Gold Settles Quietly – Let’s Hope Not for a Long Winter’s Nap
Commentary for Wednesday, Dec 23, 2015 (golddealer1.reachlocal.net) – Gold closed down $4.40 on the Comex today at $1069.40. The past few days have played out pretty much as I had expected – slowing action and not much direction as we approach Christmas. Since last Friday gold has closed between $1066.20 and $1081.50 – a $15.30 spread.
Today the dollar was flat and the Dollar Index showed little changed. It traded around 98.39 and crude oil prices were higher trading from $36.50 through $37.50. OPEC claims that oil will double in value (the good news) but not until 2020 (the bad news).
For now gold seems to have solid support in $1055.00 range and there is even talk surfacing that the Federal Reserve has raised interest rates too soon. There were fresh articles in both the Guardian and the Wall Street Journal and I will talk more about that in our next letter after Christmas. If this pans out in 2016 expect gold to move back over recent highs – nothing spectacular but a few hundred dollars to the upside would not be a surprise.
The US Mint has no more gold or silver Eagle coins to deliver until at least the middle of next month. This will create higher premiums as both of these coins are very popular.
Because of our Christmas holiday schedule (closed Thursday and Friday) this will be the last Almost Famous Gold Newsletter until next Monday (Dec 28th). Our entire staff wishes you and your family good health and the best of the holiday season!
Silver closed down $0.03 at $14.27. There are lots of silver bullion choices so premiums on most products will remain on the low side even though prices are in the cheap range.
Platinum closed down $4.00 at $868.00 and palladium was down $1.00 at $553.00. Platinum is trading for $201.00 less than gold and I expect this discount to narrow considerably in 2016 as demand for typical platinum bullion products is moving higher.
This from Reuters – “Trading is expected to be quiet as liquidity thins ahead of the Christmas holiday. Japanese markets were closed on Wednesday. Gold could see some sharp moves as dealers square their books in year-end trading. Short positions on COMEX gold are at a record high, according to recent U.S. government data, a factor that could trigger some short covering.”
This from Kira Brecht (Kitco) – What If The Fed Got It Wrong? Time to Buy Some Insurance? – The U.S. Federal Reserve finally pressed the “lift-off” button, edging short-term interest rates off their near zero percent floor at its mid-December meeting.
Beware: the Fed is not driving a finely tuned Ferrari down the Autobahn that responds to the lightest touch of the wheel. The Fed is trying to navigate an unwieldly $18.1 trillion GDP economy more akin to an 18-wheeler truck. There are a lot of moving parts and a lot of areas that the Fed really can’t control. There’s lots that can go wrong.
Let’s take a look at a few “What ifs”:
Scenario A: What if the Fed got it wrong and hiked too early –and economic conditions begin to slow in 2016 and inflation fails to bounce toward its 2% target. Could the Fed be forced to slow down its expected pace of rate hikes in 2016, hold steady or even cut rates again?
Scenario B: What if the Fed got it wrong and hiked too late –and the U.S. economy rebounds more strongly than expected in 2016 with a faster pace of growth and rising rates of inflation. Could the Fed be forced to hike rates faster than expected?
The markets probably wouldn’t like either scenario.
Sure, the central bank has been broadly telegraphing this interest rate hike. Twelve to eighteen months ago it was readying markets for an increase in short-term rates. Why finally now? Is the economic situation that much brighter now than it was in September? Not really.
“In some ways, it seems odd that the Fed would increase interest rates in the current circumstances. Commodity prices have collapsed, credit and emerging markets are showing distress, and our measure of global risk appetite is hovering near “panic” levels. On top of that, ISM headline and new orders have fallen below 50 for the first time in three years and US industrial production has contracted in eight of the last eleven months,” wrote economists in a Credit Suisse research note.
Here is another observation from John Lonski of Moody’s Analytics:
“The Fed’s first rate hike in more than nine years occurred in the context of a wider than 700 bp spread for high-yield bonds. And that was noteworthy from corporate credit’s perspective. Never before in the modern era of speculative-grade has bond market had the Fed hiked rates when the high-yield bond spread was wider than 625 bp.Going forward, if the high-yield spread remains wider than 650 bp, the Fed may opt not to hike rates at the March 2016 meeting of the FOMC. Moreover, if the spread averages more than 700 bp during the next three months, a weakening of credit conditions may force the Fed to reconsider its current strategy.”
Why did the Fed really hike rates? There is a school of thought that I subscribe to, that the Fed simply wanted to get a rate hike in now-before the calendar flips to 2016. Rates have been near zero since 2008 and it was simply time to start ratcheting them higher. Monetary policy is the Fed’s main policy tool to address weak economic conditions and overheating inflation. With rates near zero, the Fed has been out of its traditional ammunition for nearly eight years.
They wanted some insurance. The central bank simply wanted to start hiking rates in case something goes wrong, they wanted to start loading up some ammunition into their holster just in case.
Looking ahead into 2016, the Federal Reserve has painted a fairly rosy economic picture, with room for three or four more interest rate hikes, which could leave the funds rate at 1.25-1.50% by year-end. That level still remains extremely low and accommodative by historical standards and well below a more “normal” 3.5% rate.
The Fed is crossing its fingers that it’s right and just moving ahead, well because its time. Rates have been too low, too long and they needed to start normalizing policy. But, there are lots of “what ifs” lurking in the shadows.
Gold has always been an “insurance” vehicle throughout history. A safe haven investment. A hedge against inflation, against currency devaluation, against geo-political risk. A hedge against economic weakness and overall uncertainty. And, with gold trading just around $1,050 per ounce, versus its all-time high above $1,900 some may even start to view the metal as “cheap” insurance.
This is our usual ETF Wednesday information – Gold Exchange Traded Funds: Total as of (12-16-15) was 47,574,151. That number this week (12-23-15) was 47,825,834 ounces so over the last week we gained 251,683 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 2015 is 53,901,867 – the record low for 2015 is 47,394,412.
All Silver Exchange Traded Funds: Total as of (12-16-15) was 610,562,645. That number this week (12-23-15) was 608,187,351 ounces so over the last week we dropped 2,375,294 ounces of silver.
All Platinum Exchange Traded Funds: Total as of (12-16-15) was 2,380,719. That number this week (12-23-15) was 2,390,400 ounces so over the last week we gained 9,681 ounces of platinum.
All Palladium Exchange Traded Funds: Total as of (12-16-15) was 2,432,803. That number this week (12-23-15) was 2,413,629 ounces so over the last week we dropped 19,174 ounces of platinum.
This from mydigitalfc.com – Gold imports to touch 1,000 tonnes this year, up 11% – Buoyed by sharp fall in gold prices globally, India is likely to see a jump of 11 per cent in imports of the metal to 1,000 tonnes this year, says a trade body.
According to the All India Gems and Jewellery Trade Federation, the world’s second-biggest gold consumer had imported around 900 tonnes in 2014.
“Gold import is estimated at around 1,000 tonnes in 2015 calendar year, compared to around 900 tonnes last year. Imports are likely to increase because of low global prices,” All India Gems and Jewellery Trade Federation Chairman G V Sreedhar said at an event here.
He said imports through smuggling are estimated to be around 100 tonnes this year.
According to the Federation, India has already imported 850 tonnes of gold from January-September of 2015 as against 650 tonnes in the first 9 months of last year.
Gold imports are expected to be 150-200 tonnes in the last quarter, as against 300 tonnes in the year-ago period.
The World Gold Council has said in its latest report that India’s gold demand in the October-December quarter would be more muted.
“Lingering concerns over the health of the rural Indian economy and local gold prices remaining in close proximity to Rs 27,000 per 10 grams level in recent weeks also give reasons to adopt a prudent outlook for the usual fourth quarter uplift in Indian demand,” it had said in the report.
Although the upsurge in demand during July-September period partially compensated for the second quarter’s poor turnout, it also ate into ‘normal’ seasonal demand that would take place between September and November, the report said.
Festival and wedding purchases were brought forward to take advantage of the price dip, therefore demand towards the end of the year is likely to be correspondingly affected, it added. Gold is the second-largest import item for India after petroleum. Higher gold import bill adversely affects the country’s current account deficit.
This from Chris Gaffney (EverBank World Markets) – Here’s a great piece from Gold Researching guru, Koos Jansen, who interviewed Willem Middlekoop, author of the book: The Big Reset, regarding the financial system of the world, and he’s also a fund manager. Koos Jansen interviewed him and the whole interview can be found on the www.bullionstar.com website, where Koos posts all his stuff. But I thought this one paragraph was very important and so I’ve brought it over to here, and put it in a snippet. Here you go.
“Any country, like the US, that issues the dominant world reserve currency has almost limitless power to finance other countries. It gives the monetary hegemony ‘exorbitant privilege,’ as the French remarked in the 1960s. Because it can print the world currency the US can buy anything it wishes without having to worry about its liabilities. While the Soviet Union collapsed because they had to import food with hard-earned dollars from their oil exports, in the 70s and 80s, the US could start the Korean War and the Vietnam War with freshly printed greenbacks. By ‘obliging’ foreign central banks to keep their monetary reserves in Treasury bonds, the US in fact forced them to finance US military spending abroad, as Michael Hudson explains in his book ‘Super Imperialism’. In this new form of imperialism, the US is able to rule not through its position as world creditor, but as world debtor. America’s weakness as a debtor country has indeed become the foundation of the world’s monetary and financial system. A Chinese market commentator once remarked: ‘World trade is now a game in which the US produces dollars and the rest of the world produces things that dollars can buy, a dollar hegemony that forces the world to export not only goods but also dollar earnings from trade to the US. Everyone accepts dollars because dollars can buy oil.’ Only when dollar-holding nations decide to buy natural resources instead of US treasuries, is the dollar’s reserve currency status in danger. This is exactly the exit strategy China and Russia seems to be playing right now. In recent years, the Russians have sold most of their dollar holdings, while they tripled their gold position. The Chinese have stopped buying extra US Treasuries since 2010 while they have imported and invested in huge amounts of gold. These developments signal the first stages of the US dollar’s decay.”
The walk-in cash business was semi-busy today and the phones were on the slow side.
The GoldDealer.com Unscientific Activity Scale is a “5” for Wednesday. The CNI Activity Scale takes into consideration volume and the hedge book: (last Thursday – 5) (last Friday – 5) (Monday – 6) (Tuesday – 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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