Commentary for Wednesday, Dec 10th, 2014 (www.golddealer.com)
By Ken Edwards and Richard Schwary of California Numismatic Investments Inc.………
Gold closed down $2.60 at $1228.90 in a mild round of profit taking after yesterday’s big $36.80 move to the upside. Considering recent higher prices pushed by short-covering and some safe haven buying the bulls while still defensive are at least breathing easier – for how long however remains to be seen.
This might be a good time to look at the moving averages. The 50 Day Moving Average for gold is now about $1202.00 – the 100 Day Moving Average is $1235.00 and the 200 Day Moving Average is $1269.00.
So today’s close of $1228.90 puts us above the 50 DMA ($1202.00) – good news for the shorter term players – coming off the 100 DMA ($1235.00) during the surge – also good news for shorter term players and now approaching the 200 DMA ($1269.00). All of this is positive news for gold but the most important number for people who hold bullion is the 200 Day Moving Average ($1269.00).
Crossing over this point would be very bullish considering the recent turnaround which includes the push to higher ground we have seen. But the fact is that without a move above the 200 DMA it may still be the typical push-pull we have seen between the bulls and bears.
Silver closed higher by $0.05 in another day of quiet trading at $17.13. The move back above $17.00 has definitely slowed down physical action. This is amazing to me considering that silver is cheap at $17.00 or even $18.00 but points to a fundamental truth in the physical buying community – the public is very aware of price – even hyper-sensitive meaning the future will continue with sudden bursts of activity followed by calm seas.
News from the Silver Institute shows that they expect industrial demand to grow by 27% or 142 million ounces by 2018. It is also interesting to note that the supply of silver has been steady for about a year – around 1 billion ounces – even with the big spike in silver prices.
Platinum closed down $3.00 at $1243.00 and palladium is up $10.00 at $821.00. The PGM metals have been quiet of late even though the premium over gold is cheap and rhodium is not getting any airtime – unfortunate because rhodium bullion should be part of everyone’s diversification.
This is our usual ETF Wednesday information – Gold Exchange Traded Funds: Total as of 12-02-14 was 51,916,022. That number this week (12-10-14) was 51,902,253 ounces so over the last week we dropped 13,769 ounces of gold.
It might also be interesting to note that in 2013 the record high for all gold ETF’s was 85,112,855 ounces. In 2014 the record high was 56,456,599 and another record low was set last month – 51,833,518 ounces. (Before that the record low for 2014 was – 51,859,216 ounces.)
All Silver Exchange Traded Funds: Total as of 12-02-14 was 638,929,251. That number this week (12-10-14) was 635,313,357 ounces so over the last week we dropped 3,615,894 ounces of silver.
All Platinum Exchange Traded Funds: Total as of 12-02-14 was 2,668,217 ounces. That number this week (12-10-14) was 2,640,735 ounces so over the last week we dropped 27,482 ounces of platinum.
All Palladium Exchange Traded Funds: Total as of 12-02-14 was 3,048,584 ounces. That number this week (12-10-14) was 3,070,433 ounces so over the last week we gained 21,849 ounces of palladium.
Is it too soon to get excited over the rise in price of gold bullion? To get a better understanding of the short-term price fluctuations in gold look at the 60 day gold chart. In late October gold moved decidedly lower from $1250.00 to about $1140.00 before this bearish move came to a halt and the short paper traders covered their positions. This short-covering rally was responsible for moving gold back to the important $1200.00 level. And then the negative Swiss Referendum vote pushed gold once again lower – but the market quickly recovered – holding $1200.00 and many traders believed gold had put in a solid short-term bottom.
Last Friday’s firm aftermarket and the Monday/Tuesday rally was a combination of safe-haven buying as the financial markets worldwide once again came under pressure. Even the mighty DOW was questioned as minor EU countries including Italy once again worried about mounting debt and deflation.
Japan and Russia are now in recession and even the Chinese are hinting at a slowdown. The generally stronger dollar has come off a bit but we are still in nosebleed territory when you consider that everyone is maxed out borrowing dollars at cheap rates and may now be faced with paying back all that money in a currency that may continue to move higher.
The theory here was to use dollars to jump start business and then pay back the debt as the dollar depreciated. Under this scenario everyone is happier except the savers – under the current plan the dollar continues strong because our economy seems to be getting traction. It is not that the dollar has defied gravity with quantitative easing – it just looks stronger than other currencies still struggling with faltering economies.
Back to the 60 day gold chart – it appears as of this writing that gold has once again flattened out around $1230.00. And to be accepted back into the big boys club gold must show strength above $1240.00 or this latest round of higher prices may have run its normal course – that being range bound between $1150.00 and $1250.00.
Remember the short-covering/safe haven buying pattern for gold has happened numerous occasions over the past several years – so a bounce in prices should be viewed with caution.
The latest round of higher prices is encouraging technically – and gold does seem like it may be back to its old self as far as a safe- haven status is concerned but this round of good news may only be another bounce to higher ground.
Still increased world tension – a short covering rally caused by a bit of world economic fear – the realization that the dollar may not be invincible – all make for solid gold price support.
In the end all of these factors have created upward price movements in gold which have eventually fizzled. And so we are still facing a gold market which continues to unwind – but the bottom feels much closer than it has in some time.
If you are a real fan of gold bullion consider that this market may have already factored all of the above into its current price dynamic.
There are two wildcards still on the table. The first is the lower price of oil – which should not be ignored because of its close relationship to inflation. The “no inflation” sign remains a big stumbling block to physical gold holders.
Oil prices resumed their slide today, with Brent and U.S. crude near five-year lows. OPEC remains divided on how to respond, and one member said the cartel may hold an emergency meeting before its June gathering. (Reuters)
The government again cut its prediction for gas prices in 2015. The Energy Department sees an average of $2.60 a gallon, the lowest since 2009 and 23 percent below this year’s projected average. (USA Today)
The second wildcard is the possibility that the Federal Reserve will raise interest rates – probably in the first quarter of 2015. I put this into the wildcard stack because while most believe it will happen some think the results are problematic relative to the rest of the world. At any rate higher rates here at home will complete for speculators investment dollars.
But keep in mind that the imminent collapse of gold – predicted by some when the Federal Reserve Quantitative Easing program came to an end – was another gold “ghost”. By the time the program was halted gold had already figured its discount and so my estimation that not much would happen seems to be correct.
Why – because there are other financial bubbles to worry about – especially the ones which don’t seem to bother commentators – the Black Swans which no one sees coming.
The walk-in cash trade was quiet and holiday like today – no big deals to speak of but there were a few sellers raising money for Christmas – which highlights an important point when it comes to gold or silver bullion. They represent instant cash whenever you walk in our back door – the green kind which in today’s society of plastic credit cards is welcomed. The phone trade was a bit slow but there were a couple of rather large new bullion buyers.
The GoldDealer.com Unscientific Activity Scale is a “3” for Wednesday. The CNI Activity Scale takes into consideration volume and the hedge book: (last Thursday – 2) (last Friday – 3) (Monday – 4) (Tuesday – 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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