2016-03-31

Gold Moving Higher but Working Pretty Hard

Commentary for Thursday March 31, 2016 (www.golddealer.com) Gold closed up $7.00 on the Comex today at $1234.00 but it is working pretty hard of late – it’s good that we are holding the higher ground but progress from this point better pick up soon or this market will simply trend lower.

Today’s numbers popped to the upside in early trading but essentially trended lower the rest of day and into the after-market around $1231.00.

Gold is getting some traction because of the dollar. The Dollar Index closed yesterday at 94.83 and today we are around 94.65 so higher gold prices are encouraged. The dollar has lost about 1.6% since Yellen’s dovish comments earlier this week – but this weakness can turn on a dime – and the Federal Reserve will raise rates if the economy continues to improve or the inflation numbers rise.

For those that believe the Federal Reserve is really interested in Europe – they are as long as this interest can be used to convince the European Union the US wants to play ball. I suspect however that most of this talk is just that – just an attempt at quieting the waters.

As we end the 1st quarter of 2016 we find that the dollar down by 4% and gold during this same timeframe is up 16.4% – which is the biggest quarterly advance in 30 years. Also during this same time frame silver is up 12%, platinum up 9%, palladium unchanged and rhodium up 12%.

You can also add Kuwait to the list of countries buying gold – figures released today claim they purchased 1.2 million ounces of gold in 2015.

For now however the price of gold seems range bound between $1220.00 and $1270.00. A break in either direction will attract a ton of follow through price momentum.

This from Jan Harvey (Reuters) – Gold heads for biggest quarterly rise in nearly 30 years – LONDON, March 31 Gold rose on Thursday as a drop in equities boosted its appeal as an alternative asset, heading for its biggest quarterly gain in nearly 30 years as expectations that the Federal Reserve would press ahead with interest rate hikes receded.

The metal is highly exposed to rising rates, which lift the opportunity cost of holding non-yielding assets while boosting the dollar. It fell 10 percent last year ahead of the first U.S. rate increase in nearly a decade in December.

Gold has climbed 16 percent in the first three months of this year, its biggest quarterly rise since 1986, as concerns over global growth battered equities and sparked a wave of safe-haven buying.

“A combination of safe-haven demand on the back of worries about China in particular, a scaling back of expectations of further rate hikes from the Fed, and rising inflation expectations … have been behind the rally in the gold price,” Capital Economics analyst Simona Gambarini said.

“Overall real interest rates will remain low, which is what matters for gold.”

The metal rallied late on Tuesday after Fed Chair Janet Yellen said the U.S. central bank should proceed only cautiously in raising interest rates.

World stocks fell for the first time in four days on Thursday as a roller-coaster quarter drew to a close, while the dollar retreated 0.2 percent against the euro.

Attention is now turning to U.S. non-farm payrolls data on Friday, a key barometer of the health of the world’s biggest economy. A soft reading could further boost gold.

“The possibility that the jobs number may be good and therefore bearish for gold was reinforced by news that the private sector added 200,000 net new jobs in March, according to the ADP National Employment Report,” HSBC said in a note.

Holdings of the world’s biggest gold-backed exchange-traded fund, New York’s SPDR Gold Shares, fell for a second session to 819.28 tonnes on Wednesday.

Higher gold prices curbed demand for the precious metal in Asia this week, with premiums in several major markets taking a hit, traders in the top consuming region said.”

Silver closed up $0.24 at $15.44. The $1000 face 90% bag premium moved from plus $2.90 over spot to plus $2.50 over spot. This reduces the cost of a bag by about $300.00 and signals that recent higher premiums may be subsiding.

Platinum closed up $11.00 at $975.00 and palladium closed down $2.00 at $563.00.

This from Neils Christensen (Kitco) – Negative Rates Could Double Gold’s Long-Term Performance – WGC – “Financial markets are seeing unprecedented negative interest rate polices being implemented around the globe, which, according to the World Gold Council, could be good for gold in the long term as investors are forced to pay governments for holding bonds.

“History shows that, in periods of low rates, gold returns are typically more than double their long-term average,” the council said in its latest gold market update, which looks at the impact of a world in negative interest rates.

The report noted that investors are starting to view gold as an attractive investment as there are little options for safe-haven assets, which have typically been government bonds.

“Bonds generally help balance the risks inherent in portfolios. Low yields, however, not only promote risk taking, but also limit the ability of bonds to cushion pullbacks in stocks and other risk assets in investment portfolios,” the council said in the report. “Our research shows that gold can help investors balance portfolio risks in this largely unprecedented environment.”

The WGC noted that more than $8 trillion worth of high-quality sovereign debt, about 30% of the market, is trading in negative territory. At the same time, 40% of global bonds are trading with yields below 1%.

“When yields are adjusted for inflation, the figures are even starker: 51% of sovereign debt (US$15 trillion) is trading with negative real yields and only 16% yields more than 1% in real terms,” the report said.

“Unless investors are willing to accept a loss-making investment strategy, they may need to consider increasing their holdings of gold. We believe this should resonate especially well with pension funds and foreign reserve managers whose investment guidelines are typically stricter and who hold a large portion of bonds in their portfolios,” the council said.

While negative interest rate policies are bad for investors, the council noted they also erode confidence in fiat currencies, raising the threat of a global currency war, and are increasing market uncertainty and volatility as these are seen as last-ditch attempts by central banks to spur growth and promote inflation.

“Negative interest rate policies were designed and implemented to fight against deflation and currency appreciation pressures, especially vis-à-vis the U.S. dollar. Nonetheless, currencies from all advanced countries/regions that implemented negative rates have actually appreciated against the U.S. dollar, year-to-date, ranging from about two to seven percent. The longer this situation persists, the greater the likelihood some central banks may pursue intervention measures,” the report said.”

The walk-in cash business was modest today and so were the phones.

By the way – if you are new to the metals don’t be in a hurry. The process of protecting yourself financially with real gold or silver bullion has been around for a long time and can be abused when prices move higher. Avoid pressure from telemarketers who are on commission – and especially avoid promises of quick profits – a sure sign that the dealer will be the only one who makes money. Be careful if the dealer calls you describing a profit opportunity. Take your time in the process – sleep on the idea – and make an informed decision.

The GoldDealer.com Unscientific Activity Scale is a “3” for Thursday. The CNI Activity Scale takes into consideration volume and the hedge book: (last Friday – closed) (Monday – 3) (Tuesday – 4) (Wednesday – 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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