Commentary for Tuesday, August 11, 2015 (www.golddealer.com)
By Ken Edwards and Richard Schwary of California Numismatic Investments Inc….
Gold closed up $3.40 today on the Comex at $1107.60. I would not call this a strong follow-through from Monday’s action, which reestablished gold’s $1100.00 level but in these tough times it feels almost like a relief rally.
There are no big players ready to claim gold has bottomed – but this type of pricing and negative Nancy stuff is what makes up a real bottom so stay tuned.
China devalued the renminbi today rattling the currency markets and pressuring the Asian paper market lower – US stocks also reacted negatively but this surprising move may not have created much in the way of safe-haven buying in gold. The devaluation amounts to about a 2% haircut for all those holding Chinese currency and the Bank of China cited a slowing economy as the justification.
You would think this would push the dollar higher and pressure gold lower but in fact devaluation was ignored by both the dollar and gold. The Dollar Index closed yesterday at 97.19 and today we are trading from 96.88 through 97.59 – we are currently at 97.07 with a negative bias and gold closed somewhat higher today.
Talking about currency you may already know there is a great deal of talk about placing a women’s picture on the $10 bill – according to Coin World the leader in this latest non-official poll is Eleanor Roosevelt.
You can make a good case that yesterday’s firm gold market was supported by a stronger dollar. But really the Dollar Index has been moving lower since last Wednesday. At that point we were solidly above and steady at 98.00 and 6 days later we are looking at 97.00.
And for the foreseeable future this will be all about whether the Federal Reserve is going to raise or not raise – Fisher’s comments yesterday were seen by some as hawkish but I think his reference to little or no inflation gives the Fed a great deal of latitude.
After all the Federal Reserve does not have to raise rates – most of the world hopes they will not and there is always the possibility that raising may create some collateral damage here at home. At any rate without the immediate threat of a rate hike (like we were expecting last week) the dollar may remain soft and this will support gold on the short term.
Keep in mind however that the technical picture for both gold and silver remains cloudy. Gold has moved above its 10 and 20 day Moving Averages but is still well under its 50 Day Moving Average ($1145.00) and 100 Day Moving Average ($1172.00).
And one solid price day (yesterday) is easily forgotten. It’s nice to once again be above the $1100.00 mark but there remains a great deal of paper selling pressure between $1120.00 and $1140.00. And with the still pending rate hike still on the horizon the notion that gold may show enough strength to push through the technically important overhead resistance between $1180.00 and $1220.00 does not seem likely.
What is important about this latest pop above $1100.00 is that it keeps everyone honest. It creates a short-covering rally which gets everyone’s attention. And it at least temporarily stops the negative trading commentary.
India continues to work on gold monetization – this scheme is not new but it seems the government will at least test the idea. Citizens who own physical gold (there are a lot of these) can open a kind of bank account with that gold. They will then be paid interest either in paper money or gold bullion. The idea being that India has huge gold holdings which are under the bed and the government is seeking a way to deploy this untapped reserve. The government will also develop a special “gold coin” unique to India, their own nationalistic version of our American Gold Eagle.
I have talked about these options before and think they will not work well because of the high regard the people of India have for gold bullion and privacy but it remains to be seen how this rather large financial idea might change the price of gold in the longer term.
Silver closed down $0.01 at $15.28. Action is still solid but not as tense as we have seen in the $14.00 range. The buying public always likes cheaper so a rise in price will cool the action on the short-term but this too is temporary – this market is like a coiled spring especially with the world mints selling everything they produce.
Any real upward price action from here will produce a secondary wave of physical buying from investors who don’t want to miss an opportunity. We started and stopped taking orders twice on the simple 1 oz silver round today – this never happens as we are always loaded for bear on this popular item.
Of course every dealer can reorder but delivery times slip so instead of a few days we talking about next week. This is the goofy nature of the physical silver market as the paper silver players call for lower prices because of technical concerns.
Platinum was up $2.00 at $991.00 and palladium was down $6.00 at $599.00.
The walk in cash trade was active most of the day. Nothing really large but steady, mostly all buying and mostly all in silver bullion. The phones again were on and off – again we have problems with our 800 lines – the phone company claims they are “fixing” the problem but we have had a number of people who claim getting through took a few tries. Sorry for the inconvenience – this is some sort of a switching problem.
The GoldDealer.com Unscientific Activity Scale is a “6” for Tuesday. The CNI Activity Scale takes into consideration volume and the hedge book: (last Wednesday – 8) (last Thursday – 6) (last Friday – 4) (Monday – 7). 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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