Commentary for Wednesday, May 13, 2015 (www.golddealer.com
By Ken Edwards and Richard Schwary of California Numismatic Investments Inc….
Gold closed surprisingly higher today up $25.50 on the Comex to a more respectable $1218.40. This after yesterday’s push to the upside of $9.40 is happy news but let’s not count our chickens just yet. This type of price reversal should be looked upon with some trepidation considering gold’s recent trip to the woodshed – a trip which had professionals wondering if the magic $1140.00 line would hold.
Gold’s move to the upside today is dollar driven – the Dollar Index closed yesterday at 94.56 and has since moved lower reacting to disappointing retail sales numbers. The Dollar Index today has traded between 93.60 and 94.59 coming in at 93.61 as of this writing – so we are about a full point lower than we were yesterday. It is not that we are doing badly we are just not doing as well as expected and US consumers are wary. Actually I think they have overhyped the jobs recovery – who is making all the big money that is supposed to be spent on consumer goods?
At any rate today’s action in gold shows how sensitive prices are to Federal Reserve interest rate expectations. Anything that might delay the much talked about rise in our interest rates is good for the price of gold. Also note that the euro is doing well against the dollar and Greece made their latest payment to debt holders which also helped push the dollar lower.
This from CNBC/Reuters – US retail sales unchanged in April on weak autos, furniture – “U.S. retail sales were unchanged in April as households cut back on purchases of automobiles and other big-ticket items, suggesting the economy was struggling to make a strong rebound after barely growing in the first quarter.
The Commerce Department said on Wednesday retail sales for March were revised up to show a 1.1 percent increase instead of the previously reported 0.9 percent rise. Economists polled by Reuters had forecast retail sales rising 0.2 percent last month. Retail sales excluding automobiles, gasoline, building materials and food services were also unchanged after an upwardly revised 0.5 percent increase in March.
The so-called core retail sales correspond most closely with the consumer spending component of gross domestic product. Economists had forecast core retail sales rising 0.5 percent in April after a previously reported 0.4 percent increase in March. Retail sales have trended weaker despite households getting a massive windfall from lower gasoline prices. Consumers appear to have saved much of the money from the cheaper gasoline.
The weak report was the latest sign that while the economy was finding its footing at the start of the second quarter, it was not doing so at a pace that would convince the Federal Reserve to tighten monetary policy before September. The economy was walloped by a mix of bad weather, disruptions at ports, a strong dollar and deep spending cuts by energy firms. The government reported last month that GDP expanded at a 0.2 percent annual pace in the first three months of the year. Trade and wholesale inventory data published last week, however, suggested the economy actually contracted. The government will release its GDP revision later this month.
Retail sales last month were curbed by a 0.4 percent drop in receipts at auto dealerships. Sales at service stations fell 0.7 percent. Sales at electronic and appliance stores slipped 0.4 percent, while receipts at furniture stores declined 0.9 percent.
There were some pockets of strength, with receipts at clothing stores up 0.2 percent, likely as consumers took advantage of Easter holiday discounts. Receipts at online stores increased 0.8 percent, as did sales at sporting goods stores. Sales of building materials and garden equipment rose 0.3 percent. Sales at restaurants and bars increased 0.7 percent.”
Silver closed up a big $0.70 at $17.21. Still physical action remained soft – but let me once again point out that if your real intention is to own physical silver bullion don’t let the asking price cloud your decision. Just because prices have been cheaper does not mean much – especially in a market where the buying base is large and there is a large discount to the old high.
Platinum closed up $18.00 and $1150.00 and palladium was higher by $4.00 at $789.00.
This latest jump in price obviously improves gold’s technical status. The close today of $1218.40 is above all three averages – meaning the momentum in this market favors higher prices. This can be seen in the moving averages – 50 Day Gold Moving Average ($1189.00) – 100 Day Gold Moving Average ($1211.00) and the 200 Day Gold Moving Average ($1218.00).
A two day pop to higher ground in gold however does not retire bearish opinion. But gold’s ability to hold a tight trading range continues to impress. Look at the trading range this past 60 days and you will see that in early March gold moved from the solid long term support line of $1150.00 up into the band of prices between $1180.00 and $1210.00. And since March 20 th we have remained in that higher “up and down” channel.
The Dollar Index has weakened reflecting a weaker US Treasury market and a stronger euro but the longer term Dollar Index is a better measure to get a feel of this relationship. In February and March of this year the Dollar Index moved to 100.00 – pretty strong action – gold moved from $1220.00 to test a new recent low at $1160.00. In this case it’s pretty clear a stronger dollar sent the gold bulls running for cover.
But again the larger gold picture is more accurate for today’s physical (long-term) investor. The strong upside rally everyone enjoyed in gold beginning in 2015 and its subsequent failure should not have surprised. It was just another bear market rally – there have been 4 such technical moves to the upside – all failing since May of 2013.
The technical picture for gold improved today – it’s still defensive in nature because of the sell-off in November of 2012 ($1800.00). The important thing to note however – the rate of decline has slowed considerably. This would indicate that the market is trying to find its legs – unwinding if you will and testing for a bottom. This longer-term support between $1140.00 and $1200.00 suggests solid physical support for those who really want to own the physical metal.
When gold began to move off its high-water mark in August of 2011 ($1900.00) most of the “hot” money decided to look elsewhere. This loss of buzz contributed to gold’s rapid decline but over speculation is always the end result in the fast-paced and volatile commodity markets.
What you are seeing now is a gold market readjusting itself and looking for that balance point where real physical demand will be met either from the usual suspects (China and India) or from safe-haven buying in a world of fiat money production. Patience is still required but let’s be happy we are heading in the right direction.
This is our usual ETF Wednesday information – these metrics are important to individual physical investors because they provide clues as to whether the physical market is enthusiastic and adding metals or is disappointed and selling metals.
All Gold Exchange Traded Funds: Total as of 5-06-15 was 52,253,136. That number this week (5-13-15) was 51,926,827 ounces so over the last week we dropped 326,309 ounces of gold.
The all-time record high for all gold ETF’s was 85,112,855 ounces in 2013. The record high for Gold ETF’s in 2015 is 53,901,867 and the record low for 2015 is 51,057,082.
All Silver Exchange Traded Funds: Total as of 5-06-15 was 622,120,757. That number this week (5-13-15) was 617,637,749 ounces so over the last week we dropped 4,483,008 ounces of silver.
All Platinum Exchange Traded Funds: Total as of 5-06-15 was 2,564,601 ounces. That number this week (5-13-15) was 2,575,222 ounces so over the last week we gained 10,621 ounces of platinum.
All Palladium Exchange Traded Funds: Total as of 5-06-15 was 2,950,501 ounces. That number this week (5-13-15) was 2,958,188 ounces so over the last week we gained 7,687 ounces of palladium.
The walk-in cash trade today was slow (amazing) to moderate – even with a two day pop in prices the physical cash action remains subdued. There is business no doubt but considering the big reversal in prices I would have expected more. The national phone trade was equally quiet meaning the general public still remains cautious. Still the Activity Scale is solid (5) which would indicate that we are attracting less small trades and more large trades.
The GoldDealer.com Unscientific Activity Scale is a “ 5” for Wednesday. The CNI Activity Scale takes into consideration volume and the hedge book: (last Thursday – 4) (last Friday – 5) (Monday – 4) (Tuesday – 2). 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”.
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