The Gold market has traded lower this week in light of the projections of a Fed rate hike on the horizon. Inflation is still subdued and the stock market has traded toward the highs with a strong US Dollar to boot. The economic condition is not ripe for Gold at this particular time, but the true nature of Gold as a safe-haven calls for fear and anxiety to increase the demand for Gold. Gold serves as a hedge against inflation. Gold hedges against currency devaluations and conflict. Should Greece exit the Euro then we should see the Gold do what it does best as a one stable currency that will never go to zero. The Greeks should find an accord with the Euro creditors, but if they do not, Gold will shine again.
The World Gold Council forecasts that the global central bank reserves added about 120 tons of Gold in the first quarter. The global central banks added about 10.7 tons of Gold in April. Central banks would not store assets with no value. On the other hand, the SPDR Gold holdings increased to 713.23 tons as of Friday. The paper metal assets do not seem to carry the interest as the physical products.
We expect that Gold may drift lower next week in light of the anticipated rate hike by the Fed in September and the stock indices remaining toppy at least for the near-term. Should the stock indexes experience a much due retracement, it would allow the Gold to pop. The Gold may be range traded, but the traditional safe-haven approach has given Gold its luster. It is to shine its brightest during currency devaluations, global conflict, stock market crashes and any world crisis. We do expect the US Dollar to be challenged somewhat down the road as China has longed for their currency the remnimbi to become a premier currency. This would be bullish for the Gold market. There is a reason that the central banks hold Gold in their reserves. While it may not give an immediate bullish trend, it is a market that can move very quickly in either direction extremely fast. The range that it has given of late is a pause in a highly volatile marketplace. The Gold should experience its day in the sun but not yet.
Hong Kong exported about 64.2 tons of Gold to mainland China in May which is an increase of 36 %. Switzerland exported Gold to China as well increasing the Gold by 24 % in May. Chinese demand for Gold still is down 18 % from last year still. The Chinese Gold fix may be a boost for the metal that is typically seen as the fear and anxiety safe-haven product, but now may be the buyers choice trade. The Chinese love to buy Gold. China has sought to have their investment counselors suggest Gold to consumers as an investment product for years now. The Shanghai Gold Exchange (SGE) may have lofty plans for the metal which may be the boost that Gold needs to reclaim its former safe-haven value. The SGE may want to establish a yuan-denominated Gold fix price. China has craved to have their currency become a premier currency to compete with the US Dollar. China has pursued the drawing rights from the International Monetary Fund (IMF) for years. Now their renminbi is being considered by the IMF. It is thought that the People's Bank of China may have expanded their Gold reserves to 3,000 tons perhaps. They would have to reveal their Gold holdings in the process. The China Gold Association reports that the Gold consumption may have increased by 326.68 metric tons in the first quarter. China may also be extending their mining interest. China's Commercial Bank and Industrial Bank is attempting to participate in the London Gold price fix. Zijin Mining in China is tendering for mine acquisitions in Australia. The recent lower moves in the Chinese Stock Market may lead to increased allocations in the Gold market as there seems to be an inverse relationship there. Fear and anxiety trigger Gold interest in years past and any selloffs in the stocks may cause a shift in the allocations.
India may have reclaimed their top spot as the largest buyer due to jewelry sales. The International Monetary Fund (IMF) may hold 2,814 tons of Gold. It is suggested often to central banks that 4 % to 10 % of assets in Gold may be prudent. The Gold imports from Switzerland to China may have been around 46.4 metric tons in March. Switzerland may have imported 97.2 tons from the UK in March. The central bank may plan to increase Gold held with the Swiss National Bank. Swiss Gold exports decreased to 143.92 tons in April. The Austrian Central Bank (Oesterreichische Nationalbank) may repatriate its Gold from London. The German central bank may repatriate 674 tons of Gold from Paris and New York. The Dutch central bank transferred 122.5 tons of Gold from New York to Amsterdam. Countries seem to want to bring their Gold holdings back to the homeland. Russia may have added 31.1 tons of Gold in March taking the reserves to 1,237.9 tons. Russia may have increased their reserves to 40.1 million troy ounces as of May 1st. According to the World Gold Council, the demand for Gold globally may have slipped by 1 % to 1,079.3 tons in the first quarter. In 2014, the total demand for Gold amounted to 3,924 tons. Central banks may have purchased about 119.4 tons in the first quarter according to the World Gold Council. Gold in electronics were down 2 % in the first quarter. Technology increased their Gold consumption by 4 % to 12 tons in the same time frame. Mine production grew 2 % year on year to 729 tons according to the World Gold Council.
Greece is going to the edge in terms of negotiating an accord with its creditors that would free bailout money. A sustainable deal seems only a few words away and yet thru all the talks to date nothing has been agreed upon. June 30th is when Greece is to pay about $1.8 billion debt repayment due to the International Monetary Fund. Greece offered to increase the retirement age to 67 to cease any early retirement. They offered also to maintain a tax rate of 23 % with additional taxes on the upper class citizens and businesses with an annual net income of $500,000 euros or more. The International Monetary Fund, the European Commission and the European Central Bank all are creditors that must agree on a plan that would release the rescue funds within days and so far they do not seem close to an accord. German Chancellor Merkel was bound and determined to hold the Euro together even though the talks on cash-for-reforms had been futile. Now she has hardened her stance as she must appear before her party to sell the deal. IMF Managing Director Christine Lagarde states that the proposal still “lacks specificity”. Greece is now the first country in a while to defer creditors and bundle their payments. They now have Saturday to try and structure the reforms necessary to satisfy the creditors yet sustain the Greek citizens. This is running right up to the wire. A potential default is still possible though not expected!
There is high anxiety in the marketplace as it is with the 5 month Greek negotiations and the Fed potential’s rate hike. US Fed Chairperson Janet Yellen had revealed her dot plot chart which will guide her is evaluating the health and sustainability of the US economy. Traders try to analyze the dot plot to project when the Fed may introduce a rate hike, yet it still may be difficult to estimate the Fed’s time clock. Consumer Spending was 0.9 % as consumers bought more cars and purchased gas at slightly higher levels to fill them while the previous reading was 0.0 %. The boost in this report only managed to increase the prospects of the Fed raising interest rates in September. Federal Reserve Governor Jerome Powell spoke Wednesday of his view regarding a possible September rate hike with another to follow in December. Of course, he regarded the possibility much like a flip of a coin. The Fed maintains that the economic recovery is on track and does not anticipate a strong reaction from the potential rate hike. With the rate hike, it is possible that the housing market may slow as interest rates rise. Real GDP for Q1f:2014 was -0.2 % (as expected) while the previous reading was -0.7 %. The GDP Price Index was 0.0 % while the previous reading was -0.1 %. The first quarter was ridden with harsh weather, a lower energy price, a strong US Dollar and a port strike. Now the Fed must break down the data in terms of “transitory” or truly slowed economy data? Consumer spending accounts for about 70 % of the GDP was up to a 2.1 % growth rate in May. Household income may advance as the labor sector continues to show positive data. Personal savings increased at a $720.2 billion pace as of the first quarter. Businesses increased inventory by about $4.5 billion more than in the first quarter or a value of about $99.5 billion. Inventories added about 0.45 of a % point to the GDP. The private sector investment allocations increased 2.4 %, up from the previous 0.7 % forecast. Exports decreased by 5.9 % and imports increased by 7.1 %. Much of the manufacturing data seems to be lagging. Durable Goods Orders for May of New Orders were -1.8 % while the previous reading was -0.5 %. Aircraft orders decreased by 49 % which really dims the picture somewhat. Civilian aircraft orders were down 35.3 %. New Orders excluding transportation were 0.5 % while the previous reading was 0.5 %. PMI Manufacturing Index Flash for June was 53.4 while the previous reading was 53.8. Yet the Richmond Fed Manufacturing Index for June was at 6 while the previous reading was 1. Manufacturing accounts for about 12 % of the US economy. The first quarter has household wealth increasing $1.63 trillion increasing the total wealth to $84.9 trillion. Vehicle sales of both cars and light trucks were purchased at a 17.7 million annualized rate in May. Home values increased. The JOLTS or Labor Department’s Job Openings and Labor Turnover Survey for April was at 5.376 million job openings well above the previous reading of 4.994 million. The last employment report has come in steady. Nonfarm Payrolls for May came in at 280,000 while the previous reading had been 223,000! The Fed wants a smooth tightening process perhaps introducing the hike with a minimal increase and gradual increases to follow. Federal Reserve’s Index of labor market conditions decreased -1.9 in April while the previous reading had been -1.8. This is the index created under the supervision of Fed Chair Janet Yellen using 19 indicators to surmise the state of the economy to judge when to raise interest rates. Inflation remains below the targeted 2 %, so they must be reasonably confident that the target will be in range.
Consumer Sentiment for June came in at 96.1 while the previous reading was 94.6. The Initial Jobless Claims was up 3,000 to 271,000 while the previous reading was 267,000. Continuing Claims was up 22,000 to 2.247 million with a one-week lag time. Personal Income and Outlays for May were at 0.5 % while the previous reading was 0.4 %. Consumer Spending was 0.9 % while the previous reading was 0.0 %. The PCE Price Index was 0.3 % while the previous reading was 0.0 %. The Core PCE Price Index was 0.1 % while the previous reading was 0.1 %. PMI Services Flash for June was 54.8 while the previous reading was 56.4. The Bloomberg Consumer Comfort Index for the week of June 21st was 42.6 while the previous reading was 40.9. The Kansas City Fed Manufacturing Index for June was -9 while the previous reading was -13. The Fed Balance Sheet for June 24th was $4.495 trillion while the previous reading was $4,487 trillion. Total Assets were $7.2 billion while the previous reading was $23.1 billion. The Money Supply for the week of June 15th was $29.5 billion while the previous reading was -$9.3 billion. The Real GDP for Q1f:2014 was -0.2 % (as expected) while the previous reading was -0.7 %. The GDP Price Index was 0.0 % while the previous reading was -0.1 %. The MBA Mortgage Applications for the week of June 19th Composite were at 1.6 % while the previous reading was -5.5 %. The Purchase Index was 1.0 % while the previous reading was -4.0 %. The Refinance Index was 2.0 % while the previous reading was -7.0 %. Corporate Profits (after tax profits) were at 9.0 % while the previous reading was 9.2 %. Durable Goods Orders for May of New Orders were -1.8 % while the previous reading was -0.5 %. New Orders excluding transportation were 0.5 % while the previous reading was 0.5 %. The FHFA House Price Index for April was 0.3 % while the previous reading was 0.3 %. PMI Manufacturing Index Flash for June was 53.4 while the previous reading was 53.8. New Home Sales for May was increased 2.2 % to 546,000 while the previous reading was 517,000. The Richmond Fed Manufacturing Index for June was at 6 while the previous reading was 1. The Redbook Store Sales for the week of June 20th was 1.6 % while the previous reading was 1.1 %. Chicago Fed National Activity Index for May was -0.17 while the previous reading was -0.15. Existing Home Sales for May were 5.35 million while the previous reading was 5.04 million. The last Nonfarm Payrolls for May came in at 280,000 while the previous reading had been 223,000. The Unemployment Rate was at 5.5 % while the previous reading was 5.4 %. The Private Payrolls was at 262,000 while the previous reading was 213,000. The Participation Rate was at 62.9 % while the previous reading had been 62.8 %. The Average Hourly Earnings was at 0.3 % while the previous reading was 0.1 %. The Average Workweek was 34.5 hours while the previous reading was 34.5 hours. The Real GDP for Q1p:2014 SAAR came in at -0.7 % while the previous reading had been 0.2 %. The GDP Price Index came in at -0.1 % while the previous reading was -0.1
We have rolled to the August (Q) contract!
The safe-haven properties of the Gold are perfect for those times of uncertainty and/or conflict in the world! The Gold (August) contract is in a bearish mode if it stays below $1204.20. A key consolidation area may be $1200.00 to $1150.00 for the moment. $1173.10 may be the comfort level. The range may be $1200.00 to $1150.00 for now. The main catalyst that may support the Gold would be Greece exiting the Euro Zone and/or perhaps any upset from the Fed deciding to hold off on the tightening until December or 2016. The stimulus in other parts of the world such as the Euro Zone is good support for Gold. In the near-term, we look for a lower range. The long-term range remains very optimistic.
