Gold Continues to Settle – The Dollar Index Mixed
Commentary for Thurs, Nov 12, 2015 (www.golddealer.com) – Gold closed down $3.90 on the Comex today at $1080.80. This is nearly at 5 year lows for gold but the trading pattern is beginning to show some buying interest. The price range today was $1074.00 through $1089.00 – the market did sell off from its highs but the most important point is that it recovered and formed a positive bias.
The Dollar Index range was 98.43 through 99.29 – currently we are trading around 98.85 so off the highs and this may have contributed to some of the price recovery seen in gold at the end of today’s trading session.
The crude oil price picture is miserable and continues to support the lower gold price scenario. This past week crude oil has moved from above $45.00 a barrel to $41.64 a barrel. Considering this slump and the continued selling in the gold Exchange Traded Funds I’m surprised gold has any fight left.
But then there is that pesky physical demand which keeps reinventing itself as prices move lower. The World Gold Council says that Q3 gold demand was up 8% with jewelry demand up 6%. And jewelry demand accounts for 60% of consumption (631.9 tonnes in Q3). It was the highest Q3 jewelry demand since 2008.
So does the World Gold Council evaluation relate to our little corner of the world? The ethnic trade was lined up today with cash – ready to buy gold bullion bars. It’s amazing really, the lower gold prices really steps up the physical action like no other statistic.
Silver closed up $0.01 at $14.27. Action remains steady but the dollar volume numbers across the counter was all gold bullion.
Platinum closed down $7.00 at $876.00 and palladium was down $14.00 at $563.00. Platinum is now $204.00 less than gold.
This from Allen Sykora (Kitco) – U.S. Weekly Jobless Claims Unchanged at 276,000 – First-time weekly jobless claims in the U.S. remained at 276,000 during the week to Saturday, the Labor Department said Thursday.
Consensus expectations compiled by various news organizations called for initial claims to be around 266,000 to 269,000. The total for the previous week was unrevised at 276,000.
Meanwhile, the four-week moving average for new claims – often viewed as a more reliable measure of the labor market since it smoothens out week-to-week volatility – was 267,750, an increase of 5,000 from the previous week’s unrevised average of 262,750.
There were no special factors impacting this week’s initial claims, the Labor Department said.
Continuing jobless claims, the number of people already receiving benefits and reported with a one-week delay, increased by 5,000 to a seasonally adjusted 2,174,000 during the week ending Oct. 31, the government said. The four-week moving average rose by 2,250 to 2,165,250.
Traders monitor jobs data closely to gauge how aggressively the U.S. Federal Open Market Committee alters monetary policy.
The dollar was little changed after the above jobs report. The Dollar Index traded today between 98.54 and 99.29 – now around 98.94. This is very close to yesterday’s close but the index did move about a half point lower in early trading and then recovered – this is probably what halted further losses in the day’s gold trading pattern.
A reminder that physical delivery of gold and silver bullion begins to slow during the holiday season – this is because Fed Ex and USPS are working for Santa too. If you are in a hurry consider a cashier’s check – this will cut the normal delivery time in half and a wire will ship immediately.
This from Lawrence Williams (Sharps-Pixley) – Indian gold initiatives to have little effect on imports – As readers will no doubt know, the Indian government has announced two initiatives which it hopes will reduce the high level of gold imports and thus help alleviate the country’s big Current Account Deficit, gold making up such a large proportion of the nation’s imports. There are two main schemes being implemented – The Gold Monetization Scheme (GMS), and the Gold Sovereign Bond Scheme (GSB), both of which were unveiled last week. India is also to produce an official gold coin and gold bar.
In a new analysis of the schemes, London-based gold consultancy, Metals Focus reckons that the schemes are unlikely to have an immediate impact, although in the longer term it is possible that they could build up to perhaps meet the government’s target saving of 100 tonnes of gold imports, but that this could take a few years. It would also have to overcome a natural reluctance of the Indian gold holders to part with their bullion which they see as protection against economic mismanagement and long term inflation.
The new schemes are aimed at monetizing some of the huge amounts of gold believed to be in private hands in India – in particular some of the religious temples have huge hoards of gold which have been built up over the years. The idea is to give gold holders a way of generating income from their bullion holdings, although the general distrust of the economic system which prompts Indians to hold gold in the first place will indeed likely have a limiting impact on the take-up.
Metals Focus notes that the GMS appears to be rather better structured than the earlier Gold Deposit Scheme which has been in place since 1999, but has only attracted some 15 tonnes since its implementation. Under the GMS the government will pay 2.2-2.5% interest for medium (5-7 years) and long term (12-15 years) deposits, leaving the banks to determine short-term deposits. This is crucial, as Metals Focus believes the majority of deposits will be short-term ones (of 1-2 years). It thus reckons that short-term rates will fall short of 2% and such rates are unlikely to attract many depositors. Also significant is that the jewellery sector has been excluded from the process, and this is a sector which has a greater reach among consumers than the banking network. Further, even though the government has not asked for proof of gold ownership, there are aspects of the programme that will likely deter larger gold holders from participating. Namely, the compulsory disclosure of PAN CARD (an individual’s permanent account number), as well as a recent comment from the Finance Minister to not view the GMS as a quasi-amnesty scheme. Having said that, some temples are expected to participate and they are said to have massive gold holdings. Even so, overall, Metals Focus suggests that the GMS will secure no more than 15-20 tonnes in its first two years.
Turning to the GSB, the 2.75% interest offered by the government to bond holders appears potentially to be a major positive says Metals Focus. Even so, the consultancy feels the take-up will be modest, despite what appears to be an extremely attractive offering. It attributes this to several main issues. First, the bond has a very long tenor of 8 years, with an option of an early exit from year five. For many potential investors this period will be too long to be locked in, should secondary market liquidity prove low. Second, the price of the bond is inclusive of the import duty and so a possible cut in future would have to be borne by the consumer.
Arguably there is a disappointing lack of any kind of tax incentive to potential bond holders. A high-profile marketing campaign would help the GSB become a success, but so far there appears to be little evidence of this, either from the banks or the government. In fact, during recent meetings with commercial banks, it was revealed that GSB advertising had been largely restricted to a small number of emails sent to clients. Finally, the limited initial window in which to invest in these bonds, of just 15 days, may also act as a deterrent.
Metals Focus notes that it is important to stress that most of the above-mentioned factors are short-term headwinds. Over the longer-term, the GSB could be a success, with the prospect of rising gold prices acting as an added incentive to encourage greater participation in the scheme. So, Metals Focus believes that in the short term at least, these initiatives are unlikely to have a material impact on Indian gold bullion imports. The key point here is that it will take time for the government and other stakeholders to create sufficient awareness across the market. Once this is achieved, investor participation should improve, although this is likely to favour urban, rather than rural, consumers.
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 “December” Gold contract: Thursday 11/05 (257,094) – Friday 11/06 (247,319) – Monday 11/09 (236,981) – Tuesday 11/10 (226,262) – Wednesday 11/11 (203,253).
We have introduced silver to our CME rundown – so we are now looking at the trading volume numbers for the “December” Silver contract: Thursday 11/05 (97,992) – Friday 11/06 (95,144) – Monday 11/09 (91,988) – Tuesday 11/10 (83,846) – Wednesday 11/11 (78,844).
The walk in cash trade was busy today and so were the phones. The increased activity can clearly be seen in our Activity Scale – we have moved from around 4 last week to the 7 to 8 range this week.
The GoldDealer.com Unscientific Activity Scale is a “7” for Thursday. The CNI Activity Scale takes into consideration volume and the hedge book: (last Thursday – 4) (last Friday – 8) (Monday – 5) (Tuesday – 7) (Wednesday – 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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