Commentary for Monday, April 4, 2016 (www.golddealer.com)
By Ken Edwards and Richard Schwary of California Numismatic Investments Inc …….
Gold closed down $1.90 today on the Comex at $1218.30. The overnight markets were very flat – gold traded within a $5.00 range in both Hong Kong and London and the domestic market moved between $1222.00 and $1215.00 with a negative bias.
To get a better picture of what is really happening with the price of gold you will need to look at the 1 year chart. I think the problem we have now is that too many folks are concentrating on what they believe to be a new trading paradigm.
This is reasonable in that if you look at the price of gold from late December 2015 through March of 2016 you will see what gold enthusiasts like to see – a short-term trend reversal. Gold touched down at $1050.00 and promptly moved up to over $1250.00 – this was widely heralded as gold’s return to the “safe-haven” community.
And all of this may be true for the shorter term but it is not necessarily gospel in the wider view. Once gold had gotten everyone’s attention it just as promptly turned range bound between $1220.00 and $1270.00. Devotees of this “gold has turned the corner” philosophy rightly point to the notion that core positions in gold should be held waiting for the next shoe to fall meaning the problems which drove the price of gold much higher in 2016 are still in place.
As we progress further into this New Year they will reassert themselves (China might become unstable or some EU countries might fail under the debt load). Fair enough – that is the reason most should have a core holding in gold and silver bullion as insurance – but what about investors looking for a better deal?
To me this is a more interesting question and where the 1 year price chart for gold might come in handy. We closed today at $1218.00 and if you move backward 12 months you will see that gold was trading right around this level – a few bucks on either side of $1200.00 in April and May of 2015. This number should then be seen as solid support in the sideways action we have seen since February of 2016.
A break above $1270.00 would indicate we are once again off to the races (not likely in my mind with rate hikes still on the agenda) but possible. This is because the Federal Open Market Committee (FOMC) seems to have changed its mind a few times relative to “normalization” of rates.
For years Yellen and the crew have proposed specific targets (inflation and employment) – today these seem less important and the collateral damage to world markets is part of the picture.
At any rate I think a break below $1200.00 is more likely especially if the FOMC gets more hawkish. And this lower trading range will present opportunities for further accumulation at cheaper prices.
The price paid for patience in your accumulation plan is cheap and worth consideration – if you are wrong nothing much is lost and you won’t have the feeling that you once again “chased” a phantom turnaround based on another worldwide scare that did not materialize.
Now before you start laughing hear me out on the Panama Papers scandal, especially if you are a conspiracy buff – this from the BBC:
“A huge leak of confidential documents has revealed how the rich and powerful use tax havens to hide their wealth. Eleven million documents were leaked from one of the world’s most secretive companies, Panamanian law firm Mossack Fonseca. They show how Mossack Fonseca has helped clients launder money, dodge sanctions and avoid tax. The company says it has operated beyond reproach for 40 years and has never been charged with criminal wrong-doing.”
Fair enough the bad guys got caught but what does this have to do with the price of gold. Well nothing at the moment but here is a thought about the black-hole nature of gold bullion. If you were a wealthy person interested in cheating the government out of taxes why would you choose a tax haven in Panama? My contention is that overseas tax-havens especially dubious ones are old hat – there are too many legal tools the government has to stop this type of criminal activity.
So why not consider gold bullion instead? Let me answer my own question – gold is really the perfect foil and store of wealth (legal or not legal) but is seldom used in schemes like these. The reason it is not used in a “Panama Papers” type scandal is that there is not enough available.
But also consider this outside pitch – if the government continues to crack down on illegal offshore activity it might prompt those participating to consider the safety of gold bullion and hope the government does not figure out where they are hiding the ill-gotten loot.
Silver closed down $0.10 at $14.94. This market is still sluggish in my mind but there are a few new and legitimate silver bullion commentaries which are very positive including a new look at the gold/silver trading ratio claiming a very long head and shoulders pattern which could portend much higher prices. Let’s wait and see but one thing is sure – the silver “buzz” is lacking so a good rumor may be just what the doctor ordered.
Platinum closed down $12.00 at $941.00 and palladium was off $6.00 at $555.00. For the record a repeating number in a closing price can portend a number of things depending on your nationality. There are closing numbers for example which the Chinese consider lucky and so sales of that product increase. The opposite is also true – some numbers are considered bad luck and product sales drop like a rock. In the case of today’s palladium close – numerology claims that 555 suggests a “big change is coming”. Whether this implies a higher or lower number is in the cards depends on whether you are an optimist or pessimist.
The walk-in cash business was fairly active today and so were the phones.
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 describing a profit opportunity. Take your time in the process – sleep on the idea – compare prices between dealers and make an informed decision.
The GoldDealer.com Unscientific Activity Scale is a “5” for Monday. The CNI Activity Scale takes into consideration volume and the hedge book: (last Tuesday – 4) (last Wednesday – 3) (last Thursday – 3) (last Friday – 5).
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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