Gold prices have traded in a relatively narrow range again this week, oscillating between roughly USD $1315oz and USD $1335oz, as the market awaits a compelling impetus to push it higher.

ADP employment figures released in the US overnight, which saw 281,000 jobs created acted as a headwind to prices, which traded down toward USD $1320oz upon the release, but in a sign that the market is now in stronger hands, this weakness was short lived, and gold bounced back to roughly USD $1327oz, where it sits today.

Silver has also been steady, trading either side of USD $21oz, as it has for much of the past two weeks, and currently sits at USD $21.18

For Australian dollar investors, the relative strength in the AUD, which was nudging the USD $0.95 cents level at one point this week, and which still sits at USD $0.9436 has helped constrain prices, though we’re now above AUD $1400 and AUD $22.50 for gold and silver respectively.

About that ADP Print

Markets were celebrating the ADP print overnight, as it was substantially ahead of expectations, with many using it as evidence to support their theory that the negative GDP print (-2.9%) in Q1 2014 was just a weather related aberration.

The excellent Nick Butler from Westpac had a more reasoned observation, which I’ve posted below.

“US ADP private payrolls grew a surprisingly strong 281k in June, taking jobs growth for the first half of the year to 1.18mn, down slightly on 1.23mn in H2 2013 but a bit faster than the 1.02 mn employed by the private sector in the first half of 2013. It’s perplexing that the economy just keeps on adding a million plus jobs each half year, regardless of whether it is growing modestly (1.8% annualised in H1 13), briskly (3.3% in H2 2013) or not at all (-0.1% in H1 2014 assuming a Q2 GDP bounce of 2.6% annualised). The last time the economy showed a similar GDP growth pattern six years ago. Back then, subsequent revisions changed the story substantially, such that H2 2007 was revised from 2.8% to 2.1% annualised GDP growth, and the initially very strong ADP jobs were revised to just 81k in those 6 months. In H1 2008, with GDP revised to -0.3%, the 63k jobs reported at the time has since been revised to -738k. The Fed had started the year with a 1.7% central tendency GDP forecast for 2008, the year ended running at –0.2% yr as reported at the time (since revised to -2% yr). 2014 looks like showing a similar miss for the FOMC relative to their 3.0% forecast current in January, we now expect 1.4% yr in Q4. The jobs and GDP growth picture this year so far has a few iterations to run, we suspect, before a more accurate, consistent picture of the US economy emerges. Why am I trying to find historic parallels? To demonstrate why after a third of a century as an economist, it is reasonable to be sceptical of apparently up-beat data! More than that; to demonstrate that the assessment of the economy that policy-makers and investors might be formulating by looking at these data is almost certainly wrong, if taking the numbers at face value.”

Physical Demand Still Supporting Market

Whilst physical demand has decreased since last year, which is hardly surprising considering the truly staggering levels of demand that we did see in 2013, it’s still providing support to the market, at least according to HSBC, who look at US Mint sales and Turkeys gold imports.

Starting with the Mint, June gold coin sales were up 34% vs. May, to 64,500 ounces. This is an impressive result, though still over 10% lower than June 2013, when sales hit 64,500 ounces.

Looking at the Istanbul gold exchange, HSBC noted that Turkish gold imports doubled in June, to 24.3 tons, the highest since December. This translated into higher silver demand too, with imports essentially doubling too, to 34.5 tones.

“The increase in physical gold demand in June may be attributed to cheaper prices earlier in that month as prices fell sharply towards the end of May closer to USD1,250/oz from USD1,290/oz,” HSBC says. “This suggests that physical demand remains a floor of support for gold.”

Richard Russell Talks Gold

One of the true legends of the investment world is none other than Richard Russell, often referred to as the Godfather. Anything he has to say on any market (stocks, bonds, housing, gold, the economy) is worth having a listen too.

Yesterday, he penned a piece on gold, which was cautiously optimistic, but also very reasoned, stating that whilst on a intermediate basis gold and silver both looked good, “gold really needs to get above that big top at USD $1390 before we can seriously start talking about a new long-term bull market”

He went on to state that (paraphrasing) “buying a little more gold or silver is fine if you are so inclined” but “backing your van up to the local coin store and really loading up on precious metals is neither particularly prudent, nor justified yet by the technical picture”

Translation: Dollar Cost Averaging still makes sense

You can read his letter, and look at some excellent charts here

Is it July Already?

I don’t know about you, but time sure does seem to fly these days. It only seems like yesterday that 2014 got underway, and yet here we are already past the half way mark for 2014. Y

ou may remember that as the year got underway, there was widespread pessimism about the gold market, with nearly every investment bank bearish on the metal, record short positioning and a belief that the bull market was well and truly over.

ETF holdings had been decimated, the S&P500 and other equity markets were flying, and the Federal Reserve had begun tapering QE, with many believing that they’d pulled off the miracle, restoring growth without high levels of inflation.

Anyone who bought this (and most did), unsurprisingly also bought into the rationale that investing in gold was no longer necessary.

At the time, we penned the following piece, warning of risks in stocks and bonds, and why we weren’t convinced the gold bull was well and truly dead

Section 9 is the specific area that deals with gold.

6 months later and what do you know, gold has been the best performing major asset class of the year so far, outperforming equities, broader commodities, real estate and even the bond market, which has rallied strongly, despite nearly every economist and analyst in the world stating that bond yields would keep rising in 2014.

That chart comes from an excellent article published this week by Michael Kosares on the USA gold website, which you can read in full here.

The article also has a great gold in inflation adjusted terms graph, using the Shadow Stats inflation calculation, rather than the official CPI numbers.

Joe Wiesenthal acts like it’s a Gold Bottom

Joe Wiesenthal is Executive Editor of Business Insider, a financial and business news website which I frequent, and which carries some great pieces on it from time to time.

He’s also prolific on Twitter, and I suggest you follow him at his handle @TheStalwart as he comments on all things economics, finance and investing.

Anyhow, he tweeted what I thought was a very interesting comment today, where he stated;

“Remember when we all cared about gold? What happened to that? What’s gold even doing these days?”

There’s a very famous quote by legendary investor John Templeton, where he stated that

“Bull markets are born on pessimism, grow on skepticism, mature on optimism, and die on euphoria. The time of maximum pessimism is the best time to buy, and the time of maximum optimism is the best time to sell.”

To pessimism I would add apathy. Pessimism and apathy are the two key ingredients to get any bull market underway. If people either don’t like, or don’t care about an investment that’s the time to start looking at it.

Most people are still very sceptical and pessimistic about investing in gold, believing that the bull market is over.

As per Wiesenthals tweet, they’re also pretty apathetic. It’s a good sign.

Until next week

Disclaimer

This publication is for education purposes only and should not be considered either general of personal advice. It does not consider any particular person’s investment objectives, financial situation or needs. Accordingly, no recommendation (expressed or implied) or other information contained in this report should be acted upon without the appropriateness of that information having regard to those factors. You should assess whether or not the information contained herein is appropriate to your individual financial circumstances and goals before making an investment decision, or seek the help the of a licensed financial adviser. Performance is historical, performance may vary, past performance is not necessarily indicative of future performance. Any prices, quotes or statistics included have been obtained from sources deemed to be reliable, but we do not guarantee their accuracy or completeness.