Commentary for Thursday, October 27, 2016 (www.golddealer.com)
By Ken Edwards and Richard Schwary of California Numismatic Investments Inc ……
Gold closed up $2.90 at $1,265.00. The overnight market in gold was generally supportive moving higher by a couple of dollars in both Hong Kong and London but the US market broke down that same few dollars on positive pending homes sales. The Dollar Index was flat on the opening but moved up by more than half a point probably reflecting a mixed economic bag in Europe – still gold finished in the green and this range is being supported by physical buying in India during their festival season. While gold demand from China has not yet made the headlines as usual their fundamentals are solid and they will always diversify away from their stack of US dollars which continues to grow.
This from Allen Sykora (Kitco) – Commerzbank: Rise In Chinese Gold Demand To Outpace Higher Output – “China will keep importing gold even as the country’s output of the metal rises, says Commerzbank. Analysts cite a report last week from the Ministry of Industry and Information Technology, which projected the country’s gold supply and gold demand up to the year 2020. “According to its figures, gold production is set to increase from 450 tonnes last year to 520 tonnes in 2020,” Commerzbank says. “Gold demand is expected to grow during the same period from 986 tonnes to 1,200 tonnes, which points to high Chinese gold imports in the long term. After all, there is obviously a big gap between supply and demand in China, with demand growth set to outpace supply growth in the projection period.” China, along with India, is one of the world’s two biggest gold-consuming nations.”
So what is in store for gold considering we will soon be looking at Halloween? This year has been a bit rocky with some good and bad news for gold – we certainly got off to a good start in January moving from an ignored market around $1,050.00 to a high water market and plenty of buzz around $1,350.00 in the summer months. Then the price of gold lost its focus and repeated attempts to break to the upside were not successful – it finally broke down finding support around $1,250.00 and looking to redeem itself.
Most believe this breakdown came as demand from India slowed dramatically – jewelry demand dropped 41% as the usual buyers waited for better prices.
So in a year’s time we moved from up $300.00 (23%) to up $200.00 (16%) the bad news being we have lost about $70.00 this past month.
Disappointing – not because 16% higher should create a frown – rather there was so much anticipation of higher prices once gold bottomed ($1,050.00) that its failure to break above $1,350.00 created a kind of cloud that needs to be dispersed.
And with an uncertain interest rate future this could take time – gold has held the $1,250.00 to $1,350.00 for seven months now waiting for news which would give either the bulls or bears a significant advantage. This obviously has not happened so this war continues and develops into one of patience. This over time provides a bullish advantage – a war of price attrition creates a great deal more price sellers early on – they tire of not making any money – sell their gold or silver position and move on to another more promising investment. This end-game phase produces less and less sellers because the committed simply hold on to their position. That may be why we are building a longer term price base.
Silver also closed up a sleepy $0.01 at $17.64.
This from Allen Sykora (Kitco) – HSBC: Increasing Solar Panels to Boost Silver Demand – A report projecting higher demand for solar panels bodes well for silver, says HSBC. Analysts cite a report from the International Energy Agency, which raised its five-year renewable growth forecast after a record year in 2015. The most recent IEA medium-term renewable market report forecasts renewables growing 13% more between 2015 and 2021 than it did in last year’s forecast, with solar power playing an important role. The report also says more than 500,000 solar panels worldwide were installed every day last year. The IEA states that wind and solar power growth are needed to meet the Paris climate agreement’s objective of limiting global warming. Silver paste is needed for photovoltaics in solar power. “After peaking in 2011 at c76moz (million ounces), demand for silver for photovoltaic applications dropped to 62moz in 2013, stabilized at 63moz in 2014, and then increased to a new high of 78moz in 2015, according to Thomson Reuters GFMS,” HSBC says in a research note. “We believe silver consumption may increase to c82moz for this year and by a further 5moz to 87moz in 2017. We anticipate steady increases well into the next decade and consider PV and other solar power applications to be an important new source of silver consumption.”
Platinum closed up $0.90 at $964.90 and palladium closed down $7.75 at $613.20.
This is our usual Thursday Chicago Mercantile Exchange report covering the last five trading days – so we are looking at the trading volume numbers for the “October” Gold contract: Thursday 10/20 (372238) – Friday 10/21 (370088) Monday 10/24 (373092) Tuesday 10/25 (372221) – Wednesday 10/26 (367946).
We have introduced “Silver” to our CME rundown – so we are looking at the trading volume numbers for the “October” Silver contract: Thursday 10/20 (150818) – Friday 10/21 (148912) Monday 10/24 (148348) Tuesday 10/25 (148976) – Wednesday 10/26 (146786).
The walk-in cash trade was on the quiet side and so were the phones.
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 – 5) (Tuesday – 6) (Wednesday – 6).
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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