Commentary for Friday, July 17, 2015 ( www.golddealer.com) – Gold closed down $12.00 today on the Comex at $1131.80. The week in general suggested this test would continue and the dollar spread between the highest and lowest closing price was $23.50 and we finished on lows for the week.
Today’s $1131.80 close was a new low on the year and gold has not touched this level since 2010. Clearly the unwinding phase continues and the bears are in charge. The Chinese continue to like this action – they announced their new holdings – 1658 tonnes – they are now the 5 th largest world holder and have increased their holdings by 57% since 2009.
At the same time they are holding something like $7 trillion in US Treasuries all of which will cost the US more to float if the Federal Reserve raises rates.
Obviously the technical picture for gold continues to favor the bears. This is particularly apparent on the 60 Day Gold Chart – we have drifted lower from the $1230.00 region to a break below the important $1140.00 ($1131.80). And on the year gold is down about $180.00 or 14% primarily because of falling physical demand and a stronger dollar.
The Dollar Index during the past 12 months has really capped the price of gold and the improving economy and more hawkish Federal Reserve stand has consistently helped the bears. The index traded around 80.00 a year ago and has steadily risen to a high of around 100.00 in early March of this year. It has since bounced around that region – today’s range has been 97.42 through 97.91 – now trading at 97.80 so we are once again pushing the higher end of its range.
The continued weakness in the price of oil does not help the price of gold. This past week crude oil has moved from $60.00 a barrel to around $50.00 a barrel – and further rallies in tech stocks this week have supported Wall Street – at least to the extent that spec money usually heads in the direction of action. A rate increase may work against Wall Street but for now money is cheap – real estate remains active and the cash which is usually attracted to gold or silver bullion through the “fear” factor has taken a summer vacation.
Today’s drop is rumored to have come from one large, leveraged seller (does this sound familiar?). This is not the first time lower prices levels for gold were tested out of the blue from a supposed stranger. All professional traders knew this market was weak technically and I find it unbelievable that at these lower levels that large speculative long positions still exist – except in commercial accounts.
So this drop might just be another “test” for the short-paper interests – consider this logic – if you had $1.4 billion dollars in speculative future interest would you sell everything at one time and through one broker? At any rate I am not saying that gold will not continue to drift lower – the technical picture being what it is but like I said yesterday look for a short covering rally as this gold market continues to be oversold in my opinion.
This from Myra Saefong (MarketWatch) – Gold futures head toward a five year low – “A large seller on Comex just dumped $1.4 billion of gold futures onto the market,” Ross Norman, chief executive officer at Sharps Pixley Ltd. in London told Marketwatch. “We have a peculiar world where the physical market is seeing very strong buying, but a large leveraged speculator is selling at these prices.”
But “our Asian colleagues will continue to acquire while the West continues to divest. Who is right we shall only know in the longer term,” he said.
The selloff comes on a day when the People’s Bank of China published its gold reserves for the first time in roughly six years. As of June, China’s official gold reserves were at 53.32 million ounces, or 1,658 metric tons. The last reported figure in April 2009 was 1,054 metric tons, according to Norman.
“The figure published by the PBOC is roughly half the market consensus on what we had thought they had accumulated,” said Norman. “As such, this is very, very bullish for gold.”
He said that China has “clear ambitions to create a global reserve currency to challenge the hegemony of the U.S. dollar DXY, +0.17% and to fill the void created by the declining holdings by central banks of the euro EURUSD, -0.2483%
Brien Lundin, editor of Gold Newsletter, said the release of China’s gold reserve holdings data was widely expected. As for the large seller on Comex, he said that if that was related to the China news, “it’s only by way of taking advantage of a perceived news event to attack the market.”
“No one dumps that much of a commodity that quickly to get the best price,” he said. “Their intended purpose is purely to drive the price down. It’s outright manipulation that wouldn’t be allowed in any other market.”
Prices for gold have posted declines over the last six sessions. Expectations for a Federal Reserve interest-rate hike later this year were bolstered by congressional testimony this week by Fed Chairwoman Janet Yellen. Higher interest rates tend to support the dollar and a stronger dollar is typically seen as a negative for commodities priced in the currency.
Meanwhile, progress toward completing a bailout deal for Greece robbed gold of haven demand. Germany’s lower house of parliament on Friday backed the plan, a day after Greek lawmakers passed strict measures that were a prerequisite for the deal.”
Silver closed down $0.15 at $14.82. The public this week wanted American Silver Eagles 1 oz – because of higher premiums due to production slowdown at the US they decided any silver bullion product was a good play – they bought with both hands.
Platinum closed down $11.00 at $1001.00 and palladium was down $13.00 at $618.00. Rhodium was down $25.00 at $975.00
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 – 4 believe gold will be higher next week – 4 think gold will be lower and 4 believe 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: 42 people thought the price of gold would increase next week – 40 believe the price of gold will decrease next week and 18 think prices will remain the same.
Precious Metal Closes & Dollar Strength – July 13 – July 17
This from Kira Brecht (Kitco) – Will The Cost Of Production Support Gold Soon? – The gold market is falling under its own weight, and is heading toward a retest of the November 2014 lows. Concerns about interest rate hikes from the Federal Reserve, a lack of safe-haven buying surrounding the Greek crisis and general investor apathy toward gold is pressuring the market lower.
However, there are potentially bullish factors lying ahead, including a pick-up in physical gold demand from long-term Asian gold investors, on-going central bank buying, and the eventual impact of lower prices on the cost of production. More on that later.
The Comex August gold futures contract has breached support from the March 2015 low at $1,143.80, which turns the focus squarely to a retest of the November 2014 lows ahead. The weekly continuation chart for nearby Comex gold futures shows major technical chart support around the $1,133 per ounce region.
Over the past year and a half, declines toward the $1,100 per ounce region have triggered physical buying interest from long-term gold investors, specifically from China and India. Looking ahead, analysts do expect a resurgence in physical demand as prices fall to lower levels. The long-term physical gold buyers have proven to be a price-savvy, cost-conscious crowd who looks to buy on dips. The dip could be lower this time as price conscious buyers wait for better bargains.
How low could gold fall? Let’s take a look at what other factors could emerge to support the metal in the weeks and months ahead. Central bank buying continues to be a steady bullish support for the metal. In May, data from the World Gold Council revealed that 7 tonnes of gold were added to central bank reserve coffers. Central banks continue to diversify into gold and that trend is expected to remain in place, especially among emerging market players.
Then there is the cost of production, or the amount of money it takes to pull gold out of the ground and get it to market is an important factor for the metal and for any commodity.
Commodity markets tend to move in boom and bust cycles. High prices stimulate production, which in turn can create a glut of the commodity. Low prices cause producers to pull back on production, which in turn can create scarcity and then eventually trigger a move back toward higher prices. It all comes down to the changing nature of supply. Too little supply and steady to rising demand will turn a market higher.
“Gold prices have recently breached their marginal cost of production on an all-in sustaining capital basis,” according to Barclays research. “We maintain the view that production looks vulnerable should prices trade below $1100/oz. In the past, prices have traded at least a third above the average cost, which implies support around $1000/oz,” Barclays said.
“At current prices, 15% of global gold production is loss-making, suggesting output of 440 tonnes is vulnerable,” Barclays also said.
Looking ahead, Barclays added: “While we believe prices trading below $1100/oz is likely to prompt a producer response and offer some support, $1000/oz is a particularly vulnerable level for gold.”
“It is not our base case that gold will trade in triple digits: we believe support is likely to materialize before then as demand from China and India become key drivers of prices,” Barclays said.
Bottom line: Gold is falling toward levels that could trigger some producers to cut back. In turn, that creates less supply. With continuing expectations for steady to higher demand, especially from Asian consumers gold is nearing an inflexion point.
The walk in cash trade was cazy today with a number of lines forming at the rear of the building. The wait was short however – and the phones were just as crazy. This week has seen more buying action from the public than we have seen in months.
For now both gold and silver bullion remains available – if demand continues into next week even larger dealers will run short – that does not mean they can’t restock – usually however when there is tension in the air and immediate replacement takes some work, premiums can get wonky. Here is the rule for the physical buyer – if you see premiums rise on product you have been watching it probably means precious metal dealers are either uncertain of replacement or are forced to pay the price to get the specific products wanted by the public.
It’s common or the public to believe dealers “play” with premiums – the majority of real bullion dealers know better – with internet access and live pricing common they would not risk losing a good customer over an extra dollar.
Also let’s be careful out there – there have been specific warnings in the chat rooms about 2 large dealers who might be in financial trouble. This is an old story and here is another rule – if the price for bullion delivered becomes too cheap there may be a problem. If you are having trouble with delivery email ( RSchwary@aol.com) and I will tell you privately if the dealer is still sound (most are) or their problem is just temporary because of recent action or a rumor exists about financial insolvency.
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