took action: 35 people thought the price of gold would increase next week – 45 believe the price of gold will decrease next week and 20 think prices will remain the same.

Gold MarketsEven on “up” days like today the general gold commentary remains negative. But too much bad news might prevent some investors to consider that cheaper gold presents the average investor with another bite at the golden apple. When the gold market was heading towards $2000.00 the sentiment was opposite – all talk was positive. At that time who would believe another great buying opportunity would present itself?

I’m not suggesting you hock the homestead but consider the possibility that significant outside factors work in gold’s favor. Longer term trends which will tip the balance in favor of gold bullion acquisition as financial insurance. Bad news never lasts long in the quickly changing world of fiat money and some commentators are looking for a bottom in gold.

As an example of a long term trend consider US interest rates. The common wisdom today is that rates will soon rise – but what if they don’t?  Or better still that if they are hiked rates and economy slows the Fed reverses its bias and once again decides that interest rates must remain near zero. Interest rates place a key role in the price of gold – so consider the following before making assumptions about the future of interest rates.

This from Matthew Boesler – Fed Concern with Repeat of 1937 Blunder Echoed by Markets – Nov. 5 (Bloomberg) — Federal Reserve Bank of Dallas President Richard Fisher talks about the central bank’s independence, monetary policy and economy. Fisher speaks with Michael McKee, Stephanie Ruhle and Matt Miller on Bloomberg Television’s “Market Makers.” (Source: Bloomberg). The specter of 1937 is weighing on the minds of top Federal Reserve officials as they work on a road map for unwinding their unprecedented economic stimulus. That was the year, following a recovery from the Great Depression that the Fed prematurely tightened monetary policy and was forced to backtrack as the economy fell back into a recession.

The dangers of repeating that mistake are highlighted in a survey of the 22 primary dealers that trade U.S. Treasuries directly with the Fed. The dealers saw a 20 percent chance the Fed, which plans to raise its main interest rate in 2015, would be forced to cut it back to zero within two years, according to the median response to the poll, taken by the New York Fed before September’s Federal Open Market Committee meeting.

“When I think of the odds of them having to reverse course, they are uncomfortably high because this is not your typical cycle and typical recovery,” said Eric Green, head of U.S. rates and economic research at TD Securities USA LLC in New York, a primary dealer. The fact that the New York Fed’s poll even raised the question of a return to zero interest rates shows that officials have doubts about tightening policy, said Green, a former New York Fed economist.

Seeking Affirmation – “When the central bank asks me that point blank — what are the odds — I also realize that while these guys have the confidence to take policy higher in terms of rates, the level of certainty is far less than usual,” he said. “They are looking for affirmation desperately, wherever they can get it, that it’s the right thing to do.”

The Fed received the survey results Sept. 8 and published them Oct. 9.

New York Fed President William C. Dudley and Chicago Fed President Charles Evans in recent weeks have invoked the lessons of 1937 as reason for caution as the central bank prepares for the first interest-rate increase since it lowered its benchmark federal funds rate to zero in 2008.

“I believe that the biggest risk we face today is prematurely engineering restrictive monetary conditions,” Evans said in a Sept. 24 speech in Washington. “The U.S. experience during the Great Depression — in particular, in 1937 — is a classic example for monetary historians.”

After a return to growth and inflation led the Fed to raise bank reserve requirements, and the government to reduce deficit spending, “the economy dropped back into recession and deflation,” Evans said.

‘Horrible Mistake’ – Dudley, answering questions at the Bloomberg Markets Most Influential Summit in New York Sept. 22, said premature tightening in the 1930s “turned out to be a horrible mistake. It’s actually characterized as the mistake of 1937.”

Policy makers at their September meeting discussed possible reasons why futures markets suggested a path of interest-rate increases far below Fed officials’ own published projections. One explanation offered at the meeting: traders were placing “considerable odds” on the possibility that the federal funds rate would revert to zero within two years of the first increase, according to the minutes.

Eurodollar futures currently imply a federal funds rate of 2.32 percent at the end of 2017, well below the 3.75 percent median projection in Fed policy makers’ most recent forecast, published in September. The probability that the Fed’s benchmark rate will be below 1 percent by the end of 2017, derived from options on eurodollar futures contracts, is 17.3 percent, up from 11.4 percent six months ago.

Trading in the futures markets reflects “a chance that it doesn’t get a full hiking cycle, plus also maybe even cutting” of the benchmark rate in the next few years, said George Goncalves, head of interest-rate strategy at Nomura Holdings Inc. in New York, a primary dealer.

1937 Parallels – One big concern weighing on the market-implied rate path is the outlook for growth worldwide. Here, there are parallels with the global backdrop in 1937, said Steven Ricchiuto, chief economist at another primary dealer, Mizuho Securities USA Inc. in New York.

“Then, you had a world of excess supply of tradable goods, and now, you have a world of excess supply of tradable goods,” said Ricchiuto. “We’ve created a world where we have produced an enormous amount of growth in the emerging world with one model: export to growth. And the problem is, who are you exporting to?”

The walk-in cash trade was solid and busy all day. The phones were just average – with the pop in gold prices I expected more phone action so perhaps either the public is not watching – after a week of lower prices or they remain a bit on the cautious side.

The GoldDealer.com Unscientific Activity Scale is a “7” for Friday. The CNI Activity Scale takes into consideration volume and the hedge book: (Monday – 8) (Tuesday – 8) (Wednesday – 8) (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 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. 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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