Gold Markets Commentary for Thursday, November 18, 2016 (www.golddealer.com)
By Ken Edwards and Richard Schwary of California Numismatic Investments Inc ……
Gold closed down $8.00 at $1,208.50 USD today so on the week gold has lost $10.60 with a top to bottom spread of $15.50. This market continues weak as the dollar again moves higher in value. Wow – the Dollar Index has moved from just over 99.00 to 101.33 in five days on just the promise of an interest rate hike! All of this the result of the Trump win – as everyone expects a more business friendly government.
We will have to wait and see but this expectation is overblown in my mind – unless he turns out to be something of a wonder. A bit of speculation here – suppose his talk about 35% tariffs is just business rhetoric designed to wake up other countries and push them towards better trade negotiations?
Reagan did this with the Russians over “Star Wars” – he talked like our new defense system was already in production when the technology was not tested and dicey – the bluff got him what he wanted.
At any rate, gold traders are expecting good things from the Trump presidency and this along with the promised Yellen rate hike is making the dollar stronger which pushes the price of gold lower.
So gold continues weak but I don’t expect it to fall out of bed – here’s why: If you listened to Fed Chair Yellen yesterday she will serve out her term regardless of what Trump has to say – she expects a small rise in interest rates soon and then a benign policy which will keep rates low for perhaps years. As soon as this tract, under her tutelage becomes clear the price of gold will be supported.
In the meantime the price of gold must hold the $1,200.00 support line which was established in February of this year. Gold has already lost the momentum and big technical advantage it offered earlier in the year and is now fighting to reinvent itself in a new era of monetary expansionism and a Trump presidency. Of some note is that gold bar production has fallen short – again – so expect some short delay in delivery.
Silver closed down $0.15 at $16.61. Each year the US Mint goes on Silver Eagle Monster Box allocation – they are not running out of Silver Eagles, they are just retooling for 2017-dated coins. This always pushes up premiums during the holidays – premiums between now and Christmas could double and once again move lower in the first few months of 2017.
Platinum closed down $22.00 at $920.00 and palladium closed down $3.00 at $727.00.
I’m curious as to why the currency situation in India is not getting any attention? The Modi government without warning and with no replacement notes in mind or in production banned India’s highest denomination telling the folks they will no longer be legal tender. The notes in question are the 500 rupee ($7.50) and 1,000 rupee ($15.00) and they represent about 80% of the currency in the country. The government claims this was done to cut down on the fraudulent cash business but some believe this to be a ruse and this act was directed at monetizing India’s large gold reserve.
I talked to a customer who visits India on a regular basis yesterday and he claims the jewelry trade is in chaos and famers and other shop owners can’t do business. The reason this is interesting is that at the same time these notes were banned the price of gold not only did not go up – it went down.
If the US banned the $100 and $50 paper note over the weekend the price of gold would blow through the roof – everyone would run to their nearest bullion dealer. And yet India – with a much wider appreciation of gold – had their paper currency rules changed overnight and the price of gold moved lower. I wonder if the person on the street had to sell gold hoping to raise cash until this crisis is resolved.
Finally – India is a large country, not a banana republic, and this unilateral move by the Modi government plays well into the already existing conspiracy theory that government cannot be trusted. The talk of banning high-denomination notes in the US has been kicked around for years being sold either under the guise of attacking the US illicit drug business or curtailing the cash black market, which by some estimates could be as high as 10% of the US GDP. It is difficult to say how much of this “under the table” money is eventually hidden in gold and silver bullion, but any serious talk of fiat currency control in the US might be another reason to believe gold and silver prices will trend higher over the years.
Before you dismiss the above as another goofy rant, consider that banking giant UBS has just proposed that eliminating Australia’s $100 and $50 bills would be “good for the economy”.
This from Allen Sykora (Kitco) – HSBC: ‘Gold Does Have Its Bullish Factors’ – While gold has been pressured lately by U.S. dollar strength and expectations for a Federal Reserve rate hike next month, there are some factors that should support prices, says HSBC. In the near term, momentum-based selling could now take the precious metal back under $1,200 an ounce, says the bank. Still, HSBC says, “Gold does have its bullish factors. These include emerging-market demand.” The bank points out that the Shanghai Gold Exchange premium was up around $10 an ounce this week with good volume. “The withdrawal of high-denomination notes in India is also triggering fresh gold demand,” HSBC says. “Gold prices are down sharply from where they were just 10 days ago. This should help encourage EM demand. We expect this to cushion – but not necessarily reverse – the latest drop in prices. What gold is more likely to benefit from is a fresh dose of uncertainty and risk-off buying. This may be just as much politically driven as economically or financially driven, and there is no way of predicting what event will trigger a jump in uncertainty and risk-off sentiment. That said, Germany’s Finance Minister Wolfgang Schauble set out a tough line in the Brexit talks with the U.K., possibly complicating the UK’s departure; the Italians will vote on a key constitutional referendum next month; and the complexion of a future Trump administration is still unclear. These developments, or issues relating to them, could set gold trading higher.”
This is our usual Chicago Mercantile Exchange report covering the last 5 trading days – so we are looking at the trading volume numbers for the “November” Gold contract: Thursday 11/10 (308610) – Friday 11/11 (270495) Monday 11/14 (248703) Tuesday 11/15 (240943) – Wednesday 11/16 (226132).
We have introduced “Silver” to our CME rundown – so we are looking at the trading volume numbers for the “November” Silver contract: Thursday 11/10 (105614) – Friday 11/11 (92323) Monday 11/14 (88556) Tuesday 11/15 (87195) – Wednesday 11/16 (82639).
Our Patented Employee Survey – Gold’s Direction Next Week?
Of course it’s not really patented but we do have some fun along the way. This is what the GoldDealer.com employees think: 6 believe gold will be higher next week – 4 think gold will be lower and 2 think it will be unchanged.
Our Patented Customer Survey – Gold’s Direction Next Week?
Like the employees our customers were given three choices – up – down – unchanged. We limited the survey to a random sampling of 100 transactions – unscientific but worth considering because these people took action: 19 people thought the price of gold would increase next week – 63 believe the price of gold will decrease next week and 18 think gold prices will remain the same.
Precious Metal Closes & Dollar Strength – Nov. 14 – Nov. 18
The walk-in cash trade and phones were busy – like I said yesterday, if there is one constant in the precious metals it is that the public sooner or later jumps on lower prices.
Just a reminder – next week is Thanksgiving! GoldDealer.com will be closed Thursday and Friday (Nov 24th and 25th) for Turkey Day!
The GoldDealer.com Unscientific Activity Scale is a “6” for Friday. The CNI Activity Scale takes into consideration volume and the hedge book: (Monday – 5) (Tuesday – 4) (Wednesday – 4) (Thursday – 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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