Gold Reacts to Mario Draghi
Commentary for Thursday April 21, 2016 (www.golddealer.com) Gold closed down $4.20 on the Comex today at $1247.00. This has to be one of the oddest days in gold trading that I have seen over the past 12 months.
Keep in mind the Europeans were sweating the ECB comments by President Mario Draghi – so he gets started with the usual stuff – continued monetary stimulus (translation – negative interest rates) will help the European economy and we have no fear of this continue monetary policy.
Everyone expected this so it would follow that the gold market would show little in the way of change. Well – the markets got the message and gold pitched higher immediately reaching at one point $1272.00 – creating all kinds of trading buzz.
Then – bam the markets dropped like a rock moving to virtually unchanged and finally closing at $1247.00 down $6.20 from yesterday’s close.
The dollar was also erratic – the Dollar Index traded steady around 94.50 for most of the morning but suddenly lost a half point for the shortest time – turning around and moving back to around unchanged (94.66).
This points out how much sway the dollar holds relative to the price of gold and supports my continued belief that further interest rate hikes (probably due later this year) will have a negative impact on the price of gold.
So what’s this mean? I think paper traders like trading ranges which allow them to ride the waves – so trading profits come rolling in.
But the question everyone has at the back of their mind is simple – will gold hold up or are we in for another bout of lower prices? You can always tell when this question weighs on gold commentary – look for this catch phrase – “a little profit taking is healthy”.
That is the question everyone in the physical business is pondering – whether they will admit it or not – and the answer is as plain as the closing numbers. Gold must show strength in the $1260.00 to $1280.00 range or all of this is a tempest in a teapot.
Silver closed down $0.05 at $17.08.
Platinum closed up $4.00 at $1030.00 and palladium closed up $13.00 at $610.00.
An almost important note – The Almost Famous Gold Newsletter will not be published tomorrow (Friday) because of traveling conflicts (that’s code for I am taking a three day weekend to eat and drink too much with my family). We will publish again this coming Monday (April 25th) – in the meantime thanks for reading.
This from Neils Christensen (Kitco) – Is Silver’s 11-Month High Just the Start? – The silver market has taken off in spite of gold’s struggle to make new gains, and, according to one international bank, silver’s 11-month high is just the beginning.
Wednesday, May Comex silver futures were up 1% on the day, last trading at $17.155 an ounce, its highest price since early June 2015. The grey metal has become the best performing precious metal and is currently up more than 23% since the start of the year.
In a report published Wednesday, ABN AMRO said it is currently reviewing its silver forecasts for 2016, noting that its previous forecast is “too conservative.”
One of the reasons the Dutch bank is reviewing its silver forecast is because the metal’s outperformance has caused a significant shift in the gold-silver ratio, which is now trading just above 73. A few weeks ago, it was trading above 80.Scotiabank
“The gold/silver ratio has dropped by around 12% over the recent weeks. This may be a considerable move, but in historical context, it is just a start,” said Georgette Boele, coordinator of FX and precious metals strategy for ABN AMRO, in a report published Wednesday. She added that they are forecasting the gold-silver ratio to fall back to 60.
“This means that silver prices will have to rally far beyond our current silver price forecasts while gold prices will then only rise modestly,” she explained.
According to the report, China is the biggest factor behind silver’s latest rally. Boele noted that along with silver, platinum group metals are also benefiting from shifting expectations for China’s economic growth.
“The main difference between gold and silver is that silver has substantially more industrial applications than gold. When the overall outlook on China became less negative as Chinese data stabilized, the industrial demand outlook for platinum, palladium and silver improved,” she said.
Boele added that demand for industrial precious metals should also improve as both the U.S. and European economies are expected to grow this year and in 2017.
Boele also concluded that investors are now jumping into silver as it has the most potential. She noted that from its peak in April 2011 to 2015, silver prices fell 71%.
“No other precious metal has lost so much of its value up to now. This made silver a relatively cheap precious metal at the start of this year,” she said.
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 “June” Gold contract: Thursday 4/14 (369,801) – Friday 4/15 (366,827) – Monday 4/18 (364,111) Tuesday 4/19 (377,450) – Wednesday 4/20 (378,957).
We have introduced silver to our CME rundown – so we are looking at the trading volume numbers for the “June” Silver contract: Thursday 4/14 (97,642) – Friday 4/15 (96,266) – Monday 4/18 (92,381) Tuesday 4/19 (83,384) – Wednesday 4/20 (70,955).
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 5 believe gold will be higher next week – 5 think gold will be lower and 1 thinks 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: 49 people thought the price of gold would increase next week – 40 believe the price of gold will decrease next week and 11 think prices will remain the same.
Precious Metal Closes & Dollar Strength – April 18 – April 21
The walk-in cash business was on the slow side and so were the phones.
The GoldDealer.com Unscientific Activity Scale is a “4” for Thursday. The CNI Activity Scale takes into consideration volume and the hedge book: (last Friday – 3) (Monday – 4) (Tuesday – 5) (Wednesday – 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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