This is a sample entry from Leslie Burton’s newsletter, The Weekly Gold Digger, published on Friday, December 12, 2014.
The February Gold managed to get a little support from the drop in the Indexes and the US Dollar. The safe-haven features of the Gold are still intact.
Europe, China and Japan are in stimulus mode giving the Gold an easing backdrop. The US Fed has not offered any clues on tightening, so we have yet some time to go. The deflation threats have propelled the three countries to devalue their currencies. The US Fed must have a reduced dollar and inflation before tightening. This may be positive ultimately for the Gold market. Global economic uncertainty and conflict supports the metal, but it may be too soon to rely on the support. The referendum in Switzerland was voted down. The whopping 321,000 new US jobs created were a boost to the US Dollar which pressures the Gold. The European Central Bank has decided to discuss buying all assets except Gold. The Crude Oil has traded lower bringing Gold with it. Countries do not want to tolerate low inflation which should be good for Gold, but that will take a while to contribute to the Gold case. The SPDR Gold Trust holdings increased to 725.75 today. With so much data and measures of inflation, it may be more prudent to simply monitor the sentiment of the Gold market. If able to penetrate the $1250.00 mark, we may be able to get some traction.
European Central Bank President Mario Draghi states that if inflation should decrease, he may expand the debt purchases. The ECB may expand the balance sheet to 1 trillion euros to impede deflation. Stimulus is bullish for Gold. The central banks may increase their reserves about 22% this year according to the World Gold Council. The demand for Gold in Q3 2014 decreased by 4% year on year. The investment demand increased by 6% to 204.4 tons. Technology decreased to 97.9 tons. Central banks added 92.8 tons to their reserves. The Supply had been down 7%. The consumption globally was 534.2 tons. Chinese jewelry demand for Q3 2014 was down 39% year on year to 147 tons. Chinese imports from Hong Kong totaled about 61.7 metric tons last month. So far this year, the Chinese net imports from Hong Kong total 497 metric tons. China’s jewelry sales were up about 11.4% in September. Mainland China imported about 91.8 tons last month including scrap. 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. The Dutch Central Bank has shipped 122.5 tons of Gold out of the US back to Amsterdam. They hold a total of 612.5 tons in reserve. The Diwali Festival in India showed an increased demand of 60% to 182.9 tons. 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 demand in India decreased about 34% to 394.4 tons in the first 6 months of the year. The fourth European Central Bank Gold Agreement as of September 27th limits the selling of any significant amount of Gold. 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. The central bank’s net purchases of 92.8 tons in the third quarter brought their total year to date holdings to 335 tons. Russia added about 37.2 metric tons of Gold in September and purchased about 19 tons of Gold in October. As of the end of October, Russia’s Gold holdings were about 1,170 tons. The Ukraine sold about 14 metric tons in October according the International Monetary Fund. Russia mined 248.8 tons of Gold 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 World Gold Council reports that the US is the number 1 country in terms of Gold holdings at 8,133.5 metric tons. 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. The Chicago Mercantile Exchange lowered the margin to an initial of $4,400 from the $5,940 for the 100 troy ounce Gold contract!
The 2014 Central Economic Work Conference ended Thursday with the “new normal”! The International Monetary Fund (IMF) reported that China led the global economy with about 27.8% in 2014. The reforms in China lay out the policies and priorities for next year. The growth target for China has been reigned in from 7.5% to 7.0%. The Chinese industrial output was up 7.2% year over year for November. Export demand and general output has been unstable and concerns for the economic giant have pressured the marketplace. Factory shutdowns have been a drag to the economy and homes sales have slowed. Property sales may be the greatest risk to the growth in China. They are to cut gasoline prices starting tomorrow to perhaps add to consumer spending. The Organization of Petroleum Exporting Countries (OPEC) along with Iraq and Kuwait are offering the Asian buyers lower prices to facilitate the cuts. Russia and China are working on a co-op in the development of the Far East. Russia may lease nuclear submarines to India to patrol the Indian Ocean as India and China have tensions at this time.
China, Japan and the Euro Zone all have had less than perfect economic data to further pressure the marketplace. China is now adding to the pressure by stiffening the lending requirements and restricting the use of certain lower rated bonds for collateral. Bonds that have ratings below AAA or sold by issuers graded lower than AA may no longer be used as collateral for short-term loans. This created a chain reaction of selloffs originated by the less than perfect debt. Chinese producer prices decreased 2.7% in November and consumer inflation decreased to 1.4%. US Consumer Sentiment for December was 93.8 while the previous reading was 88.8. The rise in sentiment may have come from the improved potential in jobs and wages along with the reduced energy costs. Retail Sales for November was at 0.7% while the previous reading was 0.3%. The Retail Sales excluding automobiles was at 0.5% while the previous reading was 0.3%. The Retail Sales excluding automobiles and gasoline was at 0.6% while the previous reading was 0.6%. The oil oversupply is a boon to consumer spending as Americans are just paying less to travel. The consumer spending makes up for about 70% of the GDP and may just increase the momentum of the economy thru 2015. As of December 10th, the gas at the pumps were an average of $2.62 per gallon according to AAA. The last quarter had a decline in net worth of about $140.9 billion (July – September). The National Retail Federation has projections of an 4.1% increase in Christmas sales. While black Friday did not bring in the high expectations as much as online shopping. The Organization of Petroleum Exporting Countries (OPEC) reduced their forecast for 2015 by about 300,000 barrels a day to 28.9 million barrels a day. OPEC had decided to keep their output unchanged at 30 million-barrel-a-day. It seems that they may want to discourage the US shale miners. The US Energy Information Administration reduced its crude oil price projections by $15.00 in conjunction with the OPEC decision. It is projected that the West Texas Intermediate may average $62.75 per barrel in 2015 down from previous forecasts of $77.75. The problem may be that demand out of China and really global demand may be down and the ramped up production creates a glut in oil. Barges may typically hold the product at ports for varied periods of time. Due to the sanctions set on Russia, countries may be seeking deliveries to keep the pace up while causing the prices to plunge. International Monetary Fund Managing Director Christine Lagarde states that the lower oil prices are a boost to the global economy but a risk to the oil producing nations. Iran, Venezuela and Russia are sure to face the downside of producing energy products at a lower cost. Venezuela is said to need to price their oil at $151 a barrel to balance their budget. Iran needs $131 to keep their economy running. Iran is averaging in $70 to balance their budget. Russia is said to need $107 to defer an impending recession. The lower oil prices do pressure Russia at a time where the giant has isolated itself from the western countries. The 38% drop is weighing on Russia’s economy. For the long run, the lower prices may impede the growth in electronic vehicles and solar energy. The European Central Bank Executive Board member Peter Praet has remarked that the decrease in oil prices could pressure the Euro Zone inflation rate below zero. The US Treasury Budget for November was -$56.8 billion while the previous reading was -$121.7 billion. The recovering economy is buoying tax revenues and narrowing the budget deficit.
To add to the weakness, the Greek Prime Minister Antonis Samaras decided to hold a presidential election next week. It is not clear whether he will even have the vote in the Greek Parliament for the election. The problem is that the EU bailout is contingent on certain support and any adverse candidates may impede the necessary bailout funding. The European Central Bank President Draghi was construed more hawkish and later more dovish with no action at this time until next quarter. He needs to follow protocol as the vote is not totally for any quantitative easing. Germany has long opposed any stimulus package. German Factory Orders increased 2.5% in October. The Standard & Poor’s credit rating agency downgraded Italy to BBB- from BBB. The next policy meeting is January 22nd. Since the European Central Bank begin their asset purchases as of October, a total of 21.528 billion euros have been spent on the program. The NFIB Small Business Optimism Index for November came in at 98.1 while the previous reading was 96.1. About 15% of the managers last month said that they may increase wages while about 21% said that they have increased wages. The NFIB reports about 350,000 small and independent business owners as members to date. While the strong US Dollar may be a tribute to an accelerated recovery, it will make it difficult to sell US goods to foreign buyers with the increased pricing. The US employment report came in at a whopping 321,000 while the previous reading was 214,000. The Unemployment Rate was 5.8% while the previous reading was 5.8%. The Average Hourly Earnings was 0.4% while the previous reading was 0.1%. The Average Work Week was at 34.6 hours while the previous reading was 34.6 hours. The Private Payrolls was at 314,000 while the previous reading was 209,000. This marks the tenth month in a row that we are over 200,000 newly created jobs! The market did not react as bullish as one might think it should simply because now we ponder when the Fed may tighten. While we had been thinking that Mid-2015, now we have thoughts of March – June, 2015. This is a bit of a drag on the market. This report may be quite the pride of the Fed, nurturing the recovery with quantitative easing every step of the way. While the bond buying program has ended, the Fed Funds Rate remains unchanged. On the next Fed meeting of December 16th and 17th, the trading community will be searching for any hints of tightening. Possibly the most significant part of the report was the Average Hourly Earnings was 0.4% in November to $24.66. That is a $0.09 increase. The US Dollar rallied to new highs on the report. The US Dollar strength is somewhat like a tightening in itself. The stronger dollar makes exports more expensive to foreign buyers and imports are less expensive. It lowers inflation as it imports lower prices. This also takes away from American production and the US jobs. Wage growth has been a concern of the Fed perhaps keeping “considerable time” in each of their meetings, but with this report, we may see the Fed lose the language.
Price stability is difficult with global conflicts and economic discrepancies. The Ukraine truce seems to be held as there was reported a significant decrease in attacks. The cease fire, if observed, may be the only way to deescalate the conflict and end the crisis. German Chancellor Merkel believes that diplomacy is the only way to resolve this conflict. The European Union members are to meet again December 15th to discuss the Ukraine and the conflict. Poland is now backing any new sanctions imposed on Russia if terms are not agreed on. The natural gas shipments to the Ukraine began today since the cutoff. Iraq’s security forces are taking time to build and train. Iraq is seeking more weapons and air support from the US to defend against the Islamic State. The US is working closely with the Iraqi forces to hone in on their targets for airstrikes, but the troops on the ground are slow to become effective. Iranian airstrikes on the Islamic State have been reported. It is said that they may have used the F-4 Phantoms which are used by Iran or Turkey in the area. The Islamic State is now possibly posing threats to US military within the US. Attacks on home ground is most extreme, but the ISIS may be capable of launching attacks.
Today’s PPI-FD for November was -0.2% while the previous reading was 0.2%. The PPI-FD excluding food and energy was 0.0% while the previous reading was 0.4%. PPI-FD excluding food, energy and trade services was 0.0% while the previous reading was 0.1%. Consumer Sentiment for December was 93.8 while the previous reading was 88.8. The Initial Jobless Claims for the week of December 6th came in down 3,000 to 294,000 while the previous reading was 297,000. Continuing Claims were up 142,000 to 2.514 million with a one week lag time. Retail Sales for November was at 0.7% while the previous reading was 0.3%. The Retail Sales excluding automobiles was at 0.5% while the previous reading was 0.3%. The Retail Sales excluding automobiles and gasoline was at 0.6% while the previous reading was 0.6%. The Export Prices for November were at -1.0% while the previous reading was -1.0%. The Import Prices were at -1.5% while the previous reading was -1.3%. The Business Inventories for October were at 0.2% while the previous reading was 0.3%. The Bloomberg Consumer Comfort Index for the week of December 7th was at 41.3 while the previous reading was 39.8. The Treasury Budget for November was -$56.8 billion while the previous reading was -$121.7 billion. The MBA Purchase Applications Composite Index for the week of December 5th was at 7.3% while the previous reading was -7.3%. The Purchase Index was 1.0% while the previous reading was 3.0%. The Refinance Index was 13.0% while the previous reading was -13.0%. The Quarterly Services Survey for Q3:14 increased 1.0% while the previous reading was 0.8%. The Wholesale Trade Inventories for October was at 0.4% while the previous reading was 0.3%. The NFIB Small Business Optimism Index for November came in at 98.1 while the previous reading was 96.1. For further information on the NFIB http://www.nfib.com/. JOLTS (The Labor Department’s Job Openings and Labor Turnover Survey for October was at 4.834 million while the previous reading was 4.735 million. The ICSC-Goldman Store Sales for the week of December 9th was -1.5% while the previous reading was -1.8%. Redbook Store Sales for the week of December 6th was 3.9% while the previous reading was 4.8%. The TD Ameritrade IMX for November was 5.11 while the previous reading was 5.22. The last Non-Farm Payrolls for November was at a whopping 321,000 while the previous reading was 214,000. The Unemployment Rate was 5.8% while the previous reading was 5.8%. The Average Hourly Earnings was 0.4% while the previous reading was 0.1%. The Average Work Week was at 34.6 hours while the previous reading was 34.6 hours. The Private Payrolls was at 314,000 while the previous reading was 209,000. The Real GDP for Q3p:2014 came in at 3.9% while the previous reading was 3.5%. The GDP Price Index was at 1.4% while the previous reading was 1.3%.
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 we are not quite there yet. Perhaps it is a case of being oversold where it needed to snap back like a rubber band.
The Gold (February) contract is in a buy mode if it stays above $1158.80. A key consolidation area may be $1250.00 to $1150.00 for the moment. $1214.10 may be the comfort level. The range may be $1250.00 to $1150.00 for now. Some Analysts seem to be fairly bearish toward the Gold still now with projections down to $1050.00 or even $750.00, but there has been some major support toward $1100.00. The only real fundamental catalyst’s to boost the Gold may be potential inflation as the wages increased on today’s report or a deepened escalation of conflict in the Ukraine. We could possibly see the European Central Bank add stimulus. The next ECB meeting is January 22nd to discuss policy changes.
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