Sunday, September 22, 2013

The Weekly Gold Digger!
~~by Leslie Burton of Daniels Trading
Photo, Courtesy
Friday, September 20, 2013: The December Gold hit a high this week of $1375.40 as the Fed decided to hold off on tapering. 

This was unexpected and euphoria for Gold bugs.  We know that the tapering will come, but the Fed really seems backed into a corner on the when part.  They are giving an endless sentiment to the quantitative easing, but it may simply come in December. After all US Federal Chairman Ben Bernanke steps down from his post in January.  The debt that the US is building is really making the economy worse in a sense. Countries such as China buy our Treasuries and regard the US Dollar as the premier currency.  

The US Dollar trading weaker will help exports for the US. The cheaper the goods the more appealing to foreign investors. There will be a time for Gold to climb to new highs, but the market seems to be focused on the tapering which may impede the Gold for the moment.  The middle-east situation at this juncture is subdued also contributing to a weaker Gold market for the moment.  However; the long-term prognosis may be for much higher prices as China has been buying the Gold and may be passing India as the number one buyer.  China typically invests in the US, but what if the US is looking less appealing with higher debts? Perhaps that may increase the demand for Gold substantially.   

Holdings in the SPDR Gold Trust have dropped 32 % this year. This is typically the season to buy Gold with the Indian festivals beginning soon. The US Mint only sold 11,500 ounces of the American Eagle Coins in August. So far only 9,000 ounces have been sold so far. 

While this moment does not seem positive for the Gold market, the debt ceiling and budget issues surfacing this month may be able to give the Gold some support.  Remember, the worse the data or news the better for the Gold market. The middle-east situation seems under control, but somehow it seems that we may be in for another surprise there.  Certainly, the continued quantitative easing is increasing the debt, bottom line so when you break it down with that in mind and the debt budget looming ahead, the outlook is not as positive.  The US economy has been hounded by the federal spending limits as the government funding ceases on October 1st.   

The Treasury may virtually hit its borrowing limit in mid-October risking a government shutdown.   The tapering is now being forecast for December.  Recalling August of 2011, the US was downgraded by a credit rating agency due to the battles regarding the budget and the debt ceiling.  We are nearing that time again.  As of October 1st, we could experience government shutdowns if no agreements are made.  Some think that the US could default over the debt limit and wind up backing up into a possible recession.   The Affordable Care Act or Obamacare also has a deadline for October 1st.  

The Federal Open Market Committee has indulged in three quantitative easing programs extending the balance sheet to $3.66 trillion. Failure to raise the debt limit may impact the economy much more than we realize at this juncture.  We could potentially have a repeat or worse case of 2011 pending.  The Atlanta Fed Business Inflation Expectations for September are 1.9 % for the year ahead while the previous reading was 2.0 %.   The Initial Jobless Claims for the week of September 14th were 309,000 up 15,000 while the previous reading was 292,000.  The Bloomberg Consumer Comfort Index for the week of September 15th was -29.4 while the previous reading was -32.1.  Existing Home Sales for August were 5.480 million while the previous reading was 5.390 million.   That was up 1.7 %.

The Philadelphia Fed Survey of General Business Conditions Index for September was 22.3 while the previous reading was 9.3.  The Leading Indicators for August  was 0.7 % while the previous reading was 0.6 %.  The Current Account for Q2 2013 was -$98.9 billion while the previous reading was -$106.1 billion.  The Housing Starts for August were 0.891 million while the previous reading was 0.896 million.  The Housing Permits were 0.918 million while the previous reading was 0.943 million.  The MBA Purchase Applications for the week of September 13th Composite Index was 11.2 % while the previous reading was -13.5 %.  The Purchase Index was 3.0 % while the previous reading was unchanged.  The Refinance Index was 18.0 % while the previous reading was -20.0 %.   

US Consumer Price Index for August was 0.1 % while the previous reading was 0.2 %.  The CPI excluding food and energy was 0.1 % while the previous reading was 0.2 %.  The recent inflation numbers indicate that the Fed has leeway where they may taper at this meeting or the next.  There is no pressure of increased inflation.   As a matter of fact, the extended inflation below the target inflation could create a snag with the recovery impeding capital investment and potentially risking deflation.  The Housing Market Index was 58 while the previous reading was 59.  The ICSC-Goldman Store Sales for the week of September 14th were -1.6 % while the previous reading was 1.5 %. The Redbook Store Sales for the same week were at 3.4 % while the previous reading was 4.6 %. 

The Treasury International  Capital Foreign Demand for Long-Term US Securities for July was $31.1 billion while the previous reading was -$66.9 billion.   Industrial Production for August came in at 0.4 %  increase while the previous reading was 0.0 %. The Capacity Utilization Rate was 77.8 % while the previous reading was 77.6 %. The Manufacturing component was up 0.7 % while the previous reading was -0.1 %.  

The Empire State Manufacturing Survey General Business Conditions Index for September was 6.29 while the previous reading was 8.24. The Employment Nonfarm Payrolls Report for August was at 169,000 while the previous reading was 162,000. 

The expectations called for about 175,000 to 180,000 making this close but yet falling short of expectations. This creates more uncertainty in the marketplace.  With the Syrian crisis looming any report shy of 200,000 could tip the market.  200,000 is the number that the Fed would like to see pointing to expansion and recovery clearly.  It is thought that though slight, this number should not interfere with the potential tapering that is expected by many for the September meeting. The Unemployment Level for August slipped to 7.3 % while the previous reading was 7.4 %.  The average hourly earnings were up 0.2 % while the previous reading was -0.1 %.  The Average Workweek was 34.5 hours while the previous reading was 34.4 hours.  The Private Payrolls Report was 152,000 while the previous reading was 161,000. 

There are the German elections coming up where the German Chancellor Angela Merkel coalition may be re-elected  or the more accommodative coalition may take office.  Regardless, this event should not impact the marketplace dramatically when we face the debt ceiling and US budget issues again.  This market is quite sensitive to the Syrian situation.   It has actually gone on for quite some time, yet the recent attack on Damascus by chemical weapons brought world attention to the conflict.  The agreement between the US and Russia took a great deal of fear and anxiety out of the marketplace. US Secretary of State John Kerry regards the talks with the Russian Foreign Minister Sergei Lavrov productive in Geneva. The Syrian fears and anxieties have subsided since Russian leader Vladimir Putin had negotiated the proposal to avoid a potential strike from the US on Syria. Putin, as of late is stating that he is not certain that Assad will actually turn over his chemical weapons.   

The US will want to make sure that the Syrian government does not use this as a ploy to buy time.  The Organization for the Prevention of Chemical Weapons (OPCW) will be taking the lead on the transfer.  This all possibly opened the negotiations with Iran that had been halted for quite some time.  Syria has actually given some details of the chemical weapons inventories to the OPCW.  US President Barack Obama speaks possibly about Syria and the proposal Russia had suggested to halt any potential strike.  The new role as the negotiator for Russian President Vladimir Putin "Putin the peacemaker"  may increase his popularity in the Middle East and establish him as a diplomat with skills.    

The ideas of putting the Syrian chemical weapons in international control of the United Nations is an incredible development.  The legality of chemical weapons use would be contained and the UN inspectors have yet to prove that the Syrian troops used the poisonous gas on the Syrian people.   Germany, France, the UK and Japan rallied behind Putin on the prospect of a peaceful outcome. This had been an emotional event in global affairs as the victims of the chemical weapons had been filmed in their death throes making the issue of genocide horrific and unforgivable.  Now it will be up the Russia's vigilance and Syria's credibility to adhere to the submission of the chemical weapons.   Russia had also confided to France that any proposal to seek a Security Council resolution to accuse the Syrian government of the use of chemical weapons on their people was inadmissible.   

France and the US still seek a way to potentially punish Assad for the attacks of August 21st.   The UN may stay away from naming the source of the poisonous gas as they may avoid any blame game. 

The United Nations inspectors did find "clear and convincing evidence" that sarin gas was used on August 21st on the people of Damascus.  The surface to surface rockets carrying the nerve gas were recovered at the attack site where blood samples and urine samples had been taken.  The Syrian rebels have been thought to not have experience or knowledge to use the weapons themselves.   The question of whether Assad may be brought to justice for war crimes may never be answered.  The moral and ethical elements of this situation remains extremely difficult particularly for US President Barack Obama.  He may have a great desire to protect the people of Syria but he may be bound by Congress to abide by and treaties or mandates from the UN and/or Congress.    

To punish Assad may be accomplished only with a strike which ultimately may maim or kill more Syrians and may bring the US into a direct conflict with Russia, China and Iran potentially.  The new role as the negotiator for Russian President Vladimir Putin "Putin the peacemaker"  may increase his popularity in the Middle East and establish him as a diplomat with skills.   Russian President Vladimir Putin had given a speech addressing "American exceptionalism" as a reasoning for the US to feel that a strike on Syria was within the mandate of the President's powers.  He wrote that he regarded the ability for an individual to think of themselves as exceptional is dangerous.  Perhaps, a lesson on US Democracy would be suitable in response to such an accusation.   

Syria joined the Global Anti-Chemical Weapons Treaty solidifying the commitment to not engage in chemical warfare.   These negotiations, while the US would like to accomplish quickly, could be quite lengthy.   Russia had objected to a UN resolution offered by the UK to issue steps to protect the Syrian civilian sector. Vetoes from Russia and China have been too limiting in the past. 

Secretary of State, John Kerry spoke on behalf of the president stating that President Bashar al-Assad may be held responsible for the chemical weapons attack in Damascus.   Over the recent years, it is thought that about 100,000 + lives have been taken in this civil war in Syria. 

The CME Group Inc, now owns the Comex and has raised the Gold margins to $8,800.00 per 100 troy ounce contract.   
  • Conflict in the Middle East would escalate.
  • Inflation would have to accelerate.
  • The economy would have to worsen.
  • The Fed would continue or increase the easing and become ultra-accommodative.
  • The ECB would increase their monetary stimulus.
  • The central banks would have to bump up buying.
  • The speculator would have to regain confidence in the Gold market.

The December Gold may have hard support at $1291.50 at present. If breached, level $1182.60 is projected as a possible downside target. It is an emotional market that needs a major event or inflation to build any momentum on an uptrend.  Without a major infusion of fear and anxiety, the Gold market may drift within a range of $1375.00 to $1275.00. 

Gold is a safe-haven product that requires an environment of crisis and chaos. It may be sort of like insurance, you hate paying the bill, but when tragedy strikes, you are glad you have it.  

While reaping the rewards of being a gold trader, one must be sure to use stops and money management to stay in the game!   Retracements are possible.  While I remain very bullish still - use stops - live to trade another day! 

Courtesy: Inside Futures