Commentary for Tuesday, Nov 11th, 2014 (www.golddealer.com)
By Ken Edwards and Richard Schwary of California Numismatic Investments Inc.………
Gold closed up a surprising $3.20 today at $1162.80 after being down and under pressure at the beginning of the trading session.
The pressure was created because of the expectation of higher interest rates and subsequently a stronger dollar. In this session gold did trade as low as $1145.00 but was unable to match last week’s low of $1142.00.
This may not sound like much but in this generally negative market this indicates the direction for gold may not always be down – even if technically challenged. There are a lot of moving parts to gold pricing these days – many of which have been moved to the back burner but can be reinvented overnight.
All of this keeps the short paper trade on a tight line – ready to cover at any time and this creates action.
Gold saw a steady and firm rise beginning in the overnight Hong Kong and London markets and while the trade was choppy it did finish nicely in the domestic trade.
The Dollar Index reached a high today of 88.06 and then softened – moving down to a low of 87.37. At this time the DXY is 87.50 so this relative weakness mid trading day also helped gold move higher.
Remember this is Veterans Day so I would expect much less trading action. I would also like to thank those which have served on this special remembrance. Our staff includes members of the Air Force, Army, Marines and Navy. Two retired employees saw action in Vietnam and so our family salutes veterans and their families. Let’s make sure our veterans get the support and love they need in a world which is not so easy to figure out.
Silver closed up $0.01 at $15.66 – still plenty of physical action across the counter at that number. World mints are producing physical product 24/7 and the public is taking advantage of lower prices so while the paper markets are technically damaged the physical markets remain robust and active.
Also note that Silver ETF holdings, unlike gold holdings, have only fallen slightly – down 1.4% from the peaks and now stand at 19,790 tonnes.
Platinum closed unchanged at $1206.00 and palladium was up $6.00 at $772.00. Rhodium remains quiet – unchanged at $1230.00 – some minor trading of gold bullion for rhodium bullion.
The pop in gold prices last Friday had a number of supporting factors – I thought the Russian incursion was of primary importance. The idea that world political hot spots may create financial angst and therefore a rise in gold has recently been forgotten. Actually for several months it’s been curiously buried – the only writer who claimed this would not last long was Jim Wyckoff from Kitco.
At any rate Friday’s pop in the price of gold has recreated what I call the “war premium” for gold – a handy figure I always use is $50.00 to the upside – it’s safe, enough to get everyone’s attention but the market usually goes flat after the initial pop and when the political situation deescalates gold losses that temporary premium – like we saw on Monday.
But let me pose a question and a book you might find interesting – especially if you are a longer term planner. How dangerous can Russia become given the West and Europe’s use of sanctions? And now the book – Edward Lucas wrote the original The New Cold War in 2009 and the latest revision is available on Amazon.
This book has seen its share of criticism but is worth the read because the West needs to rethink Russia’s place as a political power in the post-Cold War era. The Russians have their own playbook which could create havoc with the West and Europe – overtime this has the power to push the price of gold dramatically.
“The New Cold War powerfully argues that America and Europe’s excessive focus on Iraq and Afghanistan has blinded them to a threat closer to home. Thoroughly informed, steeped in his subject’s recent history, with a flinty, caustic style that usually sizes up political phenomena with exacting precision, Lucas reminds us why longtime foreign correspondents surpass rookies who parachute into a foreign hotspot….Lucas offers one of the best briefs on how Yeltsin’s Wild West became Putin’s chilly petrofascism, detailing the return of rigged elections, forced psychiatric medication, the use of natural resources as foreign-policy bludgeons, and the rogue nations that are once again Moscow’s best friends.” — Philadelphia Inquirer
Now before you claim this notion of a rogue Russian bully – creating trouble is hyperbole get a copy of The New Cold War and consider the possibilities. This remains on the back-burner for now but like I said has very large potential to create changes in the price of gold.
I got this from Tyler Durden (ZeroHedge) – Greenspan’s Stunning Admission: “Gold Is Currency; No Fiat Currency, Including the Dollar, Can Match It” – For some reason, the Council of Foreign Relations, where ex-Fed-Chief Alan Greenspan spoke last week, decided the following discussion should be left out of the official transcript. We can perhaps understand why… as Gillian Tett concludes, “comments like that will be turning you into a rock star amongst the gold bug community.”
TETT: Do you think that gold is currently a good investment?
GREENSPAN: Yes… Remember what we’re looking at. Gold is a currency. It is still, by all evidence, a premier currency. No fiat currency, including the dollar, can match it.
GREENSPAN: …remember, we had that first tapering discussion; we got a very strong market response. And then we reassured everybody to have no — remember, tapering is still (audio gap) of an agreement that the central banks have made — European central banks, I believe — about allocating their gold sales which occurred when gold prices were falling down (audio gap) has been renewed this year with a statement that gold serves a very important place in monetary reserves. And the question is, why do central banks put money into an asset which has no rate of return, but cost of storage and insurance and everything else like that, why are they doing that? If you look at the data with a very few exceptions, all of the developed countries have gold reserves. Why?
TETT: I imagine right now, it’s because of a question mark hanging over the value of fiat currency, the credibility going forward.
GREENSPAN: Well, that’s what I’m getting at. Every time you get some really serious questions, the 50 percent of the gold price determination begins to move.
GREENSPAN: And I think it is fascinating and — I don’t know, is Benn Steil in the audience?
GREENSPAN: There he is, OK. Before you read my book, go read Benn’s book. The reason is, you’ll find it fascinating on exactly this issue, because here you have the ultimate test at the Mount Washington Hotel in 1944 of the real intellectual debate between the — those who wanted to an international fiat currency which was embodied in John Maynard Keynes’ construct of a banker, and he was there in 1944, holding forth with all of his prestige, but couldn’t counter the fact that the United States dollar was convertible into gold and that was the major draw. Everyone wanted America’s gold. And I think that Benn really described that in extraordinarily useful terms, as far as I can see. Anyway, thank you.
TETT: Right. Well, I’m sure with comments like that, that will be turning you into a rock star amongst the gold bug community.
The walk-in cash trade moved from very busy to slow and back again. Still not a big fresh coffee pot day so things were a little on the down side. The phones were exactly the same – very busy to quiet and back again in any given hour.
The GoldDealer.com Unscientific Activity Scale is a “7” for Tuesday. The CNI Activity Scale takes into consideration volume and the hedge book: (last Wednesday – 8) (last Thursday – 4) (last Friday – 7) (Monday – 7). 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 very busy and see a low number – or be very 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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