Commentary for Wednesday, Nov 26th, 2014 (www.golddealer.com)

richard schwary thumb Gold Market Newsletter : Gold Drifts at the Upper End of its Current Range

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

Gold closed down $0.50 at $1196.50 so little changed moving into the holiday but there seems to be a little upward bias as it has moved above $1200.00 a few times and could not hold the higher ground.

If you are an optimist you will see some encouragement in the 30 day chart as gold seems to like the close to $1200.00 spot moving up from $1140.00 in early November. If you are a pessimist you will not like the idea that it can’t seem to push into higher territory – above $1200.00 even though this range amounts to a substantial discount to old highs.

Gold has been trapped in a new higher range between $1180.00 and $1205.00 since November 14th – a pattern which should hold through year end.

turkeyMost believe higher price moves for gold are not in the cards in the near term because of dollar strength. This is true – but I would counter the massive quantitative easing programs either already launched (Japan) or in the works (European Union) will help support gold prices even though gold presents a generally negative technical picture.

So for holiday’s look for continued push and pull – perhaps the biggest short-term opportunity presented will be the physical gold market in India and China – but let’s wait and see how Europe deals with deflation.

The US is doing surprisingly well relative to the rest of the world. There has been some talk that the EU might hurt the US recovery but I think this argument won’t hold water. Still keep in mind that while gold is range-bound relative to the dollar – it looks pretty good relative to the euro. And I think this in generally true with other currencies so safe haven buying will also help support current gold prices.

If you are looking for a few Turkey wild cards consider the Swiss Referendum gold vote to be held on the November 30th – a yes vote is not likely but if the referendum passes it will be very gold friendly. Also watch the continued development of the Russian/Ukraine problem – this could turn into a very hot spot if aggression wins.

Silver closed unchanged at $16.55.

Platinum moved higher by $5.00 at $1228.00 and palladium was up $7.00 at $802.00.

This is our usual ETF Wednesday information – Gold Exchange Traded Funds: Total as of 11-18-14 was 52,054,336. That number this week (11-25-14) was 51,956,180 ounces so over the last week we dropped 98,156 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 the low for the month – 51,859,216 ounces.

All Silver Exchange Traded Funds: Total as of 11-18-14 was 640,319,215. That number this week (11-25-14) was 639,362,349 ounces so over the last week we dropped 956,866 ounces of silver.

All Platinum Exchange Traded Funds: Total as of 11-18-14 was 2,705,127 ounces. That number this week (11-25-14) was 2,684,522 ounces so over the last week we dropped 20,605 ounces of platinum.

All Palladium Exchange Traded Funds: Total as of 11-18-14 was 3,008,445 ounces. That number this week (11-25-14) was 3,005,380 ounces so over the last week we dropped 4,065 ounces of palladium.

This from Jeff Thomas – The Writing on the Wall – When you see that in order to produce, you need to obtain permission from men who produce nothing—when you see that money is flowing to those who deal, not in goods, but in favors—when you see that men get richer by graft and by pull than by work, and your laws don’t protect you against them, but protect them against you—when you see corruption being rewarded and honesty becoming a self-sacrifice—you may know that your society is doomed. – Ayn Rand; Atlas Shrugged, 1957

Ayn Rand knew whereof she spoke. Born in St. Petersburg, Russia, in 1905, she became politically conscious while still a child and did not favour the existing concept of constitutional monarchy. So, it would not have been surprising if, when the Russian revolution broke out when she was twelve, she bought into the proselytising of Vladimir Lenin, as so many did at that time.

Instead, she quickly surmised that the Bolsheviks’ claim to improve life for the average man was, in reality, a plan to diminish the quality of life for all of the people. In doing so, the Bolsheviks confiscated her father’s business and displaced her family. At one point they were nearly starving, but in 1925, she received permission to emigrate to the US. (She later attempted to get her parents and sisters out, but it proved to be too late.)

In establishing her now well-known beliefs in governmental systems, Ayn Rand had the benefit of having observed the entire progression from a relatively benign monarchical system to totalitarianism. As a result, she not only learned that political leaders can be deceitful in their claims for social improvement, she also learned, first hand, that those leaders (and/or hopeful leaders) who promise that they are going to change the system in such a way that everyone will “have all they need,” are the most deceitful of all.

In my opinion, the greatest possible threat from the fanciful claims by politicians lies in the willingness of the populace to actually believe such claims. Sadly, it does seem as though the majority of people in any country tend to be extraordinarily gullible in this regard.

The very idea that some method can be found that would make it possible to equalize all people is patently ludicrous. There will always be differences in intellect, talent, and ambition from one individual to the next. The idea that any government should somehow enforce the more gifted or more motivated to continually give up the fruits of their efforts, whilst giving those fruits to others who are less gifted and less motivated is, by definition, unworkable.

Such an idea, whether we consider it laudable or not, cannot ultimately succeed. The most that can be expected is that the idea could successfully be enforced, which would result, eventually, in the gifted and motivated ceasing to make the necessary effort to excel. And, of course, in socialist countries, this is what, over time, we see take place.

There is a direct relationship between the degree of “redistribution” by the government and the decline in effort by the gifted or motivated.

Still, there will always exist those who are less gifted or less motivated who will want to believe that political leaders can somehow make this impossible concept a reality. And of course, these people can fully be expected to vote for, or otherwise support, those who make such empty promises.

Therefore, the realization that should be taken away from this discussion is that, over time, it is perfectly predictable that a given government might ultimately go in a direction of self-destruction, as it will be likely to pander to the majority, who seek such largesse at the expense of others.

What then, of the minority? What of those who are in that group of more gifted or more motivated people—the ones that do, historically, tend to push a society forward with their abilities and efforts?

They have a choice. They can “go with the flow,” should the country in question go into social and political decline; they can accept it and try to muddle through, as did Ayn Rand’s parents after the revolution. Or they can vote with their feet, as did Rand herself.

This from Neils Christensen (Kitco) – Gold Still Has Plenty Of Upside – Capital Economics – With gold hovering around $1,200 an ounce, commodity analysts at Capital Economics see plenty of long-term potential for the yellow metal as they stick with their call that prices will hit $1,400 an ounce by year-end 2016.

“A rebound to US$1,400 would represent a sizeable 17% gain from current levels at a time when the valuations of many other assets, notably developed market equities and bonds, are looking increasingly stretched,” said Julian Jessop, head of commodity research at Capital Economics.

That target is unchanged from their previous report in October when the analysts said they expect gold hit $1,300 an ounce by the end of next year. In the report, Jessop said gold still has plenty of upside potential as a lot of bad news is already priced in.

“Indeed, given the unfavorable market conditions this year, gold has actually held up remarkably well,” he said in the research note published Monday. “The downside for the gold price from current levels is surely now limited.”

Some of the negatives Jessop lists that have dampened gold recently include a strong U.S. dollar as the Federal Reserve exited its quantitative easing program, the collapse in crude oil prices, reducing inflation fears and stronger equity markets.

“Despite all these negatives, the price of gold has repeatedly found strong support at, or slightly below, the US$1,200 level,” he said.

Jessop said the big unknown and potentially bearish for the gold market is the first Federal Reserve interest rate hike. Capital Economics forecasts that the U.S. central bank could hike rates as early as March, which is much earlier than is currently priced into the market.

However, he said even the first rate hike will have limited impact on the gold market as interest rates are expected to only rise gradually and remain below historical standards.

“The peak in the next interest rate cycle could be less than 4%, a level which previously might have been thought of as a floor for rates. This is unlikely to be a game-changer for gold demand,” he said.

Demand should strengthen among emerging economies as income increases, helping to support gold, Jessop said. Western investors could also jump back into the gold market as a safe-haven investment as geopolitical risks and global economic uncertainty rise, particularly within the Eurozone, he said.

He added that they are also expecting central banks from developing country to continue to add the precious metal to their official foreign reserves. Jessop said that although unlikely he would not completely rule out buying from the ECB as part of its quantitative easing strategy or from the Swiss National Bank. Swiss voters will decide in a Nov. 30 referendum whether or not to force the SNB to increase its gold holdings to 20% of its official reserves within five years.

Jessop appears to be market neutral on gold supply. With gold at $1,200 an ounce, he said that prices are not far above the costs of mining new gold; however, those costs could come down as energy prices start to drop and the industry finds new efficiency savings.

The walk-in cash trade was just slow today and so were the phones. There is some buying action – but nothing large and very little selling of bullion. Selling usually picks up around the holidays as the physical market raises cash into Christmas. We have not seen that as yet and for the most part everything remains very quiet.

The GoldDealer.com Unscientific Activity Scale is a “3” for Wednesday. The CNI Activity Scale takes into consideration volume and the hedge book: (last Thursday – 4) (last Friday – 6) (Monday – 4) (Tuesday – 3). 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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