Commentary for Thursday February 19th, 2015 (www.golddealer.com)

richard schwary thumb Gold Market Newsletter : Gold Closes Lower as the Dollar Strengthens

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

Gold closed up $7.40 on the Comex today at $1207.10. It’s still holding the important $1200.00 level but the price action remains subdued – in overnight trading (Hong Kong and London) gold moved above the $1220.00 mark so while higher today it gave up important ground in domestic trading.

The hard line for Greece seems to be melting even though Germany is protesting. Who knows how this mess will play out? A default in Greece might mean real trouble although I think this event is way overplayed. Still no one wants to take any chances – there is even credible commentary that now claims the US will have to step up to the Greek debt plate. Put that in your pipe and smoke it!

Silver closed up $0.12 at $16.37 – cheap but physical demand across the counter seems tired. Perhaps another dip in price will be needed to get everyone excited.

Platinum closed up $5.00 at $1175.00 and palladium closed up $10.00 at $786.00. We are selling the Baird Rhodium 1 oz bar for $1300.00 delivered – cheap if you are a long term player.

Chicago Mercantile Exchange reports for the last 5 trading days – so we are looking at the trading volume numbers for the December Gold contract: Wednesday 2/11 (264,072) – Thursday 2/12 (259,753) – Friday 2/13 (257,281) – Tuesday 2/17 (262,024) and Wednesday 2/18 (261,538). Numbers are trending toward the higher end of the range – expected – this market remains confused – the bulls and bears banging away at each other.

gold_keyThe gold market continues to be defensive but firm after yesterday’s FOMC minutes release which claimed the Federal Reserve is in no hurry to raise interest rates.

This from Associated Press – Fed Officials Stress Patience in Rate Hike Talks – WASHINGTON (AP) — Federal Reserve policymakers do not appear ready to start raising interest rates anytime soon, with officials expressing concerns about inflation and lingering weakness in the labor market.

Minutes of the Fed’s Jan. 27-28 meeting released Wednesday show that officials struggled to determine the appropriate timing for a rate hike. The Fed’s benchmark interest rate has been at a record low near zero since December 2008.

The minutes indicate that officials were concerned about dropping the word “patient” to describe how long they were willing to wait, fearing that could cause an financial markets to overreact. Some officials noted that wage growth has remained weak even as the unemployment rate has declined. Others noted that inflation remains below the Fed’s 2 percent target.

The minutes were released after the customary three-week delay.

Many economists believe that the Fed will not start raising rates until June, and recent developments that have pushed inflation even farther below its 2 percent target have some analysts moving the start of rate hikes even further into the future, possibly September.

A few analysts believe it could be another year until early 2016 before the Fed starts raising rates, especially in light of the fact that the European Central Bank is poised to move in the opposite direction, moving to ease credit conditions further to battle weakness in the European economy.

Since the January meeting, job growth has been encouraging. The government reported earlier this month that the economy created 257,000 jobs in January, wrapping up the strongest three months for hiring in 17 years. The unemployment rate rose to 5.7 percent in January, up from 5.6 percent in December, but the increase came for a good reason. People who had become discouraged and dropped out of the labor market resumed looking for work.

The 5.7 percent unemployment rate is close to the Fed’s goal of maximum employment, which it pegs currently at 5.2 percent to 5.5 percent unemployment.

But the Fed is falling further from its other goal of 2 percent gains in inflation each year. Inflation has slipped further from the 2 percent target in recent months, reflecting big declines in energy prices and a stronger U.S. dollar, which makes imported products cheaper for American consumers.

The above Associated Press release describes just exactly why gold seems confused in an otherwise weak market. I still think the short trade is ready to pounce but unless the Federal Reserve confirms a rate hike they will remain interested but sidelined.

This dovish news encouraged gold traders because higher interest rates would encourage an already strong dollar pressuring gold lower over the near term.

The fact that any EU solution to the Greek debt situation has once again been delayed is also promising on the short term because it forestalls a Green exit from the European Union.

But this debt game is dangerous – this from David Stockman (ContraCorner) – Today’s Financial Thermopylae Beckons—–But Don’t Count On the Greeks – “The global financial system desperately needs a big, bloody sovereign default—-a profoundly disruptive financial event capable of shattering the current rotten regime of bank bailouts and central bank financial repression. Needless to say, Greece is just the ticket: A default on its crushing debt and exit from the Euro would stick a fork in it like no other.

But don’t count on the Greeks. Yes, their new government does have a strong mandate to throw off the yoke of its Brussels imposed bailout and associated debt servitude. Were the Syriza government to remain faithful to the raison d’etre of its wholly accidental rise to power, the task of busting the misbegotten euro project would be its own special form of god’s work.

But notwithstanding Tsipras’ resolute speeches (“We will not accept psychological blackmail”) and Varoufakis’ elaborate game theory maneuvering and hair-splitting word games, the odds are against a regime-shattering “grexit” event in the immediate future. If it does happen, it will be the result of political miscalculation among the parties, not the policy agenda and will of the new Greek government.

The problem is that to the extent that Syriza has a coherent program—-and that’s debatable—-it amounts to a left-wing Keynesian smorgasbord that will eventually drive the Greeks to clutch at any fig leaf of compromise which enables them to stay in the Euro. Unlike the Germans, Varoufakis & Co have no scruples whatsoever about central bank financing of state debts, and see the ECB as the ready-made agent of just that form of financial salvation—-for themselves and the rest of Europe, too.

So notwithstanding the current fevered tensions between Greece and its paymasters, nearly every issue of difference between them can be finessed—that is, given enough double talk, weasel words and kick-the-can windage. Certainly wordsmiths in the wee hours of the morning can find phraseology that bridges the difference between an “ extension of the current program “, as insisted upon by the Germans, and the Greeks’ most recent proposal to “proceed jointly to a successful conclusion of the present arrangements”.

Even on core substantive issues like the size of the required primary budget surplus, the target number of state employees, minimum pensions for citizens with minimum incomes, the precise slate and schedule of the state properties to be privatized —–all can be worked out during showdown negotiations. After all, these issues are all about splitting numbers and fudging timelines——the very thing that politicians were created to accomplish.

But what can’t be compromised is the one thing that ultimately counts. Namely, a substantial default on the nominal level of Greece’s staggering debts.

On that score, the EU politicians and bailout apparatchiks have taken themselves hostage. Not a single government outside of Greece could tolerate a capital call to make good on their bailout fund guarantees. That would fatally embarrass Mrs. Merkel, cause the fall of the French and Italian governments, leave financial cripples like Spain, Portugal and Ireland rampaging for relief and bring populist radicals out of the political woodwork from one end of Europe to the other. In short, to save the euro from the purported “contagion” effects of sovereign defaults, the geniuses in Brussels have effectively strapped political time bombs to their collective chest. The Greek debt guarantees are promises that dare not be activated.”

The Dollar Index is higher on the day at 94.40 – capping even modest short term gains for gold. It reached a low today of 93.84 but reversed itself in early morning trading moving to the higher end of its current range.

I also think the DOW being near a new record high takes fizz away from possible gold speculation money. The DOW has been fairly flat this week – perhaps a bit nervous but generally everyone is sticking around to count their money and that is not good for gold short term.

And the price of crude oil is concerning – we are steady on the weekly chart trading between $50.00 and $53.00 a barrel but oil industry insiders believe that we could test another new bottom under this level by as much as $10.00 based on the profitability model of production.

The 30 day gold chart has been generally lower so the market remains defensive but if gold holds around the long term support of $1200.00 we could easily put in a short term bottom supported by active physical demand.

For now most honest commentary looks for lower prices but like I said yesterday we are approaching a bottom and I don’t see a big downside here considering we are already trading at a significant discount.

Gold’s highest close was on August 22, 2011 ($1888.70) but the market actually traded higher intraday during that period ($1917.90). Compare that with today’s close ($1199.70) for a better perspective. Today’s market does not need lower prices to catch fire it only needs a change of relative attitude – as soon as investors believe this market is not going to get cheaper the picture could easily turn around in days.

The walk-in cash trade was nothing to write home about but at times was busy. The phones were the same way and we are seeing a continuation of new customer sign ups on the site so they might not be buying but they are looking carefully.

The GoldDealer.com Unscientific Activity Scale is a “ 4” for Thursday. The CNI Activity Scale takes into consideration volume and the hedge book: (last Friday – 4) (Closed Monday) (last Tuesday – 3) (last Wednesday – 3). 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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