Commentary for  November 10, 2016 (www.golddealer.com)

Gold Market Newsletter with Richard Schwary

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

Gold closed down $10.40 today at $1264.90. Gold is weak today because the dollar is higher – the Dollar Index moved from 98.25 to 99.25 today before settling somewhat. So let me ask you a question What is the Trump Effect on gold ? – are bonds moving higher because Wall Street sees the Trump victory as pro-business – and so the Federal Reserve will be moving away from the possibility of negative interest rates? That would further encourage the much talked about ¼ point rate hike this December. I have posted James Bullard’s comments below for this interesting wrinkle – and note – if this is a “one and done” it will be good for gold.

I guess every industry loves to write commentary expressing opinion – but the gold industry is especially prone to jump on anything from an actual fact to just a rumor. The more raucous or outrageous the better and the reason being is that the plain truth is just not very exciting. The amazing underdog win by Trump is a perfect example. Of course everyone is talking about the first 100 days – Trump and his transition team will not get much sleep – there are dozens of appointees to be chosen and everyone will be eager to hear just what his priorities are going to be – dismantling Obamacare – boarder protection – immigration.

Trump effect on Gold

No one really knows yet just what this new president is all about but the country certainly wants to try something different. Speculating on the price of gold relative to Trump might be fun but I’m afraid it won’t be very productive.

Some of the notions being floated at this early date are that Trump will be another FDR, creating mountains of fiat paper to finance building projects coast to coast. The result might be a much higher inflation rate which would push the price of gold to record highs. Good luck on that one – when President Obama took office the National Debt was around $10 trillion dollars – today most academics agree it is twice that amount – and we have not seen a whiff of inflation.

The common wisdom going into this election was that a Trump win would panic the stock market and send gold through the roof. Never happened – in fact just the opposite occurred – once the shock factor player out gold moved to unchanged – the stock market turned around and finished on a positive note approaching another record high.

What is going on here and how does this outsider help or hurt the price of gold?

It might be that Trump will follow the Reagan model and perhaps get this country on its feet.

Since 2013 the price of gold has pushed on both sides of $1,200.00 – down from the 2011 high of $1,800.00. It has remained stuck in a boring price range for 3 years waiting for something big to happen – something which will bring in that much needed fresh and long term buyer.

It took a full-blown financial crisis (2008) and three years of banking fear (2011) to push the price of gold to its last high of $1,800.00. It seems to me that a new president who is actually a business man and in fact has moderate leanings (he spent most of his life as a Democrat) does not fit the bill as the new super-surrogate destined to push the price of gold through the roof. Now don’t get me wrong – there are a litany of things which might push the price of gold to new all-time highs – but this president does not strike me as a hot new addition to the list.

Silver closed up $0.27 at $18.69.

Platinum closed down $20.00 at $980.00 and palladium closed strong again up $15.00 at $696.00 – this has to be related to recent Russian aggression.    

This from Reuters – US election outcome leaves Fed on track, could end gridlock says Fed’s Bullard – The Republican sweep of the White House and Congress could break the current gridlock over national policy in a potential boon to the U.S. economy, St. Louis Federal Reserve bank president James Bullard said on Thursday

Bullard said the potential positives from Tuesday’s outcome, including the possibility of regulatory reform and a boost to growth through new infrastructure spending, for now outweighed any concern about volatility in financial markets surrounding President-elect Donald Trump’s surprise victory.

“It is not a level of volatility that is troubling … It certainly breaks gridlock in Washington, which has been a key complaint of how the economy has operated,” Bullard said to reporters after a morning presentation here. “We are basically on track the same way we were before the election.”

The Fed has positioned itself for a likely interest rate increase in December. Despite expectations that a Trump victory might disrupt financial markets, or even threaten a trade war with his promise of new tariffs, equity markets have moved higher so far and investors maintained their expectation that the Fed will move next month.

Trump had been critical of the Fed during the campaign, and his victory coupled with Republican control of Congress could open the door for approval of a variety of proposals to bring the central bank under closer control of Congress.

The central bank has two open seats on its seven-person board of governors, and Trump will have the chance to appoint a new chair in 2018, when Chair Janet Yellen’s term expires. Bullard said he did not think any of those facts will dramatically change the course of U.S. monetary policy.

“They have bigger fish to fry,” Bullard said of an incoming administration that has promised major changes to national health care policy, a major infrastructure spending program and tax cuts.

“The Fed has done a very good job and … even if you had a whole different group of people on the (Federal Open Market Committee) they would have come to the same conclusions,” about how to dig out from the crisis and set policy in recent years, Bullard said.

Even as Trump adds his stamp by making appointments, Bullard said he felt the Fed’s structure, with seven board members serving 14 year terms and 12 regional bank presidents who are hired by private boards of directors, would ensure policy remains “at arm’s length” from political demands.

This is our usual Thursday Chicago Mercantile Exchange report covering the last 5 trading days – so we are looking at the trading volume numbers for the “October” Gold contract: Thursday 11/03 (368593) – Friday 11/04 (367240) Monday 11/07 (343547) Tuesday 11/08 (330119) – Wednesday 11/09 (318162).

We have introduced “Silver” to our CME rundown – so we are looking at the trading volume numbers for the “October” Silver contract: Thursday 11/03 (131458) – Friday 11/04 (131227) Monday 11/07 (123017) Tuesday 11/08 (115733) – Wednesday 11/09 (107613).

The walk-in cash business was not hot but busy over lower prices – the phones were on the quiet side.  

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) (Monday – 6) (Tuesday – 4) (Wednesday – 4).

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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