Commentary for Friday, March 11, 2016 (www.golddealer.com)
By Ken Edwards and Richard Schwary of California Numismatic Investments Inc ……
Gold closed down $12.20 on the Comex today at $1258.70 so it’s having second thoughts about Mario Draghi’s European Central Bank (ECB) decision yesterday to push “negative” interest rates. Actually today’s loss represents further profit taking in a market which wants to “back and fill” and Draghi’s comments about ECB’s monetary policy were a distraction.
So there is some reasonable commentary which claims recent gold prices are not sustainable. Actually this may be true but their conclusion is wrong. The theory is that because recent gains were not gradual the action was “hot” a reaction to the potential China meltdown – that much is right. The conclusion being that the general price picture is not changed and gold will eventually move back into the lower end of the trading range ($1050.00).
So all the pondering about whether the recent (2016) rise in gold is the beginning of something big is just wrong-headed – we are still in the contracting market which is range bound – limited for the time being by a dollar which remains at the higher end of its trading range.
I believe gold will pull back from current levels but there has been a game-changer since the beginning of 2016. Gold bullion has reinvented itself as a safe-haven against not only continued quantitative easing but a much more virulent type of QE – the negative interest rate.
So even if gold cools off I think this market has considerable physical support – support which includes buyers from the United States. If you look at 4th quarter gold demand published by the World Gold Council the numbers may be surprising.
First consider that we are talking about the 4th quarter of 2015 which was not a stellar year for gold. The first quarter of 2016 presented a different psychological picture and possibilities.
For sure there were changes in 4th quarter 2015 demand – Russia (-26%), Middle East and Turkey (-18%), Europe (-7%), others (-3%). Now look at the pluses – United States (+6%) – this number is larger than I would have suspected – India (+6%), China (+3%), East Asia (+5%).
The big three gold buyers (India, China and East Asia) are less aggressive than I would have guessed. To me this might be a “tell” in that the financial problems in all three places are less troublesome than the press would have you believe – trouble sure but “financial meltdown” – not much chance. This may indicate they are behind schedule relative to gold bullion accumulation.
So look for continued gains in demand from all three of these manufacturing giants. It figures that demand will increase from current levels – not decrease. This alone will keep gold in the higher end of its current range while the rest of the world wonders about their inflation future as defined with “negative” interest rates.
Will all of this push the price of gold dramatically higher overnight? I don’t think so – this will not be an epiphany market – markets which are damaged don’t normally just decide to move higher on the short term – gold will struggle in 2016. But when the smoke clears we will hold gains and the technical picture will encourage new buyers.
The larger picture for the price of gold will remain a combination of dollar strength and the general direction of world paper markets. I would not short either but would remind everyone that gold and silver bullion remain a real store of value in this hurricane of fiat paper money. There is no get-rich quick scheme at work here – but there is encouragement and insurance protection.
This from Jim Wycoff (Kitco) – Gold Dips Amid Rebound in World Stock Markets – “Gold prices are moderately lower in early U.S. trading Friday, on a corrective and profit-taking pullback following overnight gains that pushed prices to a 13-month high. Better risk appetite in the marketplace so far Friday also is a negative for safe-haven gold. April Comex gold was last down $6.30 at $1,266.50 an ounce. May Comex silver was last up $0.041 at $15.59 an ounce.
World stock markets on Friday rebounded from the selling pressure seen Thursday. U.S. stock indexes are pointed toward higher openings when the day session begins. The marketplace is still digesting Thursday’s European Central Bank meet results that saw the ECB initiate aggressive monetary stimulus measures. The currency markets were roiled in the aftermath of the ECB meeting. A comment from ECB President Draghi is credited with creating the turbulence in the markets. Draghi said the ECB may not have do lower interest rates further, which led many to believe the central bank has now spent all of its ammunition in the effort to jumpstart the Euro zone economy. To extrapolate more, there was talk that maybe the world’s major central banks are in about the same situation as the ECB–few, if any, workable tools left to spark economic growth and ward off price deflation.
The U.S. dollar index so far Friday has recouped some of its heavy losses suffered Thursday. The Euro currency Friday has given back about half of its big gains scored Thursday. The currency moves Thursday were the biggest in years and do begin to suggest that trader/investor psychology could be shifting away from favoring stocks and bonds, and toward favoring hard assets like raw commodities.
European bond markets rallied sharply Friday, in the wake of the ECB announcement that it would be buying even more European government bonds.
In overnight news, the International Energy Agency (IEA) said world crude oil prices may have bottomed out. The IEA said Iran’s return to the world oil market has not seen that country produce the amount of oil it claimed it could. Also, crude production in non-OPEC countries is falling faster than expected. Nymex April crude oil futures were higher and hovering just below $39.00 a barrel Friday morning.
U.S. economic data due for release Friday is again light and includes import and export prices.”
Silver closed up $0.06 at $15.60. Some renewed action in $1000 face 90% silver bags – this area was hot for a while and then lost focus but premiums seem to be holding up between $2.70 and $3.30 over spot – a deal relative to other forms of silver bullion and legal tender in the bargain.
Platinum closed down $9.00 at $970.00 and palladium closed up $6.00 at $580.00. Look for this area – especially rhodium to remain hot in 2016 – knock down discounts will melt.
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 – 10 believe gold will be higher next week – 3 think gold will be lower and none think 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: 37 people thought the price of gold would increase next week – 54 believe the price of gold will decrease next week and nine think prices will remain the same.
Precious Metal Closes & Dollar Strength – March 7 – March 11
The walk-in cash business was slow and the phones were nothing special. We are back to some anticipation because of solid technical progress since the beginning of 2016 but a market which is losing its mojo.
For now – like it or not gold will be judged by what have you done for me lately – it still has a lot of heavy lifting to do before its redemption is at hand – so stay tuned. It’s unlikely there will be some sort of financial accident either here or overseas – it’s scary for sure but central banks are not unstable.
By the way – if you are new to the metals don’t be in a hurry. The process of protecting yourself financially with real gold or silver bullion has been around for a long time and can be abused when prices move higher. Avoid pressure from telemarketers who are on commission – and especially avoid promises of quick profits – a sure sign that the dealer will be the only one who makes money. Be careful if the dealer calls you all the time with the “latest and greatest”. Take your time in the process – sleep on the idea – and make an informed decision.
The GoldDealer.com Unscientific Activity Scale is a “4” for Friday. The CNI Activity Scale takes into consideration volume and the hedge book: (Monday – 5) (Tuesday – 6) (Wednesday – 5) (Thursday – 6). 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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