The Weekly Gold Digger (Sep 19 2014)

This is a sample entry from Leslie Burton’s newsletter, The Weekly Gold Digger, published on Friday, September 19, 2014.

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The US Dollar may be the biggest reason for the Gold to remain under pressure. The strength of the Dollar has most of the tangible markets in steep downtrends.

The Gold market is just bearing the brunt of a strong US Dollar and monetary policy that has been interpreted as perhaps a bit hawkish. The US Fed tapering is pretty much set for an October expiration but the tightening is regarded as data dependent. That leaves it wide open. The tightening may arrive earlier than anticipated which is extremely bearish for Gold. Inflation remains below target levels which again is added pressure for the Gold market. China’s Gold consumption may be one of the strongest factors for the Gold bugs. Another potential negative factor to look out for is Russia. The sanctions have created a possible recession for Russia whereby they may have to sell off some of their Gold reserves. The Gold ETF Holdings dipped 0.5% this week to 1,706.47 metric tons. The SPDR Gold Trust did remain unchanged at 784.22 as of Friday. The physical sales of Gold had been supportive, but even the US Mint sales report for the Anniversary Kennedy Half Dollar Gold Proof Coin had a decline to 63,384 units all together. Returns and cancellations increase during the declines. While the picture may seem glum for the metal, we must remember the purpose of the Gold as a hedge against inflation and a safe-haven in times of conflict or when the valuation of a currency may change. It is for this, that Gold may remain a valid portion of any investment portfolio.

The ICE Exchange announced that it may offer one kilo bars (32.15 troy ounces) of Gold contracts to boost both volume and potential deliveries. The start date may be February 2015. The CME Exchange may launch a Gold contract that may be deliverable in Hong Kong and the price may be fixed to the Hong Kong bullion. Chinese demand has become more interested in the brands of the Gold rather than the acquisition. Investment demand is reaffirmed in the sideways movement of the market as shown below even with the bars and coins. Total investment demand over the 2nd quarter amounted to 341.1 tons. The 53% decline in demand on the bars and coins were attributed to the Chinese and Indian consumers. The World Gold Council announced that in 2013, China purchased a record 1,065.8 tons up 32%. India bought 974.8 tons. The global demand decreased 15% to 3,756.10 metric tons for 2013. The outflows from the Gold funds accounted for 880.8 tons. The Chicago Mercantile Exchange lowered the margin to an initial of $5,060 from the $5,940 and the maintenance to $4,600 from $5,400 for the 100 troy ounce Gold contract! Seasonally, trade stats tracking buy dates on the Gold historically in both September and October are extremely bullish. Marking 93% and 80% of the last 15 years or so. The conflict abroad should have created more of a bullish scenario for the Gold market. September is seasonally strong with the weddings/festivals in India and the jewelry industry preparing for Christmas. We approach harvest where typically the fruits of one’s labors may be realized. The Central Banks purchases in the 2nd quarter were about 117.8 tons or approximately $4.9 billion US. Gold mining has increased this last quarter by 58.2 tons of Gold. The rate is supposed to decline from this point on. The CME Group and the Thompson Reuters Corp. are vying to manage the London Gold Fix. The winning bid will be announced in October. At least the Exchanges and primary leaders in the industry still value the luster of Gold.

US Fed Chairperson Janet Yellen spoke this week highlighting the hardship that families may be experiencing during the “recovery”! Policy rates are unchanged at 0-0.25% and the tapering remains on schedule with an out clause “assets are not on a preset course” and the Committee’s decisions about their pace will remain contingent on the Committee’s outlook for the labor market and inflation! She retained the “considerable time” and the “employment rate is little changed”! She also kept in her significant “underutilization of labor resources” in to assess the need for maximum employment and price stability. These are key in terms of the doves yet then she later added that the Fed is seeking normalization when the conditions warrant and that may be the end of 2017. Her remarks that the economic data may change the expectations of normalization at any time is what the hawks were seeking. She further described “considerable time” as not a schedule but a conditional factor. She realizes that there are still a significant number of individuals who are long-term unemployed and that many may be working part-time as they could not find a full-time job. The tapering ends in October and phrases such as “considerable time” puts the tightening out perhaps to take place between March and December of 2015, but the majority of analysts are looking to July of 2015. The last employment report was totally unexpected at 142,000 new jobs created for August. Of course, many analysts simply refer to the numbers as an anomaly. The underemployment rate actually dropped 12%. The long-term (27 weeks or more) unemployed came in at 2.96 million. Private hiring increased 134,000. The service providers (private) increased 112,000. Construction companies increased jobs by 20,000 workers. Retail employers decreased jobs by 8,400 in August. The average hourly earnings did increase by 0.2%. Casino closings in Atlantic City could also increase the unemployment numbers in the following weeks. The Fed did estimate that they estimate that interest rates could be 1.375% at the end of 2015. At the end of 2017, they expect about an interest rate of 3.75%. The US dollar itself may be a hindrance to the marketplace as US goods become more expensive to foreign buyers. China’s central banks are increasing stimulus providing about 500 billion Yuan to their biggest banks to increase lending. The Organization of Petroleum Exporting Countries may be cutting production in light of the recent oil prices drop. Their quota could decrease to about 500,000 barrels a day as leaders from OPEC and Russia were in talks this week. The Crude Oil costs may influence earnings and many data dependent reports. The European Central Bank loaned about 82.6 billion euros to their banks to try to stir the slack economy. This could support a short-term bounce in the Gold market.

The US Senate was set to approve President Obama’s plan to arm and train Syrian troops to fight the Islamic State. The President vows to “degrade and destroy” ISIL in light of the violence that threatens Americans and Global allies. Airstrikes have been used, but may not really have the total impact necessary to alleviate the threat. ISIL has been investigating the possibility of crossing the border into the US thru Mexico. The ISIL militants pressed Turkey to allow refugees from Syria to crossover. ISIL has about 49 Turkish hostages being held in Iraq. The Ukraine President Poroshenko has recently visited the Oval Office as he was granted full support during the conflict between the Ukraine and Russia. The pledge consisted of a $53 million aid to support the Ukraine during this crisis. The IMF had offered $17 billion in loans to the Ukraine as well. The IMF estimates that another $19 billion may be needed by year’s end. Russia is experiencing the deepening sanctions in finance, business and import/exports. September 5th was the beginning of the cease-fire between the Ukraine and Russia, yet deaths have occurred and little trust has been built. The next meeting in Berlin is scheduled for September 26th where the Ukraine, Russia and EU may discuss gas supplies. The sanctions may work inversely as winter approaches with Russia controlling a large percentage of the supplies. Regarding the MH17 tragedy, Russia is pushing for more UN involvement in the investigation.

The Leading Indicators for August were at 0.2% while the previous reading was 0.9%. The Atlanta Fed Business Inflation Expectations for September was 2.1% while the previous reading was 2.0%. The Initial Jobless Claims for the week of September 13th was at 280,000 while the previous reading was 315,000. Continuing Claims decreased by 63,000 to 2.429 million. Housing Starts for August were at 0.956 million while the previous reading was 1.093 million. The Housing Permits were at 0.998 million while the previous reading was 1.052 million. The Philadelphia Fed Survey General Business Conditions for September was at 22.5 while the previous reading was 28.0. The Bloomberg Consumer Comfort Index for the week of September 14th was 37.2 while the previous reading was 36.5. Consumer Price Index for August was at -0.2% while the previous reading was 0.1%. The CPI excluding food and energy was at 0.0% while the previous reading was 0.1%. The Current Account for Q2:14 was at -$98.5 billion while the previous reading was -$111.2 billion. The Housing Market Index for September was at 59 while the previous reading was 55. The MBA Purchase Applications for the week of September 12th Composite was at 7.9% while the previous reading was -7.2%. The Purchase Index was 5.0% while the previous reading was -3.0%. The Refinance Index was 10.0% while the previous reading was -11.0%. The Federal Open Market Committee Meeting announcement kept the Federal Funds Rate at 0-0.25% and kept the taper on schedule, but left the door open to change any policies or language as they see fit. The PPI-FD for August was 0.0% while the previous reading was 0.1%. The PPI-FD excluding food and energy was 0.1% while the previous reading was 0.2%. PPI excluding food, energy and trade services was 0.2% unchanged. PPI Goods was -0.3% while the previous reading was 0.0%. The PPI Services was 0.3% while the previous reading was 0.1%. The ICSC-Goldman Store Sales for the week of September 13th were -2.6% while the previous reading was 0.7%. Redbook Store Sales for the week of September 13th were at 3.6% while the previous reading was 4.9%. The Treasury International Capital Foreign Demand for Long-Term US Securities for July were at -$18.6 billion while the previous reading was -$30.2 billion. Industrial Production for August was -0.1% while the previous reading was 0.4%. The Capacity Utilization Rate was 78.8% while the previous reading was 79.2%. The Manufacturing was -0.4% while the previous reading was 1.0%. The Empire State Manufacturing Survey General Business Conditions Index for September was 27.54 while the previous reading was 14.69. The Nonfarm Payrolls for August were at 142,000 while the previous reading was 209,000. The Unemployment Rate was at 6.1% while the previous reading was 6.2%. The Average Hourly Earnings was at 0.2% while the previous reading was 0.0%. The Average Work Week is forecast at 34.5 hours unchanged. The Private Payrolls was at 134,000 while the previous reading was 198,000. The GDP for Q2p:2014 Real GDP was at 4.2% while the previous reading was 4.0%. The GDP Price Index was at 2.1% while the previous reading was 2.0%.

Gold Chart

The safe-haven properties of the Gold are perfect for those times of conflict in the world and it certainly has a run when the conditions seem their worst, but that does not seem to be the case now.

The Gold (December) contract is in sell mode if it stays below $1240.50. A key consolidation area may be $1230.00 to $1185.00 for the moment. $1219.90 may be the comfort level. The range may be $1250.00 to $1185.00 for now. Some Analysts seem, to be fairly bearish toward the Gold now with projections down to $1050.00 or even $750.00. Other analysts have more of a bullish consensus with increased targets to $1450.00. However; if it holds $1210.00 to $1200.00, there could be a short-term bounce to possibly buy.

The options may give a trader the right to control a futures position at a specific price or to simply profit/loss on the premium itself. It is suggested to consult your broker without delving into options if you are unfamiliar with them.

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