Commentary for Wednesday March 10th , 2015 (www.golddealer.com)
By Ken Edwards and Richard Schwary of California Numismatic Investments Inc.………
Gold moved lower today on the Comex down $6.30 to close at $1160.10. So yesterday’s small gain was indeed a dead cat bounce – and this close was the cheapest gold has traded this year.
Weakness in gold is created by the stronger dollar – helped by stronger employment numbers and the possibility of the Federal Reserve raising interest rates perhaps by summer. There is a case to be argued that the Fed has no reason to push interest rates higher on the shorter term especially because Europe and the euro are struggling.
Why make the dollar even stronger with an interest rate hike? Dollar strength this morning was being blamed for weaker stocks. And a stronger dollar does have a negative effect on US business that exports. Further higher rates will hurt an already troubled housing industry.
Sales of gold bars and coins are picking up (lower prices) and this is interesting: suppliers in Europe report significant delays in product delivery.
Silver closed down $0.14 at $15.61. We are entering the usual sweet spot for physical silver bullion buyers across the counter but there have been several very large silver bullion sellers at current levels.
Platinum closed down $18.00 at $1130.00 and palladium closed down $19.00 at $803.00. Larger supplies of physical platinum bullion remain thin – the Australians are still producing the Platypus (a great bullion coin because it comes encapsulated) but other mints are out of the game at the moment.
The one year gold chart will prove interesting. During the past 12 months gold has traded up to and slightly over the $1300.00 level on three occasions. Generally speaking however the overall trend has been negative as gold moved from a high of $1350.00 to a low of $1150.00 – testing that recent low around October of 2014 and more recently again in March of 2015.
So the big question is whether gold will hold the double bottom we have seen during this past year at $1150.00? The case for holding this lower ground is time (we have traded toward this lower limit twice in 12 months and it has held) and physical demand (the demand from China, India and now perhaps Europe increases directly as the price of gold moves lower).
In today’s action there seems to be some light bargain hunting as we approach $1150.00 and perhaps even short covering because of an uncertain Europe and Greece.
But these supportive factors are minor relative to the big negative – dollar strength. Supported by European fears and the possibility of a Fed rate hike it looks like the dollar will remain king of the jungle.
Last Friday the Dollar Index range was 96.30 through 97.73. Today this range has been 97.78 through 98.60 and is 98.55 as of this writing – so the dollar is raging.
If the Dollar Index continues higher you have to figure this lower gold level ($1150.00) will be tested. A further break to the downside in gold would trigger a great deal computer trading and confirm a market which is technically damaged and not just range bound.
Perhaps a break below $1150.00 and then reasonable consolidation is just gold needs to get on its feet. This break however is not assured – the minority view is that gold has already entered its bottoming phase and the physical market will reassert itself.
No one really knows for sure at this point because there are many variables – weakness in the stock market this morning for example is being cited for some gold safe haven buying.
So keep you powder dry and be patient – it won’t take long for gold to signal its new direction especially as Europe defines it quantitative easing program.
I thought Gartman’s CNBC commentary yesterday was interesting. The Gartman Letter is read by many banks and brokerage firms – and as of January 2015 he has changed course – now shorting stocks. The European Central Bank began buying bonds Monday and Dennis Gartman claims there are not enough bonds to support the effort. The result being that European equities will rise in value as the euro continues to move lower. How long will the euro weaken? Perhaps a year or more and during this time interest rates in the US will rise relative to interest rates in Europe. How this will play out in the physical gold market remains to be seen but the EU program is now $60 billion euro each month. Remember Gartman claims there are not enough bonds to go around even though the ECB will not admit to a shortfall. It might once again be time to hold on to your hat.
This is also interesting – not long ago Jim Cramer from MadMoney recommended gold! “Jim Cramer is teaching investors a new way to diversify their portfolio. The old school method of picking stocks in each sector will no longer protect your portfolio.
Instead, Cramer has created five buckets of stocks that will shield a portfolio while obtaining maximum gain. He thinks every homegamer should have no more than 10 to 15 stocks, consisting of high-yielding stocks, growth stocks, speculative stocks, a healthy geographical stock and gold.
Yes, that’s right. Good old gold.
Gold brings a special element into a portfolio, one that makes it different from all other metals. However, Cramer warned that this one should not make up even 20 percent of an investor’s portfolio. That is way too much.
“I think that 10 percent is the upper limit because I consider gold as an insurance policy and no worthwhile insurance policy should be 20 percent of the money you have invested,” the “Mad Money” host said.
Cramer recommends gold because it tends to go up when everything else is going down. It is the investors’ insurance against geopolitical events, uncertainty and inflation. Granted, this may sound like a terrible idea since gold has not done anything spectacular in a few years. However just as you wouldn’t own a home or car without insurance, you shouldn’t have a portfolio without gold.
Do you get upset when your insurance doesn’t go up in value? No. So, don’t ridicule gold. Owning gold is not about upside potential. It is about minimizing risk to the downside.”
This from David Stockman (Contra Corner) – Six Years of Bull Market Bull – “The more important point, however, is that all of these bull market stimulants are now in the rear-view mirror. Thus, the global economy is rapidly cooling under the double whammy of $200 trillion of credit market debt compared to $140 billion prior to the financial crisis; and profitability is being hammered by a deflationary crunch in the energy, materials and industrial sector and by the rising dollar exchange rate propelled by the global scramble to fund massive amounts of off-shore dollar debts.
So six years on from the bottom the market is now chasing its own tail, valuing artificially inflated earnings at nosebleed PE multiples and buying the dips on any faint sign that the central bank stimulus drugs will be dispensed for a while longer. All the while, of course, the fundamental malady that triggered the last crisis goes unrelieved – namely, the crushing burden of public and private debt that has been enabled by more than two decades of drastic financial repression and systematically false pricing throughout the financial markets.
In fact, the US economy now has $8 trillion or 16% more public and private debt outstanding than it did when the “debt crisis” first incepted in Q4 2007. Once upon a time it was understood that nations cannot borrow their way to prosperity. By contrast, today’s celebrants of the 6-year “bull market” are apparently happy to believe that wealth can be manufactured out of thin air by central bank printing presses. That amounts to something for nothing. Its never worked before, and most assuredly this time is not different.”
The walk-in cash trade was average today – a few big sellers of silver bullion and public buying of gold bullion is picking up. The phones were normal to quiet – it may be time to reconsider the popcorn machine.
The GoldDealer.com Unscientific Activity Scale is a “ 4” for Tuesday. The CNI Activity Scale takes into consideration volume and the hedge book: (last Wednesday – 4) (last Thursday – 4) (last Friday – 5) (Monday – 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”.
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