This is a sample entry from Leslie Burton’s newsletter, The Weekly Gold Digger, published on Friday, October 24, 2014.
The US Dollar may be headed back up thus pressuring the Gold market next week! It will be all up to the Fed action.
The Gold may decrease in next week’s action if the Fed holds its course and tapers as anticipated for the end of quantitative easing. A potential upset would be if they introduced another round of easing as it would shock the market and the traders would flock back into the Gold market, but we do not expect it. Traders seem to be selling the rallies stifling any major moves up at least for now. We also must be aware of global central bankers dumping their reserves. 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. Back in 1998, Russia sold their reserves of about 500 + tons created a slide even though the market was technically bullish and the sentiment was bullish. The bounce may have been attributed to the state of the European economy or the Chinese back from their Golden Week holiday. So far this year, the Chinese net imports from Hong Kong total 497 metric tons. The Shanghai Free Gold Exchange is operational. The Chinese Central Bank is considering boosting their Gold reserves. They have a small Gold reserve amount in comparison to the US 70% in Gold reserves. Shanghai imported about $15.98 billion of Gold so far this year. Since Gold bullion was permitted in China (2004) the demand has risen from 10 tons to 397 tons last year according to the World Gold Council. They anticipate by 2017, that Gold demand may reach 500 tons. The World Gold Council believes according to one of their reports that the Chinese sentiment is that the US may devaluate their dollar driving up the price of Gold eventually.
There may be some demand out of India as the Diwali festival is October 25th. The monsoon may have given crops that were less than perfect, but perhaps there may be a little buying the metal. The All India Gems & Jewelry Trade Federation felt that the fourth quarter imports could increase 75%. It is thought that about 20,000 tons of Gold may be held in homes and temples within India. The asset allocations have veered away from the Gold recently in light of a recovering economy with little inflation and Fed tightening to begin next year. The market seems to take the geopolitical strife in stride with some anxiety and fear only to boost the Treasuries and the US Dollar. The SPDR Gold Trust remained steady at 749.87 tons as of Friday. 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. This Wednesday will be vital in determining whether the Fed takes a Dovish tone. 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. The fourth European Central Bank Gold Agreement as of September 27th limits the selling of any significant amount of Gold. There are about 21 central banks signing the agreement. As of 2013, about 30,500 tons of Gold were held by the central banks. This restriction may help any potential devaluation of Gold a bit, but their holdings only amount to about a fifth of the globally mined Gold. The central banks have been buyers of Gold increasing reserves. Russia and the Ukraine increased their holdings in August while Mexico and the Czech Republic decreased their holdings according to the International Monetary Fund. US Jewelry purchases were about 26.1 metric tons second quarter which was 15% over the same quarter of last year. This year is expected to remain a year of consolidation for the Gold market, yet some expectations may warrant an increased demand for Gold. Gold supplies are estimated at about 163,000 tons above ground at present according to the World Gold Council.
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 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. October 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. The Swiss Gold Initiative referendum is to be voted on November 30th which could be the onset of a global path to financial stability. The Swiss have printed money over the years much like the US and many other nations. This is vital as it may bring the national Gold back to Switzerland. It may require the Swiss National Bank to hold about 20% of the assets in Gold and contain the Gold sales. Since many currencies have been devalued over the years, this is the one key to bring back normalcy. The Swiss have printed about 400 billion SF’s over the last six years to devalue its currency and increase the export appeal. Bottom line, this would mean that the Swiss National Bank would be in the market to buy about 1,700 tons of Gold over the next few years.
The New Home Sales for September was at 467,000 while the previous reading was 504,000. This may have softened the US Dollar a bit today allowing a bit of support for the Gold. The Bloomberg Comfort Index was up to 37.7. The Initial Jobless Claims remained under 300,000. There still are the same worries out there such as the Ebola fears still circulating, ISIL concerns as Iraqi troops have not been successful in containing the enemy, Fed’s lack of clarity or just doubts about US Chairperson Janet Yellen. It does seem that when the stock indices retreat that the Fed may come out with a statement to renew accommodation in terms of low interest rates and/or stimulus. US Fed President of the Federal Reserve Bank of St. Louis stated that inflation still remains below the target 2% and that the Fed could detain the tapering and/or “ramping up” the stimulus as the next Fed meeting is next week, October 28th – 29th. US Fed President Eric Rosengren reasons that although QE3 is slated to end next week but that he “could easily imagine” not raising rates until 2016. This really stretches out the timeline of Fed action. Price stability may be the Fed’s mandate, but the stock indices are definitely part of the chain reaction to Fed action. There were even whispers of the US Fed possibly introducing a fourth round of quantitative easing. The data is mixed with contagion fears still circulating.
Existing Home Sales did give the market a stir of positive sentiment with the annual rate of 5.17 million. Mortgage rates are low keeping the appeal alive yet the qualifications for the loans remain strict. The US is winding down its stimulus program while the European Union may be two years behind. The US tapering ends in October and phrases such as “considerable time” puts the tightening out perhaps to take place between July and December of 2015. US Fed Chairperson Janet Yellen must be stressed over the “considerable time” and the significance in the marketplace. Possibly the majority of analysts believe it may be September 2015. The Fed did 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 Federal Reserve is watching the data closely has introduced a new gauge. The Labor Market Conditions Report is a more in-depth look into the labor markets using about 19 indicators. This new sentiment even at a whisper of another round of stimulus should have quite a booming effect on the market. There were 248,000 New Jobs created last month while the previous month had only 142,000 jobs created. The core structure of the US has strength and may be due to recover more quickly than the European Union and China. The market sentiment’s true underlying strength may be in believing that the Fed is here to catch the market should it begin to fall.
What we can expect is market volatility in this economic climate. The US Dollar strength may impede the US recovery to some degree as Euro goods become cheaper and more appealing. US Corporations and their earnings thus may be effected. The ECB may be bumping up the volume on stimulus measures to increase inflation and growth thru the purchases of junk-rated bank loans and perhaps other lower quality asset based instruments. The ECB buying the corporate bonds may loosen up money at banking firms for loans. The ECB plans to increase the balance sheet to about 1 trillion euros as it enters the 2.6 trillion covered bond market. In evaluating the Euro Zone banks about 105 are showing strength to pass the stability checks and about 25 may not. Deflation concerns prompted the adopted loan program. European Central Bank President Mario Draghi described the European economic slowdown as structural and not cyclical. He advocates reforms but with little progress as the contagion fears are back. Germany’s economy may be threatened as exports to both China and Russia are hampered. China seems to be slowed almost to recession levels in terms of growth. China’s GDP came in at 7.3% while their target growth rate was 7.5%, but it was above most expectations running about 7%. China’s growth prospects actually may run about 7% if the country does not ease monetary policy according to some analysts. The Chinese Factory Orders increased thus creating a bit of a positive sentiment globally. The Euro Manufacturing Report (Markit) Economics purchasing managers index increased to 50.7 in October while the previous reading was 50.3. Any number over 50 points to expansion in the economy.
Russia and the Ukraine are to talk again October 29th to finalize their gas deals. The Ukraine election is to take place on October 26th where the aggression may impede the vote somewhat. Russia is fighting recession in the midst of the sanctions issued by the US and the UK. The International Monetary Fund topped it off with a lower projection of global economic growth from 4.0% to 3.8% next year. Russia’s credit rating was dropped to Baa2 with a negative outlook by Moody’s investor Services. The Ukraine did manage to move toward securing gas for the winter from Russia after agreeing to pay $385 per thousand cubic meters of fuel until March 1st. Standard & Poor’s credit rating agency held Russia’s ranking at BBB- with a negative outlook at least until the end of the year. The truce of September 5th is still broken but to a lesser extent than without a truce. Russian President Putin seems more defiant regarding the US in light of the economic pressure generated by the sanctions. The oil producing nations have rumors circulating that there may be somewhat of a cut-back in production next month. The break in the Crude Oil prices was a boost to productivity globally. OPEC typically likes the average to remain around $100.00 per barrel, but allowed the consolidation to gravitate to around $80.00 per barrel. The Islamic State or ISIL is advancing in Northern Iraq despite the US airstrikes. The US weaponry dropped for the Iraqi soldiers fighting ISIL actually managed to be delivered to the hands of the ISIL militia. The airstrikes have taken out about 521 ISIL fighters yet the progress remains slow as civilians and Iraqi fighters seem to be outgunned. The ISIL fighters do have a fear of being killed by women fighters, so one would think that the US/ alliances would use that mindset to strategize more. ISIL fighters are funded perhaps by black market oil and other criminal activities. It is hoped that world leaders would be strict regarding business with the terrorists. To bind their funding resources would be a way to impede their growth and activity.
Today, the New Home Sales for September was at 467,000 while the previous reading was 504,000. The Initial Jobless Claims of the week of October 18th were up 17,000 to 283,000 new claims while the previous reading was 264,000. The FHFA House Price Index for August was at 0.5% while the previous reading was 0.1%. The PMI Manufacturing Index Flash for October was at 56.2 while the previous reading was 57.9. The Chicago Fed National Activity Index for September was 0.47 while the previous reading was -0.21. The Bloomberg Consumer Comfort Index for the week of October 19th was 37.7 while the previous reading was 36.2. The Kansas City Fed Manufacturing Index for October was at 4.0 while the previous reading was 6. The Consumer Price Index for September was at 0.1% while the previous reading was -0.2%. CPI excluding food and energy was at 0.1% while the previous reading was 0.0%. The MBA Purchase Applications Composite Index for the week of October 17th was at 11.6% while the previous reading was 5.6%. The Purchase Index was -5.0% while the previous reading was -1.0%. The Refinance Index was 23.0% while the previous reading was 11.0%. Existing Home Sales SAAR for September were up 2.4% at 5.17 million while the previous reading was 5.05 million. The ICSC-Goldman Store Sales for the week of October 18th was -0.3% while the previous reading was -0.7%. The Redbook Store Sales for the week of October 18th was at 4.1% while the previous reading was 3.8%. The Nonfarm Payrolls for September was at 248,000 while the previous reading was 142,000. The Unemployment Rate was 5.9% while the previous reading was 6.1%. The Average Hourly Earnings was 0.0% while the previous reading was 0.2%. The Average Work Week was 34.6 hours while the previous reading was 34.5 hours. The Private Payrolls was at 236,000 while the previous reading was 134,000. The Q2f:14 Real GDP was at 4.6% while the previous reading was 4.2%. The GDP Price Index was at 2.1% while the previous reading was 2.1%.
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. US President Obama was pictured hugging a previous Eboli patient. US data has been strong and earnings season has propped up the stock market appealing to traders. The allocations are heading into the risk markets.
The Gold (December) contract is in a very temporary buy mode if it stays above $1226.30. A key consolidation area may be $1255.00 to $1185.00 for the moment. $1231.60 may be the comfort level. The range may be $1255.00 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.
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