Commentary for Thursday, Nov 13th, 2014 (www.golddealer.com)

richard schwary thumb Gold Market Newsletter : Gold Moves Lower then Higher Following the Dollar

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

Gold closed up $2.20 at $1161.10 edging somewhat higher but probably capped by lower oil prices. Saudi Arabia continues to pump disregarding lower prices and a weakening European picture. With this scenario you might wonder what they are up to – but cynicism aside low oil does weigh on the price of gold especially when the Dollar Index is moving sideways around 87.7.

Gold is ignoring the Russian problem despite news of Russian troop movements. I really don’t get this even if the world turns a blind eye toward Putin taking back Ukraine. And sanctions are more dangerous than most believe – because of Russia’s important ties to Europe through all that natural gas she may or may not deliver. This area is becoming more than just problematic – there could be far reaching consequences if Russia is pushed too far – still gold languishes.

Of some note is Russia’s continued interest in accumulating more gold as she added 55 tonnes in the Third Quarter – even as the ruble moved to lower ground.

Gold trading action the last few days seems muted – quiet and almost unconcerned – this type of price movement while there is tension in the underlying market leads to a fast break either up or down so expect increased volatility.

precious_metals_iraSilver closed unchanged at $15.61 – cheap but this market is yawning of late. Where are all the big players willing to buy 10 or 20 boxes of Silver Eagles? Few are interested in selling at these prices so across the counter action is steady if not exciting.

Platinum closed down $7.00 at $1198.00 and palladium was off $2.00 at $771.00.

Gold Exchange Traded Funds: Total as of 11-05-14 was 52,762,293. That number this week (11-11-14) was 52,179,532 ounces so over the last week we dropped 582,761 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 – 52,179,532 ounces.

All Silver Exchange Traded Funds: Total as of 11-05-14 was 633,762,667. That number this week (11-11-14) was 636,311,574 ounces so over the last week we gained 2,548,907 ounces of silver.

All Platinum Exchange Traded Funds: Total as of 11-05-14 was 2,742,262 ounces. That number this week (11-11-14) was 2,737,757 ounces so over the last week we dropped 4,505 ounces of platinum.

All Palladium Exchange Traded Funds: Total as of 11-05-14 was 3,055,397 ounces. That number this week (11-11-14) was 3,035,185 ounces so over the last week we dropped 20,212 ounces of palladium.

The latest from the World Gold Council – Gold Demand Trends Third Quarter 2014

This edition of GDT examines all the latest developments of gold demand and supply during the third quarter of 2014 by sector and by region.

Third quarter 2014 in summary

Jewellery demand in good health: Q3 demand of 534.2t above 5-year quarterly average. Third quarter demand was marginally stronger than the 5-year quarterly average of 527.6t, while year-to-date volumes extended the broad uptrend from the low seen in 2009.Year-on-year comparisons were again heavily influenced by the events of last year: demand was 4% below Q3 2013.

Investment demand up 6% to 204t, retail investors continued to digest 2013 demand surge

A remarkably stable gold price was both a cause and effect of a benign demand environment in the third quarter. Bar and coin investors continued to digest the demand surge of 2013, lacking clear price signals to provide fresh impetus to invest.

Technology demand fell 5% in Q3; substitution continued to be a source of pressure

All segments of the Technology sector saw an identical 5% drop in third quarter gold demand. Overall demand totaled 98t. Substitution to cheaper materials by fabricators and consumers again outweighed the positive influence of improved economic sentiment.

Central banks continued to bolster gold reserves in Q3: year-to-date net purchases total 335t

Economic and geopolitical tensions continued to keep central banks on their guard, looking to gold for protection and diversification. Net purchases of 93 tonnes in Q3 brought the year-to-date total to 335 tonnes, up from 324t over the same period in 2013.

Marginal growth in mine supply during Q3 contrasts with global recycling contraction of 25%

Mine production marginally increased to exceed 800t for only the third time; conversely recycling fell well short of last year’s levels, languishing around seven-year lows. Deliveries into existing positions outweighed fresh hedging by 15t. Overall, third quarter supply was down 7% vs 2013.

So is gold commentary moving from negative to downright caustic? It was not too long ago that gold was dismissed as a positive financial asset which represents a safe-haven play because sustained upward moves failed and writers decided that it made no difference what the government did with the money supply. Many of those which were positive about gold these past 10 years have moved on to real estate and stocks.

Recently however gold commentary has taken an even darker turn. It would seem in some people’s mind that gold really has lost its purpose.

I would argue this darker side of the picture is actually healthy. And not uncommon as this was the same mood we saw after the 1980 gold crash – during those darker days gold trended towards $200.00 an ounce. And accepted main stream commentary claimed $100.00 was to be the order of the day.

In a negative price market trending downward there is little light at the end of the tunnel. Wars and continued quantitative easing are pushed aside – gold becomes an orphan.

Actually this type of thinking is what is needed before the investment community will claim gold has bottomed. Some are talking about a “bottom” – but with a gold market which has been essentially sideways to lower since 2011 this kind of commentary is in the minority.

But even with poor price performance gold enthusiasts have not seen any capitulation. There has been selling no doubt but we have not seen the complete give up in the gold mental attitude.

I think this happens because in today’s market the modern investor is connected to a world view – not like in the old days. The fact that central banks around the world are buying offers encouragement to the faithful. The fact that India, Russia and China continue to stack up gold at lower prices paints a brighter picture.

So does this generally lower market need to see physical capitulation before a bottom is reached? And if so – at what price will we see gold before everyone says this is too cheap?   Gold is down $125.00 or about 10% over the past year which makes for a sluggish physical market across the counter in the US – but we are still well within my claimed trading range of $1050.00 to $1150.00.

The question of the day: at what price do you see gold before everyone will want back into this market? Forget about whether inflation returns or the Russians are buying – this is a pure price question – when do you think gold is too cheap? Opine at will and send your “bottom” answer to RSchwary@aol.com. Thanks from the Bottom Headquarters.

This from Chuck Butler (EverBank) is very interesting – “Well, first things first, and the Big News from China is that November 17th, (you know next week!) for the first time ever. Investors around the world will be allowed to buy Chinese stocks on the new Shanghai-Hong Kong stock exchange. THIS IS HUGE NEWS folks, and in my opinion, will be a HUGE gain for Chinese stocks/Companies. But that’s stock stuff, of which, while I am licensed to talk about, I don’t care to, for it keeps me out of trouble!  Besides the stock stuff, to me, this is simply another step in China’s march toward removal of the dollar reserve system. 
Remember when I told you that China needed to open up their Capital Markets to the outside world before they could lay claim on the reserve currency. This is just one of the requirements that will be needed to achieve their goal, but let’s take a look at the scorecard. 1. The needed to gain a wider distribution of their currency. Done! 2. They need to have a free floating currency. working toward that. 3. They need to have very deep pockets. Done! and 4. The need to open up their capital markets to the outside world. ETA on completion. 4 days!

Of course there’s more, but these are the highlights, that once they have these nailed down, it won’t be long, yeah, yeah, yeah, yeah, it won’t be long yeah, yeah, yeah, yeah, it won’t be long yeah, till the renminbi comes home to be the reserve currency.  Oh, it might still take a few more years. How many of you remember me standing in front of crowds back in 2010, and telling you that by the end of this decade, the dollar would no longer be the reserve currency of the world?  But with China stepping up the pace, as we’ve chronicled in these pages from time to time, it certainly looks to me that 2017, could be the year that we, here in the U.S. find out that “debt really does matter”.”

CNBC commentators were again talking about China’s hard landing – this may or may not happen and a hard landing in China would be bad for gold. The more important point which Chuck has nicely outlined above is that slowly but surely the Chinese are moving towards world economic dominance and may not be taking the dollar with them. Any crack in dollar hegemony will be a watershed event for the price of gold.

The walk-in cash trade was boring today and so were the phones.

The GoldDealer.com Unscientific Activity Scale is a “4” for Thursday. The CNI Activity Scale takes into consideration volume and the hedge book: (last Friday – 7) (Monday – 7) (Tuesday – 7) (Wednesday – 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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