Gold Dealer Commentary for Friday, February 5, 2016 (www.golddealer.com)
By Ken Edwards and Richard Schwary of California Numismatic Investments Inc ……
Gold closed down $0.60 at $1,298.10 today. Monday’s close was $1,293.10 so on the week we have moved up $5.00. Not too exciting to be sure and gold dealer trading today was almost flat but there are more reasons to be optimistic than most believe. Think about pricing (at the higher end of its current trading range) going into the FOMC meeting (next Tuesday and Wednesday). It is almost certain the Fed will raise rates next week and yet the price of gold is not moving lower. This might be an important question considering our hawkish FOMC and might suggest a hidden strength.
Next week also presents some game changers besides the problematical FOMC decision which we will hear on Wednesday after the markets close. They include the G7 in Quebec featuring the US against everyone on trade issues with subsequent tariffs and a meeting in Singapore with North Korea on Tuesday – all of these potential bombshells have created a big shoulder shrug from traders but any surprises could move markets in either direction
According to Bankrate the labor market is tightening but we have not seen much in the way of higher wage pressure – which gives the FOMC options (modest inflation is always good when talking about rate “normalization”).
Some even believe the Fed is simply giving itself the option of lowering interest rates should that overdue recession suddenly appear.
It’s hard to say but a recession would produce lower interest rates which is a big plus for gold and this theory is the basis for some talk about $1,400.00 gold over the next few years.
Technically gold feels somewhat optimistic perhaps even a bit bullish at present pricing even with higher interest rates on the horizon. Not much buzz across our counter but that flat picture between $1,290.00 and $1,305.00 suggests some physical demand worldwide.
The fact that gold has struggled at holding $1,300.00 however will have traders suspect and expecting a breakdown and test of support.
The much anticipated jump in Asian gold demand both in China and India since the beginning of the year has also not created any buzz – the reason being that pricing above $1,300.00 has generally been a wet blanket for this crowd of real buyers. They are willing to “wait” and historically numbers around $1,280.00 become very interesting from their point of view.
But keep in mind that the Asian demand while price conscious has massive hidden potential because of their growing industrial base. As these countries compete for world trade more jobs are created and the financial weapon of choice for their growing middle class is gold.
Like I said last newsletter the talk of higher gold prices after this coming FOMC is growing. This sounds counterintuitive and obviously is not the majority opinion but there is psychology at play.
There are plenty of eager buyers but at the moment there is not much incentive – aggressive safe haven buying has not been part of the equation and the geopolitical scene remains quiet.
What gold needs is either a spark or financial scare. Something different to refocus the “why” it makes sense for everyone to buy a little longer term gold bullion insurance. Traditionally this personal incentive has been the inflation genie and rising crude oil might help this situation.
Also worth noting – copper prices are rising and may already be pointing the way.
According to MarketWatch copper prices are heading towards $10 a pound.
“The bull market has only started,” says Leigh Goehring, managing partner at Goehring & Rozencwajg Associates. “Strong demand from Asian countries is what’s going to push copper prices higher, and this is before we even begin to talk about renewables and [their] impact on global copper consumption.”
Renewable energy sources like wind and solar require lots of copper for their equipment. He believes a “huge bull market,” led by extremely strong demand and emerging problems surrounding global copper supply, is likely to resume shortly and play out in “multiple stages over the next five to 10 years.”
Whatever the “event” the entire world is watching – not so much because they want to make a fortune on gold pricing but in the end most understand that gold bullion provides a great inoculation against government tomfoolery and all other forms of human financial folly.
This from Zaner (Chicago) – “Clearly the sagging dollar was the primary bullish force for gold this week, but a recovery in the Dollar this morning has knocked the legs out from under gold to start and the tone of the market has shifted down. Furthermore one could suggest that gold is losing its leadership role to silver, as silver is starting to show signs of benefiting from classic physical demand. We are also concerned that despite various trade barbs this week, the safe haven angle in gold might be set to downshift in the event that the Trump Administration shows the prospect of a North Korean deal. However, the gold market should catch some modest lift from a World Gold Council story suggesting that Chinese gold jewelry demand is showing signs of improving again. However, it is a difficult transition for gold to migrate from a weaker dollar/safe haven focus to classic physical demand gains. Silver on the other hand has already displayed very positive chart action off talk that a very long string of annual supply/demand deficits and the extension of global synchronized growth (off new technology demand) could mean that sub $17 pricing in silver is too cheap. In fact, we think the current swing higher is part of an ultimate track back toward $17.50 and that resistance up at $16.86 will become support in the coming week.
Clearly the palladium market is showing similar sensitivity to classic demand expectations as silver, with prices rallying aggressively Thursday to reach their highest level since April 19th. However, the market was initially unable to hold the brunt of those gains in a fashion that suggests a temporary blow off top might have been put in place. Uptrend channel support in September palladium is seen down at $977.70, but closer in retracement support is seen at $998.10. Clearly the platinum market continues to underperform the palladium market as prices have remained range bound at the same time that palladium prices have ranged higher. In fact, pushed into the market we favor the downward track in platinum with little in the way of solid support until the $892.70 level.”
Silver closed down $0.08 at $16.69. Looking for trends this week – most investors were selling silver and buying gold – interesting in that I would have figured the other way around.
Platinum closed up $5.40 at $903.70 and palladium closed down $3.50 at $1,018.00.
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: Eight believe gold will be higher next week none thinks gold will be lower and two 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: 45 people thought the price of gold would increase next week 37 believe the price of gold will decrease next week and 18 think prices will remain the same.
Precious Metal Closes & Dollar Strength – June 4 – June 8
The GoldDealer.com Unscientific Activity Scale is a “4” for Friday. The CNI Activity Scale takes into consideration volume and the hedge book: (Monday – 3) (Tuesday – 2) (Wednesday – 3) (Thursday – 3). 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.
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