Commentary for Monday, February 29, 2016 (www.golddealer.com)
By Ken Edwards and Richard Schwary of California Numismatic Investments Inc ……
Gold closed up $14.10 at $1233.90 on the Comex today. China claimed it would lower bank reserve requirements in an attempt to stimulate – which favors the fear that something is not right. But I just don’t get it – their “trouble” is a growth rate that everyone would love to own.
At any rate the best case I can make is that China is so big that any slowdown will give them a cold and the rest of the world pneumonia. This “slowdown” fear continues to linger but has settled down these past few weeks as European world financial markets get on their feet.
It’s not that anyone out there is happy – the latest European inflation rates are again in the negative – this puts pressure on Mario Dragi and the European Central Bank (ECB) to continue their quantitative easing program. The best they can hope for is something like the US “recovery”. But what is at the core of world financial concerns is a new question. Will the usually reliable QE formula work? Will fiat money production lead to moderate inflation. Will this result lead to better economic growth – more consumer spending and jobs creation?
This is a nagging question because some economists believe that there is a limit to what government and central banks can accomplish with monetary policy. And if money remains too cheap for too long there are anomalies in the system which create trouble.
You can’t really offer the dollar as a prime mover in gold today – the Dollar Index last closed at 98.16 and as of this writing we are about unchanged. And crude oil has been generally stronger today at $33.38. The technical picture favors gold on the 30 day chart and we are up $125.00 over the past month but since early February gold has traded between $1200.00 and $1240.00 so we are rather flat.
Silver closed up $0.18 at $14.89. Business across the counter remains steady from the usual suspects – what bothers me about this market is that I am not seeing a great deal of new money and new business. This is especially true considering gold has had a decent run since the beginning of the year but silver seems like it needs some help. Consider the trading range – last year we saw a low of $13.75 and this year a recent high of $15.75.
Platinum closed up $19.00 at $933.00 and palladium closed up $14.00 at $494.00. Plenty of action here as platinum is trading for $300.00 less than gold and while this differential goes flat from time to time most investors sense that this imbalance will not last forever.
This from Associated Press – US consumer spending up solid 0.5 percent in January – The economy got off to a good start in the new year. Americans boosted their spending in January at the fastest pace in eight months, while their incomes increased by the largest amount since June.
Consumer spending rose 0.5 percent last month, up from 0.1 percent in December, the Commerce Department reported Friday. Incomes also grew 0.5 percent in January, up from 0.3 percent in December.
Consumer spending accounts for two-thirds of economic activity, and the solid showing is likely to bolster expectations that consumers will fuel overall economic growth this quarter.
A key price gauge increased 1.3 percent in January compared to 12 months ago, nearly double the 0.7 percent gain seen in December. The Federal Reserve has said an acceleration of inflation will be a key factor determining the pace of future interest rate hikes.
Inflation is still running below the Fed’s target of two percent annual increases. But a 1.3 percent gain over the past 12 months is significantly closer to that goal than the readings over the past year. Fed Chair Janet Yellen had been predicting that inflation would start to move higher this year as the impact of last year’s steep declines in energy prices start to fade.
The Fed boosted a key interest rate by a quarter-point in December, the first increase in nearly a decade. But Fed officials left rates unchanged in January and are not expected to raise rates at their next meeting in March.
Private economists have trimmed their forecasts for rate hikes this year from four to just two, with the first hike expected in June. However, if inflation rises more quickly than expected, they may adjust those forecasts.
A separate report Friday showed that the overall economy grew at an annual rate of 1 percent in the final three months of 2015. Economists believe stronger spending will boost GDP growth to around 2 percent in the current January-March quarter.
The above information from AP is worth noting. If you believe that the direction in the price of gold is uncertain – welcome to the group. When rumors of financial troubles in China pushed the price of gold to the $1250.00 level a fair number of commentators turned positive. Gold had regained its luster and re-earned its place as a legitimate tool for balancing risk in a world gone crazy for corporate leveraged paper currency. And when Europe did not perform the same commentators claimed further rate hikes were off the table – a big plus for gold – if true.
Well – all these higher numbers for gold have just served to confuse the entire mess. Because the gold community has fixated on “the big turnaround” theory – instead of being happy with the notion that at least gold has a pulse in a world of fiat currency.
The AP post is important to note for long term planners – if our economy continues to improve and the FOMC raises interest rates again it will not be good for the price of gold. So rather than opine about a turnaround let’s simply take advantage of price dips to cost average. I have a feeling that without a big comeback in inflation the price of gold will remain range bound and volatile – but viable as that all important insurance check.
The walk-in cash business ranged from very quiet to very busy – the phones ditto.
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 “6” for Monday. The CNI Activity Scale takes into consideration volume and the hedge book: (last Tuesday – 7) (last Wednesday – 6) (last Thursday – 4) (last Friday – 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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