Commentary for Thursday, March 2, 2017 (www.golddealer.com)
By Ken Edwards and Richard Schwary of California Numismatic Investments Inc ……
Gold closed down $17.10 at $1,232.90 today in the face of rising optimism and it was a pretty rough day for all the metals. It will be tough for gold to get any traction as the dollar creeps higher. The Dollar Index yesterday closed at 101.77 and today is trading at 102.05 – that’s a two-month high and has been created over recent hints from the Federal Open Market Committee (FOMC) that March will indeed see an interest rate increase. Some note that the dollar strength might be linked to a decrease in the March jobless claims – further suggesting a rate hike would be in order – but this drop was small and the number was pretty much within expectations. Reinforcing the FOMC rate hike notion is recent improvement in European manufacturing and demand. It would be much easier for the Federal Reserve to raise interest rates if Europe comes along for the ride.
A strong dollar will eventually hurt US sellers overseas but this has not influenced Wall Street – the Trump Rally continues to stoke the “wealth effect” furnaces. For those that have a real life outside of business the “wealth effect” is a psychological change in the person whose assets (stocks, real estate etc.) are rising in value and therefore may spend more money buying stuff they really don’t need.
At any rate a stronger dollar, better DOW numbers and solid consumer confidence create head winds for the gold bullion market – there are however anomalies which are interesting. For example the rising price of gold since November – the price of gold should be flat to lower awaiting the next shoe to fall in the interest rate game. The Gold Exchange Traded Funds have been moved higher by about one million ounces these past two week. And really funny considering this strong ETF dynamic is the fact that US Mint distribution of the most popular bullion coins (Gold and Silver Eagles) is down in the month of February by as much as 75%!
The US Mint stats support my contention that our silver bullion sales (specifically US Silver Eagle Monster Boxes) have been fading. Most attribute this to higher silver prices but how do you equate the idea that sales of US Gold Eagles are moving lower when ETF holding are moving in the opposite direction? I don’t have an answer – perhaps it is just that the American buyer is insulated from world politics and fiat money concerns considering that the US dollar is still the world’s benchmark currency.
The following from Reuters supports my contention that weakness in the price of gold created by higher interest rates may be short-lived.
“The short-term risk is probably skewed to the downside. The previous two occasions ahead of a Fed hike, we’ve seen gold weaken only to rally in the aftermath and that could potentially be seen once again,” said Ole Hansen, head of commodity strategy at Saxo Bank in Copenhagen.
Fed Chair Janet Yellen and Vice Chairman Stanley Fischer will speak on Friday, likely providing further signals on the U.S. central bank’s policy path.
Further weighing on gold were strong stock markets and dollar gains on the growing expectations of a U.S. rate hike.
A correction in gold, however, is likely to be shallow as investors remained friendly to bullion as a hedge against global uncertainty and rising inflation, analysts said.
“The market is also keeping an eye on geopolitical risks, which are not going away, and we have rising inflation in the U.S. and Europe. We just had European inflation numbers rising to the highest in four years,” Hansen added.
U.S. inflation recorded its biggest monthly increase in four years on Wednesday and euro zone inflation surged to 2.0 percent last month, data showed on Thursday.
Silver closed down $0.74 at $17.75. Gold Fades as the Dollar Grows Stronger
Platinum closed down $9.25 at $769.75 and palladium closed down $9.25 at $769.75. While platinum and palladium have trended lower car sales for February are strong (17 million units).
This is our usual Thursday Chicago Mercantile Exchange report covering the last 5 trading days – so we are looking at the trading volume numbers for the “February” Gold contract: Wednesday 2/22 (278295) – Thursday 2/23 (293995) Friday 2/24 (292321) Tuesday 2/27 (291639) – Wednesday 2/28 (280881).
We have introduced “Silver” to our CME rundown – so we are looking at the trading volume numbers for the “February” Silver contract: Wednesday 2/22 (73451) – Thursday 2/23 (98976) Friday 2/24 (75359) Tuesday 2/27 (70994) – Wednesday 2/28 (63458).
The walk-in cash trade was more active than the numbers might indicate and so were the phones. The public always likes cheaper prices.
The GoldDealer.com Unscientific Activity Scale is a “2” for Thursday. The CNI Activity Scale takes into consideration volume and the hedge book: (last Friday – 3) (Monday – 4) (Tuesday – 4) (Wednesday – 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 increasing – it would indicate things are busier – decreasing numbers over a longer period would indicate volume is moving lower.
Thanks for reading. As always we appreciate your business and enjoy your evening.
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