Friday, April 4, 2014

Weekly Gold

The Gold market may just break out of the bearish stance temporarily.   The Employment report today just gave the Gold a bit of a boost as the US Dollar faded in the session.  The interpretation of the data seems to reflect the market sentiment more than numbers.  It signaled disappointment as the expectations called for 206,000 while the market delivered 192,000.  Though the previous reading for February had been 175,000 which confirms a gradual recovery.    Gold is a wonderful safe-haven currency that may hedge against inflation and/or currency devaluation.  Today, there may have been more of a short-covering bounce than a bullish sentiment.  While it does have a distinct upturn, it may be a short-term bounce where a range may hold the metal for some time.   The Gold and the US Dollar typically have that correlation where one may go up pressuring the other to go down.  It is also quite noticeable that the equity markets have also developed that relationship with Gold where the allocations move from equities to Gold during times of economic weakness and/or uncertainty.  The recent debut by US Fed Chairperson Janet Yellen had released the potential time of the tightening to perhaps six months, but this week she countered the statement with an accomodative  dovish tone.  Central banks are still net buyers of the Gold with holdings increasing 6.3 million ounces last year.  The banks are projected to buy 5.4 million ounces in 2014.  The industrial demand for Gold has reached about 92.0 million ounces in 2013.  Investment demand had decreased to 30.9 million ounces in 2013.  The Central Bank of Iraq had acquired 36 metric tons of Gold in March.  Central banks purchased 544 tons of Gold in 2012 without the data or excluding China while in 2013 went to 369 tons.  China rarely releases data to get a view of their holdings.  Germany is currently moving Gold from New York to Frankfort in an attempt to increase their reserves while their holdings are the second largest to the US at 3,387.1 metric tons.  Mexico had increased their holdings by 78.5 tons of Gold in March.  Kazakhstan February reserves at 4.73 million troy ounces.   The US reserves 8,133.5 tons.  Holdings in the SPDR Gold Trust increased 0.6 % to 821.47 metric tons.   Supplies of Gold above ground are estimated to be about 177,200 tons according to the World Gold Council.  Gold remains as one of the most liquid assets that has rallied in the face of the worst calamities in our history books. 

The Employment Report showed 192,000 new jobs created in March when the last report was 175,000 but the expectations were for 206,000.  Of course the temporary workers increased to 28,500.  Health care added 34,000 jobs.  Construction added 19,000 new workers and retail added 21,300 jobs.    All in all, it was the gradual growth that we have seen during the recovery.  Last week, US Fed Chairperson Janet Yellen had regained the positive vibe as she said that the US has a “considerable slack” in the labor market allowing the accommodation to remain as back up for some time to come.  Her commentary prior had put a potential tightening on interest rates in perhaps as little as six months.  She was able to calm investors with a dovish tone.  Projections for continued growth in the US look extremely positive with little to drag it down at this time.   As the data comes in, traders will wonder about the “mini stimulus” to be launched by China.  The International Monetary Fund (IMF)and the World Bank along with financial ministers and world bank governors are to meet April 11th thru the 13th to discuss  economic issues and financial markets.   IMF Managing Director Christine Lagarde coined the word “Low-flation” as she asked for additional monetary easing in the Euro Zone and Japan.  The Euro Zone’s gauge of economic confidence gained to 102.4 in March while the previous reading was 101.2.   The US interest rate projections by analysts are from 4.25 % to possible 3 % to the end of 2016.   The European Central Bank met  with an unchanged interest rate, yet they did discuss a potential stimulus.  The German IFO Business Conditions Index decreased in March to 110.7 while the previous reading had been 111.3.   The European Central Bank is contemplating a program of quantitative easing much like the US had to thwart a deflationary passage.  The Bank of Japan on the other hand and the European Central Bank may be introducing further stimulus as the US is withdrawing theirs.   Russia and economic sanctions will probably not be discussed.   Russia is cited for the sanctions but they may target more than the giant economy as US companies have investments in Russia such as Boeing and General Electric.  The Euro Zone including Germany may also suffer as the sanctions are imposed on Russia to put a financial strangle hold on the country.    A snowball effect of conflict could ultimately result in the sanctions as Russia has been playing an integral part of negotiations with Iran on the nuclear program.  Sanctions on Iran had been previously placed to pressure the country into allowing the NATO inspectors to come into their nuclear facilities to monitor the use of uranium.  The uranium is said to be used at the highly developed level for medical purposes but it also becomes capable of being used to complete a nuclear bomb.  Israel is within reach to Iran to suffer any hostile action initially and therefore they have pressured the US to propose the sanctions.  US President Barack Obama has been under some pressure for perhaps not opposing the takeover of Crimea by Russia more, but his diplomacy is of the utmost importance in such matters.   Russian President Putin further taunts the US with support for Bashar al-Assad in Syria.  They have sent weaponry like the “vacuum bomb” which is a heat and pressure explosive device.  Iran and Russia are both with sanctions bartering goods and using oil to gain the products necessary to survival.  The global relationships are vital to maintain peace and harmony.  The nuclear disarmament of Iran and the role that Russian President Putin has is of vital importance to world peace.  Putin can use his close relationship to the Iran officials to maintain harmony and keep the talks open.   Russia is a huge trade relationship where globally, it would make a difference to other countries if the sanctions against Russia were to tighten.   On the Russian developments, Vladimir Putin announced that he is not intent on splitting up the Ukraine.   He is bent on increasing the region’s profitability with tourism and as an energy route.   For the people of Crimea, much will change. Ukraine people will need a Russian Visa to travel within the region.  The Russian leader is invoking some sanctions of his  own as the Ukraine purchases about a half of their natural gas from Russia.    The vote was in favor of Crimea to secede and ask the Russian Federation for Membership.  Crimea had belonged to Russia back in the 1954 until Nikita Khrushchev had given the Black Sea region to the Ukraine.  Russian President Putin defends his right to send troops to the Ukraine on behalf of the Russian citizens residing there.  He actually stayed within the treaty limit of 25,000 troops initially, but it was reported that about 40,000 troops remain around the Ukraine border. Global leaders still regard Russia’s action as grabbing a country for benefits perhaps derived from the resources of the region.   World leaders are intent on watching Putin to be sure his “annexing” stops at Crimea!  British Prime Minister David Cameron regarded this action as a breach of international law.  Sanctions may be imposed on Russia still yet regarding this action such as travel bans and financial sanctions.  About $5.5 billion of outflows have already transpired this year in Russia in light of the sanctions.   US sanctions have already stopped the Visa and MasterCard services at the Bank Rossiya in St. Petersburg.  Sanctions on parties in Putin’s inner circle have been targeted.  The sanctions have already had an impact on Russia as Fitch’s credit rating agency has cut the outlook to BBB negative.  Loans have been called in and gold reserves have fallen to $493.2 billion as of March 14th.   The G-8 said that they will suspend the G-8 Summit in Sochi this year.  The Organization for Economic Cooperation and Development has spoken of revoking Russia’s entrance into the organization.  Asset blockades, financial and trade sanctions have all been suggested.  Putin may pay about $3 billion ++ costs to annex Crimea.  The problem seems to be a history of violating international boundaries for the Russian President.  Putin retorts that the US and NATO have come close to the Russian borders.  For the moment, the market is taking Putin’s words as peaceful!  If or when sanctions are imposed by other countries, will the environment remain peaceful or could another cold war escalate?  For now, Putin seems to be concentrating on the completion the annexing of Crimea.   Russia and the US had fought on the same side during WWI and WWII yet tensions still run very deep.  Russian troops seized the Crimean port of Sevastopol raising their flag.   Russia’s take-over of Crimea will perhaps consist of pension adjustments up to the Russian pensions, raises, infrastructure upgrades such as quite possibly a bridge and a tunnel.  The EU may proceed to lighten imports of natural gas from Russia.   It is hopeful that the Russian President will be able to show that he is not interested in taking other regions and that his intent is peaceful.  It would be also hopeful that the sanctions would not constrict to the point of pressure to escalate any aggression.   The Euro Zone and the world would feel the pressure of the sanctions as many global workers are employed by Russian companies.   Russia and the US both have an accord on nuclear terrorism threats realizing that international cooperation is necessary to provide a stronger front.

Today’s Nonfarm Payrolls for March was 192,000 while the previous reading was 175,000. Though better than February’s report, the forecast of 206,000 left some traders disappointed with the moderate number.  The Unemployment rate was left unchanged at 6.7 % while the forecasts were for 6.6 %. The Average Hourly Earnings was 0.0 % while the previous reading had been 0.4 %.  The Average Workweek was 34.5 hours while the previous reading was 34.2 hours.  The Private Payrolls was 192,000 while the previous reading was 162,000.  The US Initial Jobless Claims for the week of March  29th was up 16,000 to 326,000 while the previous reading was 311,000.  Continuing Claims were up 22,000 to 2.836 million.  The Challenger Job-Cut Report for March was 34,399 announced layoffs while the previous reading was 41,835.  The Gallup US Payroll to Population level for March was 42.7 while the previous reading was 43.1. International Trade Balance for February was -$42.3 billion while the previous reading was -$39.1 billion.  The PMI Services Index for March was 55.3 while the previous reading was 53.3.  The ISM Non-Manufacturing Composite Index for March was 53.1 while the previous reading was 51.6.  The Bloomberg Consumer Comfort Index for March was -30.0 while the previous reading was -31.5.  The Factory Orders for February were 1.6 % while the previous reading was -0.7 %.  The MBA Purchase Applications Composite for the week of March 28th were -1.2 % while the previous reading was -3.5 %.  The Purchase Index was 1.0 % while the previous reading was 3.0 %. The Refinance Index was -3.0 % while the previous reading was -8.0 %.  The ADP Employment Report of Private Payrolls for March was 191,000 while the previous reading was 139,000. The Gallup US Job Creation Index for March  was 23 while the previous reading was 21.  The PMI Manufacturing Index for March was 55.5 while the previous reading was 57.1.   ISM Manufacturing Index for March was 53.7 while the previous reading was 53.2.  Construction Spending for February was 0.1 % while the previous reading was unchanged.  The ICSC-Goldman Store Sales for the week of March 29th was 3.6 % while the previous reading was -1.5 %.  The Redbook Store Sales was 2.3 % while the previous reading was 3.1 %.  The Chicago PMI Business Barometer Index for March was 55.9 while the previous reading was 59.8.  The Dallas Fed Manufacturing Survey for March Business Activity Index was 4.9 while the previous reading was 0.3.  The Production Index was 17.1 while the previous reading was 10.8.          

This is where the long-term safe-haven qualities must be viewed to determine the true value of Gold.  It is not the type of commodity that is typically day-traded.  Its true purpose is as a currency when others are devalued.  It is a hedge against inflation.  It is a backup plan for a world in conflict or crisis. It is the type of investment that one may not need all the time but when an event takes place, it is worth its weight in Gold.     
The Gold (June) contract is in sell mode if it stays below $1310.50.  It could retrace to $1186.70 or back up to $1392.20 depending on the Ukraine situation and the economy.  A key consolidation area may be $1310.50.  The range may be $1295.50 to $1350.00 for now.  Should Russian President Putin become ambitious to acquire additional annexing of the neighboring regions, nuclear talks begin to fail, the economic reports detect a contraction of growth in the US and/or a slowdown in China all could spur positive price action in the Gold market back to the old highs or above.  For now, the Gold carries a negative positioning remaining under pressure.  Anything can happen.  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. 

  Gold Chart 




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