The June Gold is going through a short-term bearish cycle which is unusual with the monetary policies in place by the US, Bank of Japan and the European Central Bank. The Gold is stuck in a range still as it needs to penetrate $1620.00 to gain any traction. Traders and investors alike may be allocating funds to other debt instruments such as the Treasuries or the US Dollar. The Gold has lost the safe-haven sentiment for the moment and is viewed more as a risk asset at least until we encounter inflation, currency wars or other crisis situations. Holdings in the ETF’s backed in bullion have contracted 6.9 % this quarter with expectations that the Fed will eventually have an end date on the stimulus. Managed money hold 121,388 long Gold contracts as of last week. Physical buying is adding some support, levels of support are $1580.00 to $1560.00 for the moment. Gold will have its day when or if the economy grows worse or the Euro Zone starts to fall apart more. China buys Gold during the drops therefore supporting it, but may even delve into more Gold products. They have been creating Gold products over the last few years where they may anticipate some increased demand. Indian imports have been taxed 6 % from the 4 %, but the spring wedding season may increase demand in April – May. The Central Banks are still increasing their reserves. The International Monetary Fund said that Russia purchased 225,000 troy ounces of Gold last month to total 21.4 million troy ounces of Gold. The Bank of Turkey added 185,000 troy ounces to a total of 12.08 million troy ounces of Gold.
US President Barack Obama will present his Fiscal 2014 Budget to Congress on April 10th! This was delayed by two months as the deadline was initially February 4th. The automatic budget cuts are in place, but President Obama has selected projects that may present as increased need for more revenue such as improvements in public roadways, education and clean energy programs. The President will also be attempting to bring up the minimum wage from $7.25 per hour to $9.00 per hour. He may also propose a chained Consumer Price Index which may be impeding any Social Security benefit increases. Medicare may be another area to tap for the President by reducing Medicare spending by $140 billion over the next ten years through reductions from the providers themselves. Charges for Medicare may also increase with the higher income seniors. US Federal Chairman Ben Bernanke diffused charges of the loose monetary policy adding to a potential currency war. He felt that the stimulus is enriching the expansionary policies of other countries to stabilize their own currencies. He insists that the industrialized nations are not using the valuation of their own depressed currencies to gain any trade advantage over other countries. The $85 billion in monthly bond purchases by the Fed remain in place. Fed members have said that they would like to see 300,000 newly created jobs for a couple of months in a row before they would even think any monetary policy changes. The Fed Funds Rate remains at 0 to 0.25 %. This is supposed to be in place until US unemployment would fall to 6.5 % and/or inflation increased to 2.5 %. For now, inflation remains and is forecast to remain at 2 % or below for 2013. Analysts are forecasting the unemployment average for 2013 to be about 7.3 % to 7.5 % at year’s end and in 2014 to be about 7.2 %. The growth rate is projected at 2.3 to 2.8 % this year and 2.9 to 3.4 % in 2014. The Fed said that they may consider raising interest rates in 2015. The Fed sees downside risks stemming from the Euro Zone, but seems rather positive about a US recovery. US Chairman Bernanke is monitoring the Cyprus situation regarding it a difficult situation. It could potentially produce contagion fears that could stir a run on banks holding deposits in the Euro FX. The U Senate approved a funding bill to avert the government shutdown. The Senate approved a bill to keep the $85 billion in automatic spending cuts in place with some flexibility to transfer funding to the more critical areas. Congress is cutting spending now and has raised taxes as a resolve to both Republican and Democratic demands. This is a stimulus fed marketplace fueling the housing, consumer spending , business spending and business consumption.
The US GDP came in at 0.4 % while the previous reading was 0.1 % last month. Expectations were more for 0.6 %. The Initial Jobless Claims was increased 16,000 to 357,000 while the previous reading was 336,000. The continuing claims decreased by 27,000 to 3.05 million the week of March 16th. The Defense Department may under employ 750,000 of its civilian force by less hours and/or a 20 % pay cut. The Chicago PMI Business Barometer Index Level was 52.4 while the previous reading was 56.8. The Bloomberg Consumer Comfort Index was -34.4 while the previous reading was -33.9. The Kansas City Fed Manufacturing Index was -5 for March while the previous reading was -10. Corporate Profits for the fourth quarter were 13.3 % while last year’s was 17.9 %. The Pending Home Sales Index for February was -0.4 % to 104.8, while the previous reading was 4.5 %. Demand has picked up surpassing the supply concerns. The MBA Purchase Applications Composite Index was 7.7 % in the week of March 22nd. The Purchase Index portion was 7.0 %. The Refinance portion of the index was 8.0 %. The US Durable Goods Orders for February were up 5.7 % while the previous reading was -5.2 %. The durable goods excluding transportation was -0.5 % while the previous reading was 1.9 %. The New Home Sales for February was 411,000 annualized pace while the previous reading was 437,000. The US Building Permits for February were revised to up 3.7 % to a seasonally adjusted rate of 939,000. The S&P Case-Shiller HPI for January was at + 1.0 % while the previous reading was 0.9 %. The property values in the 20 cities increased 8.1 % in January. The Redbook year on year rate was 2.6 % while the previous reading was 2.9 %. The ICSC-Goldman Store Sales for the week of March 23rd were -1.7 % while the previous week was 1.4 %. The State Street Investor Confidence Index was at 88.0 while the previous reading was 94.8. This is a risk assessment based on levels of risk in portfolios. The Richmond Fed Manufacturing Index for March was 3 while the previous reading was 6. The Consumer Confidence was 59.7 while the previous reading was 69.6. The consumer expectations of economic activity going forward six months out decreased to 60.9. Only 12.3 % of consumers think that there will be more jobs going out six months. The Chicago Fed National Activity Index level for February was at 0.44 while the previous reading was -0.32. The Dallas Fed Manufacturing Survey for March Business Activity Index was 7.4 while the previous reading was 2.2. The Production Index portion was 9.9 while the previous reading was 6.2 The last US Unemployment Report showed a jobs market improving, adding 236,000 newly created jobs while the previous reading was 157,000 jobs. The unemployment rate dropped to 7.7 % from 7.9 %. Friday, The Personal Income and Outlays for February is forecast at 0.9 % while the previous reading was -3.6 %. The Consumer Spending portion is forecast 0.6 % while the previous reading was 0.2 %. The PCE Price Index is forecast at 0.5 % while the previous reading was 0.0 %. The Core PCE Price Index is forecast at 0.2 % while the previous reading was 0.1 %. The US Consumer Sentiment is forecast at 72.5 while the previous reading was 71.8. Next Friday is the next big Unemployment Report.
The banks in Cyprus reopened today with a very orderly, modest group seeking withdrawals. This renewed confidence in the system. The people of Cyprus simply organized their budgets to hold until the banks opened their doors again. There was no run, no large group gathered to enter the banks upon the open. The small country is still expected to contract by 3.5 % or more in 2013. The troika, made up of the International Monetary Fund (IMF), the European Commission (EU) and the European Central Bank (ECB) had agreed to lend Cyprus the $10 billion euros contingent on the liquidation of the 2nd largest bank (Cyprus Popular Bank Pcl) and the imposed losses of depositors with holdings in excess of $100,000 euros in their accounts. Cyprus President Nicos Anastasiades and the Euro Zone leaders have agreed on a rescue package to ensure the solvency of the banks. The $10 billion euro bailout was secured as Cyprus agreed to levy deposits of more than $100,000 euros in the two largest Cypriot banks ( Popular Bank of Cyprus or Laiki Bank and Bank of Cyprus). Contagion still remains a risk. The European Central Bank has kept Cyprus afloat for months now and the country remains supported. The Russian holdings are estimated at about $31 billion. To impede any potential run on, the Cyprus banks have government restricted withdrawals to $300 euros per day and transfers abroad. Time deposits and check cashing have also been restricted. Credit card and debit card limits were set at $5,000.00 euros per person, per month. The restrictions are supposed to be set for a week to curtail excessive withdrawals. Cyprus President Nicos Anastasiades will be conducting an investigation to see if any criminal activity may have contributed to the downfall of the Cyprus banks. The Cyprus banks actually at certain points looked to be a hot spot for wealth. Insured deposits would fall under the $100,000 euro mark. There is about $68 billion euros in Cyprus banks out of that, $38 billion are made up of deposits exceeding $100,000 euros. European Central Bank President has reminded the Euro Zone that the country may be a small one but the systematic risk may not be. The country has been viewed as a potential money laundering island. The country attributes the problem at least in part to its adjacent neighbor, Greece. About 1600 Greek companies with offices in Cyprus may be closed as they were unable to pay their Greek taxes. The Hellenic Capital Markets Commission had requested the deposit amounts listed that the Greek companies had in the Cyprus banks. The Greek toy company, Jumbo SA (BELA) is said to have $58 million euros at the Bank of Cyprus. The electricity company may decrease their bills by 5.75 % next month to reduce the pressure from this banking crisis. Chinese investors have been involved in some property sales as the prices may be appealing at this time. Consumer sentiment in the Euro Zone decreased as the new threat of a potential bank run spread through the Euro Zone. European Central Bank (ECB) President Mario Draghi confirmed that the loose monetary policy will not be replaced anytime soon! The true damage of this banking crisis is in the trust of the wealthy. In searching for tax advantages and investments globally, where will the true wealth find to be safe. If their deposits, exceed the insured limits, what advantage may they find in the banking system? Banking and tourism were the main sources of income for Cyprus. With an overvalued Euro FX and the new banking restrictions, their income may flounder. In Italy, Democratic Party Leader Pier Luigi Bersani, had regarded the country a mess as the government is lacking structure. The Italian 10-year bond is at a yield of 4.8 %. Spain is looking at a larger deficit for 2012 than anticipated. The Budget Ministry delayed the tax refunds from the fourth quarter as the restructuring of debt is taking precedence. The yield on the Spanish 10-year bond is 5.1 %. The Spanish economy is expected to contract more than anticipated. The European Central Bank has their next policy meeting on April 4th. The German labor of the unemployed kind increased 13,000 to 2.94 million. German retail sales increased 0.4 % in February. The uncertainty in the Euro Zone may remain for years to come as the Euro leaders shore up the debt in one country, another appears.
Gold will have its move up again, possibly when we do not expect it. The fundamentals should support the Gold with the loose monetary policies, eventually the allocations may shift as they become overbought. The money is flowing into the Indices, Treasuries and Currencies but when the inflation rears its head, when the currency wars come to fruition or the employment number has a setback – we may see the Gold bounce. A bounce over $1620.00 should restore confidence to launch the next Gold move.
While reaping the rewards of being a gold trader, one must be sure to use stops and money management to stay in the game! Retracements are possible. While I remain very bullish still – use stops – live to trade another day!
The Sample Trade:
Buy December Gold 2013 1800 Call for 20.00 or better! It is currently at $2120.00. This was begin on last week’s Gold Digger Alert!
The risk on the trade would be $2000.00 plus fees and commissions. The profit potential is unlimited and the expiration is November 25th 2013.
Please call or email me for the complete recommendation to coincide with your risk tolerance, so that we may apply the correct Money Management. The Weekly Gold Digger is a Free Weekly subscription to receive trading opportunities by email along with fundamental commentary and basic technical points of interest.
Take a close look and feel free to call in and talk to me in greater detail. It would be my pleasure. Good trading!
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