The Gold Newsletter – Gold Remains off Balance

Commentary for Tuesday  April 14th , 2015 (

richard schwary thumb Gold Market Newsletter : Gold Closes Lower as the Dollar Strengthens

By Ken Edwards and Richard Schwary of California Numismatic Investments Inc….

Gold closed down $6.50 at $1192.80 on the Comex today. This pressure remains in place primarily because of dollar strength but the Dollar Index today sold off moving from the 99.50 range to around 98.50 on soft economic data.

The overnight markets in both Hong Kong and London sold off from the $1200.00 range to around $1185.00 but the domestic market recovered somewhat – this would indicate the short money is still intent on testing support.

Keep in mind gold has traded very tightly – ranging between $1180.00 and $1210.00 for 26 days now – this back and forth movement will resolve itself soon and if that means a break to the downside gold could be subject to another test of the mid-March $1150.00/$1160.00 range.

Still too soon to tell – the technical picture does not look good but the report of earnings released on Wall Street this morning look like a stutter and a continued stronger dollar rains on everyones parade. The bigger wild card gold has going for it now is dollar strength – the government should soon do something to tame this beast or suffer the economic consequences at a time when the politicians want to claim a Keynesian victory. I still think the professional trader looks for lower prices short-term but their resolve is not a religion.


The Reuters data – “U.S. producer prices rose in March after four straight months of declines and there were signs of some firming in underlying inflation, which should keep the Federal Reserve on course to start raising interest rates this year. The Labor Department said on Tuesday its producer price index for final demand increased 0.2 percent last month, with rising prices for goods accounting for more than half of the jump. The PPI had declined 0.5 percent in February as profit margins in the services sector, especially gasoline stations, were squeezed, and transportation and warehousing costs fell. In the 12 months through March, producer prices fell 0.8 percent, the biggest year-on-year decline since the revamped series started in 2009, after sliding 0.6 percent in February. Economists had forecast the PPI rising 0.2 percent last month and falling 0.8 percent from a year ago. While energy prices have stabilized, a strong dollar and weak global demand are likely to keep inflation subdued for a while. Low inflation and signs of a sharp slowdown in economic growth in the first quarter have prompted most economists to push back their expectations for the first Fed rate hike to either September or October from June.”

As the presidential candidates line up keep the following in mind – expenditures from this group will top $2.5 billion dollars – I favor the British system where campaigns last 30 days.

Silver closed down $0.13 at $16.15. Very quiet today on this front – it would seem that across the counter business is either hot or it’s not. Right now it’s not.

Platinum closed unchanged today at $1153.00 and palladium was off $9.00 at $762.00. Like I said yesterday the Canadian Platinum Maple Leaf 1 oz is now in stock at $80.00 over spot but mintages are limited so premiums can change quickly. The US Mint has not announced that it will make an American Eagle Platinum 1 oz for 2015 but considering it only minted 17,000 coins in 2014 it does not appear likely.

Like I have been saying – as long as the dollar remains strong as lye soap gold will be cooling its heels – so for now patience is a virtue. I never have suggested however that this “wait” will turn into is a “long winter’s night”.

It’s just another cycle created by government interference in the monetary cycle. Actually it’s this same interference that gold enthusiasts will use to their advantage when the piper has to be paid. Of course if the dollar turns around what has become a gold dilemma turns into that awaited windfall.

So would I short the dollar anytime soon? Or perhaps get some other crazy idea relative to the euro? Especially because the German bond rate is going negative or the EU is printing like crazy? Not on your life – that is like the currently popular DOW short paper trade – suitable only for speculators who have too much money. No my investing friends it’s better to stand aside and wait – there is an old saw in commodity business which claims it is never a good idea to stand in front of a moving train.

So while I was looking for cover this William Watts commentary pops up – now this is interesting. HSBC is calling for an end to the dollar rally. I will believe it when it happens but at least someone else is questioning the monetary physics of a forever rising dollar.

This from William Watts – NEW YORK (MarketWatch) – Currency strategists at British bank HSBC on Friday reiterated their contrarian call for the U.S. dollar’s torrid rally to soon come to an end. This time drawing a comparison between the currency’s sharp rise since last May to the pattern presented by classic asset-price bubbles.

Strategists led by David Bloom argued in March that the rally was nearing the end of its run, making HSBC the first bank to raise its euro EURUSD, -0.21% forecast for 2016 and 2017.

In a Friday note, they elaborated on their call, drawing a parallel between the ICE dollar index’s DXY, +0.10% gain of more than 25% since May 2014 and classic bubbles, such as the tulip mania that gripped the Holland in the 17th century or the South Sea Bubble of 1720.

“This constitutes a significant move and major rallies tend to have similar life cycles,” HSBC wrote. “In fact, such life cycles tend to follow the typical phases of classic asset-price bubbles, just on a smaller scale.”

Phase 1: ‘New discovery’ – In the first phase of a bubble, the cycle starts with a “new discovery.” For the dollar, the first phase was the start of the “currency war,” in which countries sought to depress the value of their own currencies in the wake of the financial crisis in an effort to gain a competitive edge. The U.S. recovery, with its better fundamentals relative to other major economies, set up the greenback to appreciate, HSBC argues.

Phase 2: ‘Early rise’ – The second phase is the “early rise,” where savvy investors realize an important change is afoot, get in early and make healthy gains, contributing to a further rise.

In this case, the European Central Bank’s rhetoric in the lead-up to the launch of quantitative easing and the Fed’s tapering of its own quantitative easing plan contributed to a “justifiable adjustment” in exchange rates, they write.

Phase 3: ‘The pace picks up’ – In phase three, the pace of the rally picks up and eventually becomes “divorced from reality,” they write, with a consensus forming around the idea that “this time it’s different, potentially leading to a final surge higher.

Right now, “participants are buying the [dollar], not because the fundamentals have changed…but instead simply because they think the rally will continue.” The ECB’s quantitative-easing program is already known in terms of scale and duration, while a Fed rate hike is already widely anticipated, HSBC’s strategists say.

Phase 4: ‘The subsequent fall’ – Phase four is the “subsequent fall.” After a huge rally, a small change to sentiment can lead to a sudden reversal of direction, they warned. Often, there is no pause before the fall. This can get messy, with prices stabilizing only after capitulation is complete, HSBC points out.

For the dollar, “a final, temporary lurch higher” that pushes the euro toward parity is a possibility, they said, but would be a signal that the U.S. currency is overstretched rather than the start of a new upside surge.

“The party is nearly over, it’s time to gather your belongings and get out while you can,” HSBC warns.

This from FX Empire Analyst James Hyerczyk – Weak Economic Data from China and Japan Boosts U.S. Dollar – The U.S. Dollar strengthened on Monday on the heels of weak economic data from China and Japan. Early in the session, China released a report which showed its exports fell by 15% from a year earlier in March while imports dropped 12.7%. This indicates sluggish domestic and foreign demand. The drop in exports fell well below the median forecast of a 10% increase. The decline in imports was largely expected.

US Dollar – Data from Japan showed that core machinery orders fell 0.4% in February from the previous month. This may encourage Japanese companies to cut back funding for capital projects. Both streams of weaker data from China and Japan helped boost the U.S. Dollar, putting a little pressure on the Euro and helping to cap gains by the British Pound.

European government bond yields continued to fall in response to the European Central Bank’s asset-buying program. This is helping to weaken the EUR/USD because it makes the U.S. Dollar a more attractive investment for European money managers. These investors are chasing the higher yields in the U.S. by selling Euros and buying dollars.

The GBP/USD is finding a little support today, but this is most likely profit-taking and position-squaring. Worries about the outcome of the May elections are likely to keep a lid on any rallies so expect this current move to be limited and short-lived.

Today’s reports showed that Italian Industrial Production rose more than expected to 0.6%. Later today, in the U.K., a report on BRC Retail Sales will be released. Last month, this report showed a gain of 0.2%. This report, released by the British Retail Consortium, leads the government-released report by about 10 days, but has a narrower focus as it only includes retailers who belong to the BRC.

Today’s GBP/USD short-covering rally may also be related to Tuesday’s consumer and producer inflation reports, but the biggest influence is the May elections.

May crude oil futures traded higher on Monday, boosted by increased speculative buying and short-covering triggered by a slowdown in U.S. drilling. Speculators in U.S. crude oil futures also raised net long positions by 52 million barrels in the week ending April 7, their biggest weekly rise since 2011, according to data from the U.S. Commodity Futures Trading Commission.

June Comex Gold traded lower, pressured by the rally in the U.S. Dollar. The inability to follow-through to the upside suggests the current short-term rally may be coming to an end, especially if the dollar moves to a new contract high. The dollar is being boosted by last week’s hawkish comments from several Fed officials and the release of the hawkish Fed minutes from its March meeting. Also contributing to its strength is the weak economic data from China and Japan.”

The walk-in cash trade seemed quiet today but the Activity Scale was reasonable. This may indicate the cash public took a vacation but larger internet hitters are stepping up. The phones were on the quiet side – still no buzz.

The Unscientific Activity Scale is a “ 5” for Tuesday. The CNI Activity Scale takes into consideration volume and the hedge book: (last Wednesday – 4) (last Thursday – 4) (last Friday – 3) (Monday – 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”.

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