Price bounce for gold ounce

From the New York COMEX close on Sept. 14, 2018, to early morning U.S. trading on Oct. 3, the price of gold rose from $1,195 to $1,203.25, up $8.25 (or 0.7 percent).

Silver climbed from $14.04 to $14.75, an increase of 71 cents (up 5.1 percent), and platinum was up from $797 to $834, a surge of $37 (4.6 percent). Even palladium, a market where there is significant Russian manipulation of prices (where that nation produces about two-thirds of global supply), the price rose from $998 to $1,062, up $64 (6.4 percent).

Does this indicate the swoon in precious metals prices that began June 14 in conjunction with the drop in the value of the Chinese yuan currency is now over? That is a definite possibility.

The Sept. 14 date is significant, which I discussed in last week’s column, as that is when the South China Morning Post, an English-language Chinese newspaper, reported that Shandong Gold Mining was seeking to raise as much as U.S.$768 million in a stock offering to fund overseas expansion.

As part of this announcement, the company’s chairman stated he was “confident that an upward trend in gold prices will emerge in the next twelve months.” As this company, the largest gold mining business in China, is owned by the Chinese government, you can be sure that this statement had advance approval from Chinese officials.

The relatively modest increase in the price of gold since then, compared to the other three metals, could be partly attributed to two factors. First, last Friday was a Triple Witching Day in the financial markets, with Sept. 28 being the final trading day of the week, the month, and the calendar quarter. Businesses and financial institutions often engage in what is called “window dressing” to make their forthcoming financial reports look as good as possible.

For bullion banks and brokerages, that means they have an incentive to suppress precious metals prices to improve the results reported on their short contracts in the futures and options markets.

Second, the price of gold has increased recently despite a small surge in the value of the U.S. dollar. The U.S. Dollar Index is up 2-3 percent in the past few weeks. When the dollar rises, the price of gold in particular tends to slide. The fact that the price of gold is now up from mid-September despite a stronger dollar is a significant signal that higher precious metals prices could be imminent.

Now we are past the end of September. There are still some bumps ahead where precious metals prices tend to be temporarily suppressed. The next one comes in the 24-48 hours before the morning of Oct. 5, which is the next scheduled release of the U.S. monthly jobs and unemployment report.

Another reason to anticipate a further rebound for precious metals prices in the near-term was the language that was omitted by the Federal Open Market Committee in its announcement Sept. 26 of another increase in the federal funds interest rate. In previous announcements going back at least 10 times, the FOMC had commented that they were taking an “accommodative stance” because of concerns that the U.S. economic recovery could falter. That reference was not included in the most recent announcement.

While the omission can have several implications, one is that there is greater pressure for an accelerated rise in consumer prices going forward. As the government’s inflation of the money supply hits consumers more strongly, that is traditionally a signal that sparks higher precious metals prices.

Patrick A. Heller is winner of the American Numismatic Association 2018 Glenn Smedley Memorial Service Award, 2017 Exemplary Service Award, 2012 Harry Forman Dealer of the Year Award and 2008 Presidential Award. He was also honored by the Numismatic Literary Guild in 2017 and 2016 for the Best Dealer-Published Magazine/Newspaper and for Best Radio Report. He is the communications officer of Liberty Coin Service in Lansing, Mich., and writes “Liberty’s Outlook,” a monthly newsletter on rare coins and precious metals subjects. Past newsletter issues can be viewed at http://www.libertycoinservice.com. Some of his radio commentaries titled “Things You ‘Know’ That Just Aren’t So, And Important News You Need To Know” can be heard at 8:45 a.m. Wednesday and Friday mornings on 1320-AM WILS in Lansing (which streams live and becomes part of the audio and text archives posted at http://www.1320wils.com).