Gold Closes Higher as the Dollar Weakens
Commentary for Wednesday May 11, 2016 (golddealer1.reachlocal.net) Gold closed up $10.70 on the Comex today at $1274.60. The price of gold in the overnight Hong Kong and London markets had a positive bias which was carried over into our domestic market this morning. Gold opened about $22.00 higher than yesterday’s close of $1263.90 – sold off and again regained its footing – then turned choppy between $1270.00 and $1278.00 finally settling at $1274.60.
This strength in gold after a few days of weakness was created by dollar weakness. The Dollar Index yesterday closed at 94.27 and today is trading around 93.75.
The Dollar Index is now defiantly moving lower having reversed a higher trend – in place since last Thursday. From last Thursday through Tuesday the index seems to have consolidated between 94.00 and 94.50 before moving lower today.
We talked yesterday in the newsletter that what gold needs here is not just to stabilize but to show it can still generate a strong “bid” in a market which may be turning technically weak.
So the key here is not just a weaker dollar – I think the bigger dollar picture will remain range-bound – supported by new interest rate hikes before year end.
For gold to remain in the fight we need that weaker dollar but we also need a nice round of bargain hunting especially in the physical market.
Traders are as confused as Wall Street as to what the Fed will do this summer with interest rates. It seems impossible that some board members are still talking an interest rate hike when commentators on CNBC this morning note that many big retailers are reducing their guidance numbers dramatically.
We think a rate hike unlikely this summer – perhaps before year end but just the threat of such a move in interest rates is enough to keep the lid on gold prices even though technically it would not be too surprising to see gold once again threaten $1330.00.
For now however the price of gold continues to be tied directly to the dollar. And let’s hope bargain hunting comes to the rescue – this will reinforce the notion that gold is in consolidation but remains firm in its current range.
Silver closed up $0.23 at $17.30. And after a surprisingly quiet day yesterday silver bullion came to life downstairs today – there was action both buying and selling.
Platinum closed up $17.00 at $1066.00 and palladium closed up $16.00 at $608.00. This area too reinvented itself today – there was outright buying and some trading of gold bullion for platinum bullion.
This is our usual ETF information – Gold Exchange Traded Funds: Total as of (5-04-16) was 59,118,991. That number this week (5-10-16) was 59,849,362 ounces so over the last week we gained 730,371 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 59,849,362 and the record low for 2016 was 47,568,082.
All Silver Exchange Traded Funds: Total as of (5-04-16) was 636,028,825. That number this week (5-10-16) was 632,131,159 ounces so over the last week we dropped 3,897,666 ounces of silver.
All Platinum Exchange Traded Funds: Total as of (5-04-16) was 2,404,384. That number this week (5-10-16) was 2,409,776 ounces so over the last week we gained 5,392 ounces of platinum.
All Palladium Exchange Traded Funds: Total as of (5-04-16) was 2,322,101. That number this week (5-10-16) was 2,330,718 ounces so over the last week we gained 8,617 ounces of palladium.
If you are not on Doug Casey’s email list you should be (www.caseyresearch.com) – not long ago he posted commentary on the possibility of a run on the banks.
“It would only take a small fraction of withdrawals in the U.S. to force the banking system to shut down.
Here’s a little-known fact about the U.S. financial system. If you add up all the cash sitting in Americans’ checking and savings accounts, you get $11.1 trillion.
But according to the Federal Reserve, there are only about 1.4 trillion “paper” dollars in circulation in the U.S.
If even 15% of depositors tried to take their cash out of the bank, the banking system would collapse. Banks would be forced to shut down, locking you out of your account.
In normal times, this lack of dollars isn’t an issue. Less than 1% of folks try to withdraw large sums of cash each day. So banks can get away with having hardly any real physical cash.
But these are not normal times. Remember, governments are ordering banks to tax your bank account with negative interest rates.
This has never, ever happened before. Not in the U.S. or anywhere else.
But it is happening all around the world right now. Key interest rates in Japan and Europe are already negative. And Janet Yellen, head of the Federal Reserve, recently said negative interest rates aren’t “off the table” in the U.S..”
So do I think that there will be a run on US banks – no and probably Casey believes there is little chance of this happening. There have not been real runs since the 1930’s and at that time the government realized that such a happening would be catastrophic so they changed the system. The worst case scenario was seen in the 2008 financial collapse – banks which failed were simply taken over by larger healthier banks and the resultant bank wrote off the loss using a larger pool of money created by the Federal Reserve.
Because there is theoretically an unlimited amount of currency which could be printed there is not much danger of default. The reason you don’t hear much about this process is because the notion of bank failure is not good for business.
So how does all this apply to the average Joe? The assumption of failing banks is of no interest to the average person and even the notion of unlimited currency production is overlooked.
This process however destroys the middle class – a group whose numbers have been moving steadily lower since the 1970’s.
But keep in mind however that while there will always be plenty of fiat cash there has never been plenty of real gold and silver coins and bars.
A run on the banking system would create a run on the world’s physical supply of gold, silver, platinum and palladium. That is why some of the more extreme hard money advocates suggest that $10,000 gold will eventually become a reality.
I don’t believe such a scenario makes any sense – the government would step in to stop the bleeding and save the world financial systems. It’s really the best solution but I do believe the precious metals are necessary to keep everyone honest and today they are undervalued.
Unfortunately today this “insurance argument” in the US holds very little weight. I have said for years that less than 5% of the American public owns physical gold or silver. Their reasoning is simple – we have not seen a dollar default since the Civil War.
But a run on the banks would put the fiat currency question in extreme focus relative to the precious metals. There really is not much of this stuff around. The last big price run in gold was in 2011 and it produced intermittent shortages.
If there were a real banking panic even for a few short days our back parking lot would be full and so would the parking lots of every precious metals dealer in the country. Just something to think about as governments of the world continue to experiment with entirely new and untested polices designed to get you to spend more money while the balance sheet debt continues to grow.
The walk-in cash business was brisk today with plenty of both buying and selling. The phones were also busy.
The GoldDealer.com Unscientific Activity Scale is a “6” for Wednesday. The CNI Activity Scale takes into consideration volume and the hedge book: (last Thursday – 6) (last Friday – 5) (Monday – 4) (Tuesday – 3).
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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