Commentary for Monday, December 12, 2016 (www.golddealer.com)

Gold Market Newsletter with Richard Schwary

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

Gold closed up $3.90 at $1165.80 – not much but it could be important. An interesting price pattern in gold today considering this Tuesday and Wednesday will be dominated by the latest FOMC information including a visit with Janet Yellen.

This week will be the last chance the Federal Reserve has to raise interest rates in 2016 and most believe we will see a small hike of perhaps a ¼ point. This seems reasonable because our economy seems to be doing fairly well according to the latest government numbers and the Trump rally has pushed stocks to all-time highs.

So why is gold trending higher in the domestic trade? You would think prices would be moving lower given the impending rate hike.

Look at the Dollar Index – it’s weaker – it last closed at 101.64 and today is trading around 100.95 – it should be stronger considering Yellen is on deck. Is it possible that traders think the FOMC will once again balk? If this happens gold is good for another $50 to the upside but it’s unlikely. The better question is will a small hike push gold considerably lower?

I don’t think so – a rate hike will certainly keep gold off balance but this market has been almost entirely defensive for some time over interest rates and the Trump rally so the bad news may already be priced in as 2016 draws to a close.

So it may not be this rate hike that has everyone worried. Some traders believe that a “strong economy” might push rates higher as the demand for cash increases. I would not get carried away – this president is not even in office and everyone is counting the profits. It might be time to remember the old 16th century English proverb – “If wishes were horses, beggars would ride”.

There are a few outside factors which are worth your consideration. The latest news from India is not good (see the Reuters report below) and the rising price of oil. Both of these may prove more interesting in 2017 but for the time being all eyes remain on the FOMC. Their meeting will be today and Tuesday and public discussion will begin after the market’s close this Wednesday.

Apparently a deal between OPEC and its partners has been struck to limit crude oil production and this has pushed the price of crude oil to the highest level we have seen since the summer of 2015. It remains to be seen if this “joint agreement” will prevail however because it depends on everyone in the group staying within their quotas – something we have not seen lately. Still the price of crude oil this morning moved to $53.11.

The usual wisdom here is that sustained higher oil prices settles Europe and suggests that economic expansion may be getting on its feet. The flip side of the coin is that sustained higher prices in oil might suggest that inflation is beginning to build so these two opposites will have to play out however I don’t think a simple agreement absent of any work by all the parties will do much to change the gold price picture – especially if traders think this latest OPEC move is simply window dressing.

Black Money

It is estimated that one-third of India’s annual gold demand (800 tonnes)
is paid for in “black money”

This from Jadhav and Tripathy – India’s top gold import bank suspends bullion dealers accounts – MUMBAI, Dec 12 (Reuters) – Axis Bank Ltd , India’s top importer of gold, has suspended the bank accounts of some bullion dealers and jewellers after two of its executives at a branch were arrested over alleged money laundering.

The move is likely to curtail imports by the world’s second-biggest gold consumer this month and could weigh on global prices already near their lowest level in ten months.

“We have temporarily suspended transactions in a few current accounts as a part of a larger enhanced due diligence exercise being conducted on transactions post-demonetisation,” the bank said in an e-mailed reply to questions from Reuters.

Prime Minister Narendra Modi scrapped 500-rupee and 1,000-rupee banknotes on Nov. 8 in a bid to flush out cash earned through illegal activities, or earned legally but never disclosed to tax authorities. There have also been reports of people rushing to buy gold by paying as much as a 50 percent premium above official prices using their unaccounted money to skirt the note ban. Axis did not directly comment on the arrests. Last week the Enforcement Directorate, a government agency that fights financial crime, said it had arrested two Axis bank employees for allegedly helping launderers to buy gold with the help of scrapped notes.

The bank said the suspended gold dealers’ accounts will be restored over the next few days after an “enhanced due diligence process”.

A Chennai-based bullion dealer, who declined to be named, said the bank had frozen his account without giving a reason. Half a dozen other dealers in Kolkata, Mumbai, Ahmadabad and New Delhi also confirmed the freezing of their Axis accounts.

The move has brought bullion trading to a standstill, with jewellers fearing attention from government agencies if they make large purchases, said Harshad Ajmera, the proprietor of JJ Gold House, a wholesaler in the eastern Indian city of Kolkata.

It is estimated that one-third of India’s annual demand of around 800 tonnes is paid for in “black money” – the local term for untaxed funds held in cash by citizens that do not appear in any official accounts. Jewellers and bullion dealers are deferring purchases and gold imports in December could fall to 30 tonnes, down from 107 tones in the same month a year ago, said a Mumbai-based dealer.

In November the country’s gold imports jumped to around 100 tonnes, the highest in 11 months. Axis, India’s third-biggest private sector bank, said last week it had suspended 19 employees over alleged breaches at one of its branches in implementing a government-ordered exchange of high-value bank notes.

Silver closed up $0.22 at $17.19.

Platinum closed up $18.70 at $933.70 and palladium closed down $7.50 at $727.55.

The walk-in cash trade was nothing to write home about and the phones were also slow – we are beginning to reflect the usual holiday slowdown – and when the FOMC are meeting and in their “quiet time” it pretty much equals a boring market.   

Holiday Update – GoldDealer.com will be closed Friday (Dec 23) and Monday (Dec 26) for Christmas. And a reminder that delivery times can slow by as much as a week during the season.

A special wish from our family to yours – that each of you enjoy a blessed season.

The GoldDealer.com Unscientific Activity Scale is a “4” for Monday.

The CNI Activity Scale takes into consideration volume and the hedge book: (last Tuesday – 6) (last Wednesday – 6) (last Thursday – 4) (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 increasing – it would indicate things are busier – decreasing numbers over a longer period would indicate volume is moving lower.

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