Gold Lower – Pushed by a Stronger Dollar (ZZZ)
Commentary for Friday August 20, 2016 (www.golddealer.com) Gold closed down $8.40 at $1341.40 and this is like watching the grass grow. This week’s low was $1340.30 and the week’s high was $1349.80 so the price spread was $9.50! So we have the same familiar story – gold trended lower as the dollar moved higher. The Dollar Index yesterday closed at 94.15 and today it has moved from 94.20 to 94.60.
Yet with all this indecision the gold market remains a healthy “choppy” – we are still holding on to the upper end of its 30 day price range and so from the technical point of view there is always the possibility of higher prices. What spoils the picture is the resurgence (on a regular basis) of an imposing Federal Reserve rate hike.
I don’t claim to be much of Washington “watcher” but something is not right with the economic numbers everyone is so eager to examine. Look up “Caterpillar sales” and you will see this worldwide manufacturing giant has suffered a huge drop in sales over the last decade.
And I have mentioned this before – we are getting closer to a presidential election – it seems to me that the last thing the politicians want is even more controversy. If the FOMC does not raise rates soon they will have to wait until 2017. This would be a big plus for the price of gold.
Gold’s moving averages also point to a market which might move in either direction. Compare today’s close ($1341.40) with the 50 DMA ($1348.00) the 100 DMA ($1347.00) and the 200 DMA ($1345.00) – so there is plenty to think including the Olympics.
This from Reuters – “There have been mixed signals this week from Federal Reserve policymakers, leaving the market anticipating more direction at next week’s annual meeting of central bankers from around the world in Jackson Hole, Wyoming, at which Fed Chair Janet Yellen is seen likely to cement expectations for a slow pace of rate increases.
“We have had conflicting statements from the Fed and its created quite a lot of confusion as to the thinking, so now the market is waiting to hear what Yelland’s thoughts on the world and economic growth,” Ole Hansen, head of commodity strategy at Saxo Bank.
“Overall the market is in wait-and-see mode ahead of next week Thursday’s meeting.”
Signals are neutral for spot gold as it is stuck in a range of $1,337.22-$1,358.01 per ounce, Reuters technical analyst Wang Tao said.
Reports showed the number of Americans filing for unemployment benefit fell more than expected last week, while manufacturing activity in the U.S. Mid-Atlantic region saw a mild improvement this month.
But market pricing on balance suggests investors are growing no more convinced of the case for raising rates, with the chances of a quarter point rise in December around 40 percent.
Saxo’s Hansen said the underlying support for gold remains, with the overall growth outlook not removing the incentive for alternative safe-haven investments such as gold.
Holdings of SPDR Gold Trust, the world’s largest gold-backed ETF, fell for a second day.”
Silver closed down $0.42 at $19.30.
Platinum closed down $15.00 at $1116.00 and palladium closed down $3.00 at $709.00.
Some interesting action in rhodium – this market has been quiet but in the past few days our physical sales have moved solidly higher. For the record the price of rhodium remains cheap.
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: 9 believe gold will be higher next week – 3 think gold will be lower and none 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: 37 people thought the price of gold would increase next week – 50 believe the price of gold will decrease next week and 13 think gold prices will remain the same.
Precious Metal Closes & Dollar Strength – Aug. 15 – Aug. 19
This from Kira Brecht (Kitco) – Will Yellen Provide Answers At Jackson Hole Summit? – The advanced world economies are stuck between a rock and a hard place.
Nearly 500 million people in the world now live in countries with negative interest rate policies, which represents nearly 25% of global GDP, according to a sweeping research report published this week by S&P Global. Also significantly, over half of the world’s sovereign bonds, as measured by the S&P Global Developed Sovereign Bond Index, now carry negative interest rates, the report said.
Plop, plop, fizz, fizz – money evaporating before your very eyes. That’s the downside of negative interest rates.
Advanced economy global central banks have resorted to unprecedented and experimental attempts to stimulate economic growth. The shift to negative interest rates as an official policy at the European Central Bank, the Danish central bank, the Swedish central bank, the Swiss National bank and the Bank of Japan is a desperate move of last resort.
The U.S. Federal Reserve, for now, has escaped this trap—as the United States scrapes along with a paltry but still positive 1.2% annualized growth rate in the second quarter. Fed Chair Janet Yellen, however, has stated that she won’t rule out negative interest rate policies here in the U.S.
Negative interest rates are in part intended to stimulate sluggish economic growth and to battle against potential deflation. The idea is to encourage banks to lend more, for individuals and companies to borrow more and to get money moving and flowing through economies.
Key report findings: The team of economists at S&P Global note that while European economic data reveals that negative rates may be having the desired stimulative impact there, it’s not working for Japan. The report warns that if negative interest rates remain in place too long, they could damage bank profitability and also that the policy could create excessive investor risk taking, which has the potential to ultimately create more defaults.
3 risks from a negative interest rates environment
It’s bad for banks. Negative interest rates weighs on profitability for banks. It not only forces commercial banks to pay for their deposits at the central bank, but it also encourages riskier lending practices. Ultimately, weakening our banking system pries at the health of the global financial system.
It could mean on tax on savings.
How long will it be before banks begin to pass along negative rates to retail depositors? Will you gladly embrace a negative interest rate on your balance on the bank –just for the privilege of holding your money in the bank’s vault?
It could encourage a move to an all-cash society.
Here’s a quote from David Blitzer, managing director at S&P Dow Jones Indices: “If negative interest rates spread beyond major financial institutions to the overall economy, the economy will shift increasingly towards a cash-only economy. This means increased transaction costs and rising risks of theft. Some industries might benefit: home protection services and safe manufacturers. You would be moving back toward a pure cash society. If nothing else, it’s a cost in productivity. It gets more difficult and expensive to complete transactions. You really turn the clock back.”
What it means for gold: Meanwhile, gold continues to shine in this environment, as concerns about the growing risks of negative rate policies support physical bullion ownership. Gold benefits in a world where nearly half the globe’s sovereign debt have yields below zero. A larger move back to a cash society would also likely be gold-bullish.
Big questions: Monetary policy, Fiscal policy. The more worrisome questions revolve around what will or can global central bankers and global governments do to stimulate economic growth? Fiscal policy has been limited in recent years in advanced economies amid concerns about rising debt levels.
Who has answers? Will Janet Yellen and team have any answers at their famed summer mountain gathering in Jackson Hole, Wyoming on Aug. 26? Stay tuned.
The walk-in cash business was active today and so were the phones and something is going on with rhodium.
The GoldDealer.com Unscientific Activity Scale is a “6” for Friday. The CNI Activity Scale takes into consideration volume and the hedge book: (Monday – 5) (Tuesday – 6) (Wednesday – 5) (Thursday – 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”. 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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