Commentary for Friday, June 3, 2016 (www.golddealer.com)
By Ken Edwards and Richard Schwary of California Numismatic Investments Inc ……
Gold closed up $30.90 on the Comex today at $1240.70 so it continues to surprise. Of course the reason gold popped to the upside was the dismal jobs’ number. This was not what Janet Yellen and crew were looking for in an attempt to support their more optimistic opinion of our recovery.
But like so many other things relating to the current financial and political regime I would not overreact. I would expect this picture to change quickly and become more bizarre. The jury was spit over how much gold was oversold yesterday but there is no question that the uncertainty level remains high. But we are not even close to unstable, if that were the case gold would be making new highs.
Besides, today’s gained bullishness was not hard won and goes against the bearish trend that has been in place since gold failed the $1,280.00 test in early May. I suspect something is not right in Denmark and would not be surprised to see these gains disappear over the following weeks – if not the following days.
At any rate the dollar moved dramatically lower. The Dollar Index closed yesterday at 95.55 and after today economic data was released it moved to 94.09 – that is a swoon of 1 ½ points and a gigantic overreaction. Our darling dollar will eventually be seen for what it is – unbacked fiat currency – but not in one day. Expect the mighty buck to correct higher the first of next week.
There are a few things developing which will shed further light on this mess. Britain will vote June 23 as to whether they will remain part of the EU. The vote is close and keep in mind Her Majesty’s subjects still shun the euro so this might be another Tempest in a Tea Pot. At least the Brits have infrastructure and the possibility of further traction. This puts them way ahead of many deadbeat EU countries who will forever have their hand out.
And then there is Janet Yellen – she speaks early next week and her reaction to this employment information will be as good as the recent exchanges between the presidential candidates. Everyone will want to hear her thoughts but the paper market has already made up its mind that the supposed summer rate increase has been thrown overboard.
Silver closed up $0.34 at $16.34. I would point to this under reaction by silver as another reason the big move in gold will have second thoughts next week.
Platinum closed up $22.00 at $982.00 and palladium was up $15.00 at $549.00.
This from Jeff Cox (CNBC) – US created 38,000 jobs in May vs. 162,000 expected – Job creation tumbled in May, with the economy adding just 38,000 positions, casting doubt on hopes for a stronger economic recovery as well as a Fed rate hike this summer.
The Labor Department also reported Friday that the headline unemployment fell to 4.7 percent. That rate does not include those who did not actively look for employment during the month or the underemployed who were working part-time for economic reasons. A more encompassing rate that includes those groups held steady at 9.7 percent.
Wall Street was looking for payroll growth of 162,000 and the unemployment rate holding steady at 5.0 percent.
“There’s one word for it, which is just shocking,” said Dan North, chief economist at Euler Hermes North America. “Unfortunately it does look like a trend. It’s not great news.”
This from Tyler Durden (ZeroHedge) – Jim Grant: Gold Isn’t a Hedge against Monetary Disorder, it’s “An Investment in It” – Jim Grant, founder of Grant’s Interest Rate Observer has long been a proponent of gold, and equally a critic of central planners. He sat down recently for an interview at John Mauldin’s strategic economic conference to discuss his views on gold, and how he struggles to understand those who view gold as an irrelevant curiosity.
On his current view regarding gold, Grant’s humor was on display as he described to what degree he was bullish on gold, and that he wouldn’t categorize gold as a hedge against monetary disorder but rather a bet on it.
“This is not going to be any news; Jim Grant is bullish on gold. The degree I would characterize as ‘very’. I would characterize gold not so much as a hedge against monetary disorder, but as an investment in it. People will say well that’s a hedge against Armageddon, no, Armageddon doesn’t’ happen mostly, but what we are in the midst of is monetary shenanigans, and I see no real chance of being fewer of them, and a great chance there will be more of them.”
Regarding Western central banks having different ideas on whether or not to even own gold, for example the Canada, who recently sold all of its gold reserves, Grant pokes a bit of fun at the monetarist view of the world, and cautions that when Western central banks start to sell gold it’s time to pay attention because that’s a signal of significant distress in the world.
“Western central banks to the extent that they are run by people who follow the educational path of Janet Yellen, and Ben Bernanke, and Mervyn King and MIT people I think they have one view which is that gold is a curiosity, it’s like a monetary tonsil. It’s this thing of ancient standing of no immediate relevance so they can’t explain it they don’t know what to do with it.”
“Gold however has its fans in the East and gold is moving from West to the East. When Western central banks do sell as the Bank of England did in the late 90’s, as little Venezuela did in the first quarter and is probably doing now, typically those are moments to pay attention because they’re moments of distress in the world”
“People who hold the view that the stewards of our paper and digital currencies have the answers, that this monetary improv conducted for the past seven or eight years by the world’s Western central banks and certainly Japan, that this is the way forward. I try to understand what they’re saying but I can’t make head nor tail out of it. It seems to me the opposite is so obvious that sometimes I wonder if I’m seeing things.”
On what investors can do to protect themselves from what is coming (other than gold), Grant recommends holding cash (just as Grant Williams said as well).
“Cash is invariably a nice thing to have, even though it yields nothing it’s an option, it gives you the flexibility to move and to buy things.”
“Years ago a friend of mine had this conversation with a very wealthy client, and the client said ‘there’s one thing I never want to have to say, that I used to be rich’. So what cash does for an investor who has some of it, cash allows you to retain wealth with an eye to being opportunistic at that moment that no one wants the things that are now so popular.”
“If you were to have partaken in opportunities presented in the first quarter of 2009, or the final few months of 2008 those desperate times, you saw the most ordinary businesses that saw their stocks go up 8, 9, and 10 fold. Now that’s not going to happen every ten years but it does happen, and is especially likely to happen it seems to me when central banks are manipulating asset values to the upside. One of the great senses of armor for investing is to be very mindful of margin of safety. Having a margin of safety with regard to the price, make sure that what you’re getting is cheap so you can afford to have those mistakes you invariably make. The trouble with buying things when they’re up apart from the fact that there’s so little arithmetic value is that you have to be right.”
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 6 believe gold will be higher next week – 2 think gold will be lower and 1 thinks 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: 43 people thought the price of gold would increase next week – 45 believe the price of gold will decrease next week and 12 think prices will remain the same.
Precious Metal Closes & Dollar Strength – May 30 – June 3
This from FXEmpire – “TD Securities describes the slide in gold the last couple of weeks as a “correction” and “profit-taking” rather than anything more ominous. Precious metals were on the defensive due to concerns about potentially higher U.S. interest rates. “Still, the slide throughout May alongside the stronger dollar and renewed focus on rising U.S. interest rates should be looked upon as a badly overdue correction and profit-taking, not the beginning of an outright rout,” says TDS in a weekly commodities report. “As far as we are concerned, money managers have merely reduced their overextended net-long positions.” Analysts note expectations are that the Fed will likely only lift rates by a collective 75 basis points this year and next, and while headline inflation may rise as energy prices increase and the U.S. economy recovers, real rates may not move much higher.
Commerzbank reported that global exchange-traded-fund demand for gold was strong in May, suggesting the weakness in price for the precious metal was due to speculative selling, says Commerzbank. “Gold ETFs recorded no significant changes yesterday, meaning that May saw inflows of just shy of 84 tonnes,” the bank says. “Only in February have inflows been higher this year. What is remarkable is that the inflows happened despite the gold price falling by 6% in May, which constituted its steepest monthly decline since November 2015. Thus the price slide in May was attributable above all to speculative selling.”
Initial data is indicating that US inflation is beginning to climb as oil prices realized over a 35% increase send the beginning of the year. Markets are looking ahead, possibly to a measured Fed tightening cycle that might chase a bit of inflation. Gold appears to be consolidating a base above $1,200/oz. The March, April and May monthly gold lows were $1,208, $1,209, and $1,200/oz. respectively. In spot gold, $1,200/oz. is approximately the 100-week moving average, now holding support for the first time since early 2013. In January 2015, gold topped just above $1,300/oz., which was the 100-week moving average at that time. It held resistance then.
It is unprecedented for the Fed to sustain a tightening cycle in the midst of a global declining GDP deflationary environment, while most major central banks are easing, bond yields are trending lower with many sovereign bonds in negative territory and in the aftermath of a collapse in commodity prices.”
The walk-in cash business was solid today – big buyers stepped up so apparently the public does not share my suspicion about today’s higher move in gold. The phones were also busy until after lunch but things slowed considerably later in the day.
The GoldDealer.com Unscientific Activity Scale is a “6” for Friday. The CNI Activity Scale takes into consideration volume and the hedge book: (last Friday – 7) (Monday – closed) (Tuesday – 7) (Wednesday – 5) (Thursday – 7).
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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