Gold Moves Lower Against the Mighty Dollar
Commentary for Tuesday, Jan 12, 2016 (golddealer1.reachlocal.net) – Gold closed down $10.90 at $1085.60 – so we are back to our normal recent trading ranges. The weakness today was the result of paper profit taking as the recent bullish sentiment wanes – traders square-up their positions with a little housekeeping and world stock markets move away from a “fear” scenario relative to China.
The primary reason gold has “blinked” these last few days is because China is becoming more stable but helping push gold prices lower is the mighty dollar. The Dollar Index closed yesterday at 98.82 and has traded today between 98.57 and 99.28 – we are now around 98.93. To put this in perspective the Dollar Index was trading at less than 95.00 in October so it’s easy to see that as long as the dollar remains strong the price of gold will be problematic.
This does not mean that if further problems develop in Europe or China that “safe-haven” buying will not develop. Gold will always be a safe-retreat for some but there are many other options available including the strong dollar. And like I have pointed out if there is a real route in the China market it does not mean that gold will be the obvious choice – this could prompt the selling of gold bullion to cover paper losses if stocks continue to move lower.
So I expect a continued “choppy” market for the near future – developing even daily scenarios to fit the current trading picture. This will continue to be a “day by day” trading market because the fight between the bulls and bears has not been decisive. I think the bear trade holds a stronger hand but as you can see the price of gold easily moved in the opposite direction since the first of the year as fear was once again introduced into the paper markets.
This scenario is especially strong considering the very weak oil picture. Crude this morning making new recent lows – we are trading around $30.89 a barrel. We were at $36.00 just a week ago – so who knows how this will play out in the European financial markets but these knock down oil prices can’t be good for gold. There are some who will argue that lower oil is a monetary deflationary consequence – others will claim its overproduction but either way gold suffers.
Silver closed down $0.11 at $13.74. Things are picking up a bit here – lower prices will eventually bring in bargain hunters but I have been surprised that this reaction has been slow to develop since the beginning of the year.
Platinum closed down $8.00 at $837.00 and palladium closed down $5.00 at $469.00. Platinum is now trading for $248.00 less than gold.
The price of platinum has been impacted by a drop in jewelry demand in China – which accounts for 67% of worldwide jewelry demand. Also the Volkswagon scandal has affected sentiment toward diesel engine cars which use platinum in their auto-catalysts. The price of platinum approached $2200.00 per ounce before the 2008 recession and dropped to as low as $760.00 in October of 2008.
The public has generally bought this market because of platinum’s discount to gold so platinum coin producers have been overwhelmed with demand for platinum products. The US Mint sold out of proof platinum eagles in a matter of hours and I am regularly quoted delivery times into
March for 1 oz Platinum Bars and Canadian Platinum Maple Leafs. Only the Australian Perth Mint seems to be producing coins on a regular basis so they are about a week out in delivery. We are taking orders only on the Platinum platypus which should be delivered by Brinks tomorrow.
Next Monday (Jan 18th) is Martin Luther King Day – we will be closed and so will the post office and commodity markets.
This from Sarah Benali (Kitco) – Dollar Shortage: ‘Never Enough Money’ Out There – Jim Rickards – Instead of focusing on China and the struggling equity markets, one best-selling author turned his attention to a bigger issue, which he refers to as “the dollar shortage.”
“[S]ince 2009 there has been far more dollar-denominated debt created than dollars. There are not enough dollars to go around. The losses will be enormous,” warned Jim Rickards, author of Currency Wars and The Death of Money, in his latest blog post for West Shore Funds Monday.
“We are closer to the stage (last seen in September 2008) where ‘everybody wants her money back.’ When that happens, there’s never enough money,” he said.
According to Rickards, every dollar that has been printed by the Federal Reserve has created a new 20-fold amount of debt.
“McKinsey Global Institute estimates that global debt increased by $57 trillion from 2007 to 2014. Not all of this debt is denominated in dollars; some is in yen, euros or yuan. Still, the dollar debt overhang is enormous,” he said.
Rickards explained that debt is only manageable if it can be rolled over into new debt, or paid off with profits; however, under current market conditions — “growth depression” and with a “technical recession looming” – servicing debt is problematic.
“The United States has not ‘paid off’ its national debt since 1835, but it has successfully rolled it over into new debt to redeem the old,” he said.
Not only is the U.S. burdened by its national debt, but the country’s economy is also vulnerable on the foreign reserves front, Rickards continued.
“The IMF reported that total hard currency reserves of all IMF members as of September 30, 2015 were $11.2 trillion. About 60% of those reserves (about $6.9 trillion) are in U.S. dollars,” he pointed out, adding that most of those reserves are heavily concentrated in China, Japan and Taiwan.
Dollar-denominated debt, on the other hand, is more widely distributed among major borrowers like Brazil, Turkey, Indonesia, Russia, and others, Rickards added.
“This is a massive asset/liability mismatch not by maturity, but by locality. The IMF can finesse this mismatch to some extent with regard to sovereign debt, but it is not in the business of bailing out corporate debt,” he said.
This “mismatch” between the stock of dollar-denominated debt and the dollar-denominated investment flows needed to service them, Rickards said, is making the global economy vulnerable to a financial crisis. And, the Fed seems to be oblivious to the additional damage it is causing with the stronger dollar and rate increases, he added.
According to Rickards, the only possible solutions are robust growth, expanded credit, restructuring and inflation, or a combination of these.
However, it seems that the last two are more plausible, he said.
“Growth is stymied around the world by the lack of structural reform (tax cuts, regulatory cuts, improved outcomes for women, labor mobility, etc.). Expanded credit is stymied by the Fed’s policy of tight money launched in May 2013,” he explained.
Under current market conditions, inflation and debt restructuring seem to be the more probable solutions. However, the latter will be resisted by “elite interests” like banks and insurance companies, he said.
“These elites prefer to move the costs of bad debt to everyday citizens rather than bear them directly. The way to do this is inflation,” he noted.
“Inflation steals from savers and investors and gives to debtors (including corporations and governments). Banks and elites don’t suffer because they see it coming and prepare accordingly (often with gold purchases – the current course of China, and Russia). It’s everyday people who suffer from inflation. They are not in on the elite game,” he added.
Inflation is coming, Rickards said, although it hasn’t materialized in the global economy just yet despite central bank attempts to stimulate it.
“…it won’t come from ‘money printing’ by central banks. It will come from massive new spending programs,” he said.”
This from Lawrence Williams (Sharps Pixley): Could gold be the answer in a difficult 2016 – “Here are a couple of paragraphs that to me stood out in an investment letter I have had sight of from independent analyst Russell Napier of Electronic Research Interchange:
“If you had not noticed, 2016 has begun with gold and the USD rising simultaneously. This is different and important. This is very positive for gold and very bad for the world.
“The rise of both together may signal that we have just entered that period when this inert non-yielding substance is preferred to those assets that promise a yield but where the scale of future payments is subject to considerable doubt. Also positive for gold, the advent of deflation, following the failure of the easy reflationary solutions promised by non-elected central bankers, will enfranchise aggressive acts of reflation by our elected representatives. When the tough get going then the going will really get tough- at least if you’re an owner of capital.”
Napier has been preaching this scenario certainly since the unanticipated Chinese yuan devaluation of last August, which he saw as the implementation of the beginnings of a global deflationary spiral. Quantitative Easing by central banks has been an abject failure in the attempt by central banks to promote a kind of controlled general inflation – the only things it seems to have managed to inflate have been stock market valuations and property prices, but general price inflation has not been apparent – at least according to government-generated statistics throughout the developed world.
2016 has started out with some hefty stock market downturns – how soon before property values follow suit? – while general price inflation – even at the very low levels targeted by the central banks – remains painfully absent. Under this view the world could be in for a very difficult year ahead with gold perhaps a significant beneficiary.
On the geopolitical front we also look to be in for a particularly scary year – or perhaps several years. Islamic State (Daesh) may lose territory in Iraq and Syria, but such a religiously fanatical movement is unlikely to be totally defeated and how one can fully protect major cities from atrocities promulgated in its name by its fanatical individual followers is difficult to contemplate. The movement is still drawing in new followers from the global Sunni Muslim population, but the bigger worry perhaps is if the Daesh philosphy spreads to their countries. It is very much a fringe Sunni Muslim theology and Sunnis account for around 80% of Muslims worldwide – which means around 16% of the total world population.
Islamic State’s theological leaders’ interpretations of the Koran would take us back to a pre-mediaeval Sunni-followed Sharia law system where any non-believer is guilty of apostasy – particularly those from other Muslim sects – and subject to the death penalty. There appears to be little or no room for compromise or dissension under this particular theology. What is perhaps even more worrying in this nuclear weapon day and age is that this theological doctrinal interpretation foretells the Sunni Islamic State Caliphate eventually being defeated but then, as a result, precipitating the apocalypse!
But while the Islamic State ongoing conflict is perhaps the most obvious immediate apparent danger facing the world, there are plenty of other already looming geo-political and geo-financial flashpoints out there some of which are almost certain to impact us in the year ahead, while there are undoubtedly others hiding in the wings which, at the moment remain complete unknowns. As we pointed out in an earlier article the sheer numbers of ‘black swan’ events already seen this year does not bode well for the future of global stability.
Not least of possible threats is that of a potential stock market collapse. The Chinese stock market, which admittedly appears to be more of a casino than most, has fallen over 40% from its peak and is still falling. This has been dragging other Asian markets down with it and Western markets have not been immune either with key indices in North America and Europe all falling sharply last week. While the rot seems to have been stabilized a little today in the West, the markets still look fragile so nervousness abounds. We have already been seeing a return of some safe haven demand in the US, represented by some big purchases into the gold ETFs, reversing the recent trend as a result.
We are also seeing some bank analysts breaking ranks on the likely future for the gold price following on from its strong performance so far this year, despite the Fed rate hike. Towards the end of last year virtually every bank analyst was predicting doom and gloom for gold with prices forecast to drop below $1,000 and perhaps below $900. Some remain of this opinion – and we’re not saying they may not eventually prove to be correct, although we hope not – but UBS in particular has suggested investors should get out of equities and buy gold, while some of the biggest names in global investment also seem to be leaping onto the gold bandwagon again. Perhaps the sentiment is turning at long last.
With both gold and gold equities there does seem to be more of a consensus now that if we haven’t yet reached the bottom, we are likely very close – indeed it may already be behind us. But making such a prediction for gold does leave one something of a hostage to fortune! As far as gold equities are concerned, given the rise in the dollar against the currencies of most producing nations the mines may actually be doing rather better than last year’s fall in the dollar gold price might suggest. So while 2016 may be shaping up dubiously on many fronts perhaps gold may be the one to buck the trend (along with silver, which could do even better if gold does take off).”
The walk-in cash business was off today and so were the phones.
Questions about 2016 US Mint Silver and Gold Eagles – we should have 2016 US Gold Eagles and 2016 US Silver Eagles in stock next week – orders are being taken
The GoldDealer.com Unscientific Activity Scale is a “4” for Tuesday. The CNI Activity Scale takes into consideration volume and the hedge book: (Wednesday – 6) (Thursday – 7) (Friday – 3) (Monday – 5). 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.
When buying or selling you will receive an email confirmation. This includes a PDF File to confirm your invoice or purchase order and includes forms of payment and bank wire instructions. When doing business please check to see if your current email has been entered into the new system and check to see if your computer will accept our email (no spam).
Thanks for letting us know when you move or change your email.
We believe our four flat screens downstairs with live independent pricing (BullionDesk.com) are unique in the United States. The walk-in cash trade can see in an instant the current prices of all bullion products and a daily graph illustrates the range of the markets on any given day.
Yes – you can visit the store with cash and walk away with your product. Or you can bring product to the store and walk away with cash. We will even wire funds into your account that same day for a small service fee ($25.00) if you are in a hurry.
In addition to our freshly ground coffee we offer complimentary cold bottled water, Cokes and Snapple. We also provide fresh fruit in a transparent attempt to disguise our regular junk food habits as we sneak down the block for the best donuts in the world (Randy’s).
Like us on Facebook and follow us on Twitter @CNI_golddealer. Sal is now in charge of our Facebook page and he is a self-proclaimed expert on gold conspiracy theory. He would be happy to respond to even the most ridiculous conspiracy assertion on our Facebook page so why not join the fun?
Thanks for reading, as always we appreciate your business and enjoy your evening.
Disclaimer – The content in this newsletter and on the GoldDealer.com website is provided for informational purposes only and our employees are not registered financial advisors. The precious metals and rare coin market is random and highly volatile so it may not be suitable for some individuals. We suggest before deciding on a course of action that you talk with an independent financial professional. While due care has been exercised in development and dissemination of our web site, the Almost Famous Gold Newsletter, or other promotional material, there is no guarantee of correctness so this corporation and its employees shall be held harmless in all cases. GoldDealer.com (California Numismatic Investments, Inc.) and its employees do not render legal, tax, or investment advice.
The post Gold Moves Lower Against the Mighty Dollar appeared first on www.golddealer.com.