The <b>Gold Price</b> Gave Back $4.10 Today Closing at $1320.60 |
- The <b>Gold Price</b> Gave Back $4.10 Today Closing at $1320.60
- Why China Buying Gold May Be Bad For <b>Gold's Price</b> - Seeking Alpha
- Who let the bears out? <b>Gold price</b> rally stalls | MINING.com
| The <b>Gold Price</b> Gave Back $4.10 Today Closing at $1320.60 Posted: 19 Feb 2014 04:40 PM PST Gold Price Close Today : 1320.60 Change : -4.10 or -0.31% Silver Price Close Today : 21.844 Gold Silver Ratio Today : 60.456 Silver Gold Ratio Today : 0.01654 Platinum Price Close Today : 1422.90 Palladium Price Close Today : 735.20 S&P 500 : 1,828.75 Dow In GOLD$ : $251.09 Dow in GOLD oz : 12.146 Dow in SILVER oz : 734.32 Dow Industrial : 16,040.56 US Dollar Index : 80.220 After a twelve-day winning streak (less one day for gold) it wasn't surprising that silver and GOLD PRICES took a rest. The gold price gave back $4.10 to $1,320.60. The SILVER PRICE lost 4.7 cents to 2184.4c. A tiny dip like today's is no cause for worry. Bigger question is what silver and GOLD PRICES will do as the correction progresses. Best if gold holds above $1,300 and silver above 2100c. Since none of us has a crystal ball, we can only buy the dips and hope. It would, however, be very unusual for any market to make a breakout as dramatic as silver's on Friday, following 2-1/2 months of range trading and coming off a six-month double bottom simply to wilt and drop. I don't expect that, but bull markets climb a wall of worry. In another stunning display of a central bank's ability to promote instability in markets, the FOMC meeting minutes published today show that the Fed MIGHT back off its long standing promise to keep interest rates low until frogs fly. Is this stupid? Let me count the ways. First, the Fed has addicted stocks to low interest rates and printing money, so whenever they breathe a hint of change, stocks tremble like they had the DTs. Second, rising interest rates normally accompany a recovering stock market. Third, low rates are devastating and will blow up pension and retirement plans and killing savers. Fourth, low rates keep money flowing to uneconomic businesses rather than cleansing the economy by cutting them off with high rates. Is that enough? Fed's FOMC minutes depressed stocks today. Dow plumped down 89.84 (0.56%) to 16,040.56. S&P500 sighed and sank 12.01 (0.65%) to 1,828.75. Dow in Gold still hasn't closed below its 200 DMA (11.91 oz) yet. Today it lost only 0.42% to 12.15 oz (G$251.16 gold dollars). Dow in silver fell minutely, 0.1%, to 734.12 oz. US DOLLAR INDEX bounced predictably off the bottom boundary of its range -- predictably but not meaningfully, up 17 basis points (0.21%) to 80.22. Everything about the dollar points lower, but who knows what might make the Nice Government Men change their minds? Euro backed off 0.17% to $1.3736, but remains about that old uptrend line so should inch higher. Yen rose 0.03% to 97.73. Moving sideways. Argentum et aurum comparenda sunt -- -- Gold and silver must be bought. - Franklin Sanders, The Moneychanger © 2014, The Moneychanger. May not be republished in any form, including electronically, without our express permission. To avoid confusion, please remember that the comments above have a very short time horizon. Always invest with the primary trend. Gold's primary trend is up, targeting at least $3,130.00; silver's primary is up targeting 16:1 gold/silver ratio or $195.66; stocks' primary trend is down, targeting Dow under 2,900 and worth only one ounce of gold or 18 ounces of silver. or 18 ounces of silver. US $ and US$-denominated assets, primary trend down; real estate bubble has burst, primary trend down. WARNING AND DISCLAIMER. Be advised and warned: Do NOT use these commentaries to trade futures contracts. I don't intend them for that or write them with that short term trading outlook. I write them for long-term investors in physical metals. Take them as entertainment, but not as a timing service for futures. NOR do I recommend investing in gold or silver Exchange Trade Funds (ETFs). Those are NOT physical metal and I fear one day one or another may go up in smoke. Unless you can breathe smoke, stay away. Call me paranoid, but the surviving rabbit is wary of traps. NOR do I recommend trading futures options or other leveraged paper gold and silver products. These are not for the inexperienced. NOR do I recommend buying gold and silver on margin or with debt. What DO I recommend? Physical gold and silver coins and bars in your own hands. One final warning: NEVER insert a 747 Jumbo Jet up your nose.  |
| Why China Buying Gold May Be Bad For <b>Gold's Price</b> - Seeking Alpha Posted: 18 Feb 2014 11:55 PM PST Executive summary:
_________________________________ I've written various articles attempting to outline a theory that central banks buying gold is a double edged sword. The theory is simple. If central banks are buying gold, they are doing so as part of a broader monetary policy. When the Federal Reserve buys bonds it injects new money into our system; when the Federal Reserve sells bonds it pulls money back out of the system. That is how our system works, the US uses bonds as its preferred instrument to manage the money supply. Until the crash of 2008, many other nations did the same. After 2008 however other countries started to rethink their monetary strategy and diversify away from the US dollar. Most important of those countries was China, who decided to target a "basket" of currencies instead of just the US dollar. Many of those nations' central banks began to buy gold instead of US dollars.
What this means is that instead of buying US bonds to expand their money supply, foreign central banks are buying gold instead. Gold is now a tool of monetary policy, and that can be both good and bad for the price of gold. The reason that is good is because the increased demand will likely drive gold higher. As central banks diversify away from the US dollar they drive up the price of gold and effectively drive down the price of US bonds, i.e. drive up US rates. That is all fine for gold until there is a shift in monetary policy. Once central banks go from a stimulative monetary policy to a contractionary monetary policy, they go from buying gold to selling gold. That is why it is a double edged sword. The key then is to anticipate when central banks may be changing from a stimulative policy to a contractionary policy. Recently China has been greatly expanding its money supply. (click to enlarge) Along with expanding its gold purchases...we think. Because the PBOC doesn't release official gold holdings the secrecy leads to speculation, which makes it hard to discount the true impact on the price of gold.
The last part of the above quote highlights the dangers of the PBOC holding gold, "though official announcements could have real price impacts." Relative to the US dollar, gold is extremely volatile. Volatility is the last thing a central bank wants in its reserves, and why I think central banks will regret their decision to diversify away from the US dollar. The reason volatility is so bad is because central banks must have a mechanism to take currency back out of circulation once it has been put into circulation. If the PBOC buys 1 oz of gold when it is trading at $2,000/oz, and someone in the vault leaks to Wikileaks that the PBOC has far more gold than the markets think, triggering the price of gold to plummet to $1,000/oz, the PBOC is stuck with $2,000 in circulation but only $1,000 in gold to sell to bring it back out of circulation. To make matters worse, when the PBOC starts to sell its 1 oz of gold it will drive gold even lower than the $1,000, so it won't even be able to take back $1,000. It is a vicious cycle because to take more and more currency out of circulation the PBOC would need to sell more and more gold at lower and lower prices to take fewer and fewer yuans out of circulation. Once other central banks realize what is happening, they too will rush to sell gold, turning a slow-ball into an avalanche. It would be like a run on the central banks, as each central bank hopes to get to the gold window before it is too late. Ironically, the impact this will have will be to trigger inflation fears in the home country, and greatly strengthen the currencies that remained on the US dollar based system. I'm pretty sure sooner or later central banks will discover that gold is infinitely more volatile than the US dollar and that fears of the US dollar's demise were overblown, and when they do, the trend will reverse itself. What does that have to do with today? Well, everything. Currently China may be looking to slow the growth of its money supply and tighten credit.
While China currently appears to be in a "neutral" position, sooner or later, China will have to slow its economy, and when it does, it may be forced to sell gold.
One additional note is that there is speculation that China wants to replace the US dollar as the reserve currency, and establish a new global gold standard. While I have no doubt that China wants the yuan to be the world's new reserve currency, and it most likely one day may be, the talk of a new global gold standard is nonsense. The last thing China wants is an inflexible inelastic currency system. A global gold standard in a dynamic global economy would be a disaster. To maintain stable prices, the money supply must grow at the same rate as the economy. Each country has its own fiscal policy and growth and inflation rate. A gold standard would result in imbalances all over the world, and make China, Canada, Australia, Russia and South Africa the countries that control the mint.
Additionally, this quote of Jeffrey Christian, managing director at New York-based research firm CPM Group, demonstrates how central bank buying of gold allows a speculative premium to be built into its price without any real basis. All the PBOC has to do is allow rumors to persist and the speculators will drive up the value of their gold for them. Why buy more when a simple rumor can make you richer?
In conclusion: central bank buying of gold is a double edged sword. Gold is a rather volatile holding on a central bank's balance sheet, and that volatility creates problems, especially when a contractionary policy is being implemented. While central bank buying may be driving gold higher today, it will also likely drive it lower tomorrow. As economies rebound around the globe, they will shift from a stimulative monetary policy to "neutral" and even contractionary policies. When that happens, the dynamics driving gold today will be reversed. Because the US remains on a dollar standard and the world prices gold in US dollars, as inflation develops in nations with gold on the balance sheets of their central bank it will trigger gold selling, not buying. Inflation may actually trigger lower gold prices if the inflation develops in nations outside the US. That is the whole irony of this situation. Disclaimer: This article is not an investment recommendation or solicitation. Any analysis presented in this article is illustrative in nature, is based on an incomplete set of information and has limitations to its accuracy, and is not meant to be relied upon for investment decisions. Please consult a qualified investment advisor. The information upon which this material is based was obtained from sources believed to be reliable, but has not been independently verified. Therefore, the author cannot guarantee its accuracy. Any opinions or estimates constitute the author's best judgment as of the date of publication, and are subject to change without notice. Past performance is no guarantee of future results. For my full disclaimer and disclosure, click here. Disclosure: I am long GLL. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. Additional disclosure: I also own GLL calls. |
| Who let the bears out? <b>Gold price</b> rally stalls | MINING.com Posted: 18 Feb 2014 10:32 AM PST The steady climb in the gold price in recent weeks came to a halt on Tuesday, as momentum traders take some profits in the metal up nearly 10% since the start of the year. In noon trade on the Comex division of the New York Mercantile Exchange, gold futures for April delivery – the most active contract – hit $1,324.60 an ounce, down $4.30 from Monday's close, but up from lows earlier in the day of $1,314. Gold remains near a three-and-half month high as 2014 sees a shift in sentiment after 2013's 28% retreat, the worst performance since 1980. Gold's rally in 2014 on the back of safe haven buying on turmoil in emerging markets, weak economic news from the US and continued strong physical demand from Asia has not convinced everyone that the market has turned a corner. The median forecast for the fourth quarter 2014 of the nine gold analysts tracked business news wire Bloomberg is $1,165 an ounce and the two most accurate gold price forecasters in the group are even more bearish: "I just see this [gold's rally and ETF buying in 2014] as a corrective move," said Robin Bhar, the head of metals research at Societe Generale SA in London and the most-accurate forecaster tracked by Bloomberg in the past two years. "We would still want to be bearish gold," said Bhar, who expects a fourth-quarter average of $1,050." "Haven demand plays well when gold is cheap, but it's no longer cheap," said Justin Smirk, a senior economist in Sydney at Westpac Banking Corp. and the second most-accurate forecaster tracked by Bloomberg in the past two years. "I'm a little surprised by the volatility in the market, but it really doesn't change my overall view," said Smirk, who expects a slide through the year to a fourth-quarter average of $1,020. A week ago, Credit Suisse's head of precious metals research, Tom Kendall, speaking on CNBC predicted that the rally in gold may start to fizzle out: "I wouldn't be surprised if we see it trade up a little bit above $1,300 in the next couple of sessions," but "I think the momentum that we're seeing here is probably looking to exhaust itself in the not-too-distant future." Kendal is particularly negative towards gold this year saying that towards the end of 2014 the gold price will touch $1,000 an ounce: "[It's] not out of the realm of possibility by any stretch of the imagination, particularly once we get through this soft patch in the U.S. economy and we see real interest rates tick back up." ETFs vs bars and coins A new study by the World Gold Council shows demand for bars and coins surged to an all-time high of 1,654 tonnes as individual investors took advantage of lower prices. Investment in physical gold trusts or gold-backed ETFs moved in the opposite direction in 2013 with net redemptions totaling just over 880 tonnes. The net effects was an overall 15% decline in gold demand in 2013 according to the industry group. After turning gold into a one-way bet lower last year, large investors, primarily made up by hedge funds, have recently turned more bullish. Net long positions – bets that the price will go up – held by so-called managed money surged 17% and to 69,291 lots or 6.9 million ounces according to Commodity Futures Trading Commission data released on Friday. Last week gold ETF holdings also showed some positive signs, increasing by 3.2 tonnes. While the additions are still modest February is on track to show the first monthly increase in ETF holdings since December 2012, when gold in vaults held by these funds peaked at over 2,600 tonnes.
Image of gold bear by The Scott |
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