Gold Close Lower – Aftermarket Higher on FOMC Release
Commentary for Wednesday June 15, 2016 (www.golddealer.com) Gold closed down $2.10 at $1285.80 but keep in mind this close happened before the release of the latest FOMC minutes. The release contains no interest rate hike but does indicate that the usually upbeat demeanor of the governor’s may be changing.
The aftermarket in gold was up $7.00 on the dovish FOMC information release and we expect that no further talk of interest rate changes this year will lay the solid groundwork for higher prices in gold.
This from Neils Christensen (Kitco) – FOMC Enthusiasm for Rate Hikes Moving Gold Higher – As expected, the Federal Open Market Committee (FOMC) left interest rates unchanged Wednesday within its range between 0.25% and 0.50%. Not only is an interest rate increase on hold for June but according to interest rate projections, most members expect rates to remain below 1.0% for the rest of the year. The projections showed that six members favor leaving interest rates in its current range.
According to the statement, the central bank is slightly less optimistic on the labor market, but was more positive on economic growth. The statement noted: “the pace of improvement in the labor market has slowed while growth in economic activity appears to have picked up.”
The market is deeming the statement as more dovish as gold prices push higher, trading at $1,295 an ounce, up $6.90 just 15 minutes following the release of the statement.
George Gero, managing director with RBC Wealth Management, said in a note that he sees $1,300 in the cards for gold. Despite the shift in the dot plots, the central bank has left projections of future rate hikes unchanged for the rest of the year at 0.9%.
Kitco’s senior technical analyst Jim Wyckoff said following the dovish statement that the gold market has “solid” upside momentum and is expecting a test of resistance at $1,308 in the near-term. According to the latest economic projections, the Fed expects U.S. gross domestic product to expand by 2.0% this year, down from March’s projection of 2.2%. For 2017, it expects to see economic growth of 2.0%, down from March’s forecast of 2.1%. For 2018, the central bank expects the U.S. economy to grow by 2.0%, unchanged from the previous estimate.
The Fed left its outlook on the labor market unchanged expecting the U.S. unemployment rate to hit 4.7%For next year, the central bank is expecting an unemployment rate of 4.6%, also unchanged previous forecast of 4.6%. For 2018, it expects the unemployment rate to come in at4.6%, up from the previous forecast of 4.5%.
The Fed slightly raised its inflation outlook with its forecast for personal consumption expenditures (PCE) to come in at 1.4% this year, up from the previous forecast of 1.2%. The Fed’s 2017 outlook sees inflation at 1.9%, unchanged from the previous estimate. The central bank is expecting inflation to hit 2.0% by 2018, unchanged from March’s estimates.
Core inflation expectations, which strip out volatile food and energy prices, were relatively unchanged. For this year, the Fed expects core PCE to come in at 1.7%, up from March’s expectations of 1.6%. The 2017 estimate was raised to 1.9% from the previous forecast of 1.8%. The central bank is not expecting to hit its inflation target of 2.0% until 2018, unchanged from the previous outlook.”
For some reason the world markets seem to need something to “sweat” relative to the price of gold. In this most recent frame it has been the US interest rate hike and on the shorter term the next move relative to the Brits leaving the EU.
The British move is more exciting for the world markets not because it will make much difference in London but because it points to an underlying weakness in the European Union. The Brits still know how to make money – so do the Germans but after that the profitable list gets small and that operation has a very large overhead.
Like I said yesterday the London bookies are betting they will stay – I like their action better than an official source and so think the upcoming popular vote will create some safe-haven action but nothing that is sustainable.
And as far as the so-called “volatility” of gold keep in mind this is also part of the establishment playbook. Gold bullion has never been really popular with the economic press – it’s been the establishment whipping boy for people like Warren Buffet for years. Not that Mr. Buffet has been wrong too many times but for some reason the establishment does not seem to get that gold’s real value is not in what it might produce but in what it might save.
During times of the usual US propensity (which frankly has been most of the time) the establishment has done an excellent job at convincing investors that gold price swings create financial barriers but rarely point out the very large swings in the price of stocks.
In fact the price of gold has been pretty stable since the big sell-off we saw between 2011 and 2013. We have been on either side of $1200.00 since the summer of 2013 and the latest price action to the upside which began in December of 2015 seems to reinforce this “fair value” notion for gold around $1200.00.
Perhaps gold over the past 4 years has factored in all the potential threats – including the Brits – the Chinese – ISIS – inflation – negative interest rates – a world with way too much fiat currency floating around and included the “unknown threat” (a Black Swan that no one even considered) and come up with a realistic figure. In a weird way this is a relaxing thought – $1200.00 is still affordable for most people.
Silver closed up $0.07 at $17.48. Note the position of the silver exchange traded funds – we have reached a new high water market in 2016 – more than 633 million ounces. This number is very telling especially if you are waiting for a pull-back in prices – we look very solid here.
Platinum closed up $3.00 and $975.00 and palladium closed down $3.00 at $532.00.
The latest on the PGM Group metals is worth reviewing with Allen Sykora (Kitco) – Commerzbank: Supply Deficits to Underpin Prices of Platinum, Palladium – “Supply deficits in platinum group metals are likely to continue, thereby supporting prices, says Commerzbank. Analyst’s project platinum will average $1,000 an ounce in the third quarter, $1,050 in the fourth and $1,100 in the first quarter of 2016. They see palladium at $575 in the third quarter, $625 in the fourth and $650 in the first three months of 2016. “Supply is unlikely to be sufficient to cover demand yet again this year on both the global platinum and palladium markets,” Commerzbank says. “Both markets thus look set to record their fifth consecutive year in deficit, which in our opinion points to higher platinum and palladium prices. There are likely to be some limits to the anticipated price rises, however.” Analysts point out that two widely followed reports – from Johnson Matthey and the World Platinum Investment Council – both call for platinum supply deficits this year. As a result, the WPIC calls for above-ground stocks to fall to 1.95 million ounces, after they were almost 1.5 million higher three years ago. Johnson Matthey also foresees a palladium supply deficit, Commerzbank adds.”
UBS: Auto-Related Platinum Demand at Risk, But Not In Terminal Decline – UBS says auto-related platinum demand faces some threats but is not in a structural decline, also citing some areas in which demand might rise. “Is auto demand for platinum in structural decline?” the bank says. “Not on our base case, but platinum demand from auto faces many threats from 1) increasing adoption of electric vehicles; 2) the potential for further market share erosion of diesel; and 3) the efforts of manufacturers to ‘thrift’ platinum content. These risks could potentially be at least partially offset by increasing demand from fuel-cell vehicles and increasing vehicle usage in India.” Meanwhile, the bank does not see increasing recycling as a threat to prices, commenting that “we estimate its place on the cost curve surprisingly high at the 50th percentile, using Umicore as a case study.”
This is our usual ETF information – Gold Exchange Traded Funds: Total as of (6-8-16) was 61,468,732. That number this week (6-15-16) was 62,201,573 ounces so over the last week we gained 732,841 ounces of gold.
The all-time record high for all gold ETF’s was 85,112,855 ounces in 2013. The record high for Gold ETF’s in 2016 was 62,201,573 and the record low for 2016 was 47,568,082.
All Silver Exchange Traded Funds: Total as of (6-8-16) was 633,357,498. That number this week (6-15-16) was 640,461,021 ounces so over the last week we gained 7,103,523 ounces of silver.
All Platinum Exchange Traded Funds: Total as of (6-8-16) was 2,379,829. That number this week (6-15-16) was 2,372,809 ounces so over the last week we dropped 7,020 ounces of platinum.
All Palladium Exchange Traded Funds: Total as of (6-8-16) was 2,204,694. That number this week (6-15-16) was 2,219,569 ounces so over the last week we gained 14,875 ounces of palladium.
The walk-in cash business was just average and so were the phones but mid-size to large orders in gold bullion continue to climb.
The GoldDealer.com Unscientific Activity Scale is a “4” for Wednesday. The CNI Activity Scale takes into consideration volume and the hedge book: (last Thursday – 5) (last Friday – 4) (Monday – 4) (Tuesday – 4).
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