Gold & Silver Digest: 5/28/13
The Gold & Silver Digest contains headlines of stories that members of this group deem relevant and/or interesting to precious metals enthusiasts.
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5/29/13 7:33 AM EST US close metals price quotes from Finviz
Gold fell 1 percent on Tuesday as an equities market rally driven by encouraging U.S. home sales and consumer confidence data decreased bullion's safe-haven appeal.
Strong buying of physical bullion on Tuesday, however, briefly reversed gold's fall caused by a dollar rise.
"Every time when gold prices drop, we start to see a sharp pick-up in physical demand. Dealers are buying for fear of a sharp correction higher," said Phillip Streible, senior commodities broker at R.J. O'Brien.
The U.S. Mint said on Tuesday it is resuming sales of its small American Eagle gold bullion coins, a month after the price of the precious metal plunged to two-year lows, triggering soaring demand for the coins and depleting the government inventory.
The Mint is also lifting allocations – essentially purchase limits for its authorized coin dealers – on the America the Beautiful five-ounce silver coins, effective Tuesday.
When news broke a month ago that the US Mint had suspended selling one-tenth ounce gold coins, perhaps the most surprising news was that there were thousands of consumers willing to pay the exorbitant retail premium demanded by the US mint, with the resulting order deluge promptly sapping the mint's stretched inventories. Well: we have good news – as of moments ago the US mint has once again restocked on the popular denomination (with a 20,000 production limit), and without a limit per household. The even better news: the coin will set you back just $195. This means a "tiny" 40% premium to spot.
Is there indeed a massive disconnect between spot and physical as the Mint is telegraphing? Nah: must be all those shipping and wrapping costs for the fancy box the coin is put in. Oh wait, the gift box is another $5.95 per order. And no, it isn't the shipping and handling either: that is another $4.95. In other words: the full delivery of one coin to your front door step would cost $200 per one tenth of an ounce. Oh well: we are fresh out of ideas then.
Gold premiums have tumbled in India and Hong Kong, signaling that the buying frenzy that followed bullion’s biggest slump in three decades last month has weakened in the largest consumers. Prices fell.
Premiums paid by jewelers to banks in India are being quoted between $3 and $3.50 an ounce over the London cash price, compared with $10 to $12 early this month, said Haresh Soni, chairman of the All India Gems & Jewellery Trade Federation. In Hong Kong, consumers are paying about $3 an ounce compared with $5 to $6 last week, according to Heraeus Metals Hong Kong Ltd.
“Zero Hour” is what I call the moment when the price of real, physical gold starts to break away from the quoted price on the commodities exchanges. That is, the “physical price” becomes much higher than the “paper price” on CNBC’s ticker. The catalyst would likely be when a major metals exchange defaults on a gold or silver contract, settling in cash, instead of metal.
To be clear, this did not take place when gold’s paper price plunged $150 in only two trading days, Friday, April 12, and Monday, April 15. What happened after that plunge hints at what the aftermath of Zero Hour would look like. The Chinese Gold and Silver Exchange nearly ran out of bullion on Friday, April 19. There were reports of a “massive wave of physical gold buying” in Dubai, and monthly sales of U.S. Gold Eagles fell just short of a 26-year high during April.
The central banks of Russia, Kazakhstan and Azerbaijan all boosted their gold purchases in April, according to a report on Monday from the International Monetary Fund.
Together, the three countries bought up some 24,125 pounds of gold in the month. And as a whole, central bank net purchases contributed to more than 11 percent of the demand for gold in the first quarter of 2013, according to the World Gold Council.
So can the central banks save gold?
Grant Williams of Vulpes Investment Management in Singapore, editor of the "Things That Make You Go Hmmm…" financial letter, covered gold extensively in his presentation May 21 to the CFA Institute conference in Singapore, remarking that in April gold had come under "mathematically inexplicable pressure" and concluding that "the gold price is not the price of gold" — that is, the gold futures market is not necessarily the market for real metal. Williams didn't quite say that the gold market has been subject to government intervention meant to propagandize and frighten, but the point probably will be understood by anyone except maybe developers of resort properties in Argentina's outback.
Williams' presentation is titled "Do the Math" and is posted at YouTube, and while at 49 minutes it's long, his review of the world economy is incisive and entertaining and those so inclined can skip to the gold section at 33:40:
Despite growing uncertainty over Fed easing and declining gold exchange traded funds, gold traders are now the most bullish in a month, arguing that the stimulus must flow until the economy recovers.
According to a Bloomberg survey, twelve analysts predict gold prices to rise next week, with nine bearish and eight neutral, the highest proportion of bulls since the end of April, reports Nicholas Larkin for Bloomberg. [Don’t Give Up on Gold ETFs: S&P]
Gold Today –Asia took the gold price from New York’s close of $1,387 up to $1,394 in London’s morning. London and New York were closed and the price in Asia hardly moved from that level. On Tuesday the gold price slipped just below $1,390 ahead of London’s opening but then fell further to Fix at $1.379 and in the euro at €1,067.42 in London while the euro was €1: $1.2959 up 75 cents against the U.S. dollar. Ahead of New York’s opening gold stood at $1,378.75 and in the euro at €1,065.78.
Rick Rule listed 10 key questions regarding today’s economy. They are:
10 Questions for Precious Metals Investors
- Is the financial crisis in the Western world over?
- Have the G20 countries balanced their budget?
- Did the commercial banks manage to become solvent?
- Are (real) interest rates positive or negative?
- Is a global competitive devaluation to increase exports still ongoing?
- Is the European periphery still financially challenged?
- Do the Asian countries still have a cultural affinity with precious metals?
- Which are the US budgetary issues and solutions?
- Are the derivatives from large banks still a problem for economies and client portfolios?
- Can liquidity solve the issue of insolvency?
Gold isn't the only precious metal dropping this year. Silver is down more than 25% in 2013. But is there a silver lining?
Silver is down more than 26% compared to gold’s drop of 17.5%. Recent data from the US Commodities Futures Trading Commission (CFTC) show that hedge funds and other managed money traders are almost as short the shiny metal as they are long. The ratio of long to short positions in silver among managed money is nearly 1-to-1. One month ago, that ratio was 1.5-to-1. Compare that gold, where managed money’s longs outnumber shorts about 1.5-to-1 now but were more than 2-to-1 last month.
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