Demand For Gold Remains Strong

Gold prices ended slightly lower as traders look to U.S. economic data for demand clues. U.S. stocks higher, boosted by positive manufacturing data and better-than-expected car sales. Gold last traded at $1,280 an ounce. Silver at $19.69 an ounce.

It is clear that demand for gold coins is alive and well with the smashing success of the U.S. Mint’s $5 gold baseball coins. The coins, which went on sale last Thursday, were part of the 2014 Baseball Hall of Fame Commemorative Coin program. All 50,000 of the gold coins were sold by Monday afternoon. The last time the U.S. Mint sold out of a commemorative coin was in 2005.

Demand for gold is also surging in Japan for different reasons. Japanese consumers have scarfed up gold bars ahead of a controversial hike in the country’s sales tax due to hit today. Gold sales increased five-fold in March as talk of the tax emerged.

Aside from dodging the tax hike, Japanese investors may be looking to protect themselves against inflation. Prime Minister Shinzo Abe’s economic strategy involves heavy money printing by the Bank of Japan to ward off Japan’s persistent deflation problems. Given the fact that Japanese gold demand tripled in 2013, there is clearly more to this Japanese “gold rush” than just the sales tax.

The surging demand for gold may be one factor that translates into higher gold prices in the future.

Asset manager Pecora Capital LLC has forecast that gold will set new records over the next five years as weaker stock markets spur demand for a haven and physical buying from Asia strengthens even more.

Overvalued U.S. stocks will probably retreat when the Federal Reserve ends stimulus. In that scenario, gold could initially slide as money flows toward cash investments before rebounding, a new forecast from Pecora said. ” There’ll be a knee-jerk reaction where very temporarily gold prices will drop and then they’ll outperform.”

We could be seeing that happen right now, making current gold prices very attractive indeed.

The weakness in stocks hasn’t been seen as of yet, but there is indeed reason to believe it will soon.

Ahead of first-quarter earnings season, Corporate America’s outlook is holding around its most pessimistic levels ever. According to John Butters, senior earnings analyst at FactSet, 93 out of the 111 companies in the S&P 500 that have issued an earnings outlook for the first quarter have guided below Wall Street’s consensus estimate. That’s the second-highest number of companies issuing warnings since FactSet began tracking guidance data in 2006.

Yesterday, we reported about Michael Lewis’ new book, Flash Boys, in which Lewis asserts that the stock market is rigged by high speed program trading. Today we find the FBI is in fact looking into the firms who utilize those programs.

U.S. federal agents are investigating whether high-speed trading companies violate U.S. laws by using fast-moving market information not available to other traders. Launched by the Federal Bureau of Investigation about a year ago, the investigation called the High-Speed Trading Initiative, is still in its primary stages, a senior FBI official and an agency spokesman told The Wall Street Journal. High-speed trading based on information about orders that other investors do not have access to and hence putting them at a disadvantage could violate insider-trading laws.

First Yellen Testimony Sends Mixed Signals

Gold prices climbed higher Tuesday, lifting the metal’s prices more than 3% in five trading sessions. U.S. stocks extend 4-day winning streak after Yellen testimony. Gold last traded at $1,289 an ounce. Silver at $20.15 an ounce.

The Janet Yellen era at the Federal Reserve has commenced this morning as she testified before the US House of Representatives. Her testimony sent mixed signals. She claimed the Fed’s policies would reflect a “great deal of continuity” from the previous Chairmanship of Ben Bernanke, widely believed to mean she plans on continuing to “taper” the Quantitative Easing program. But she also said “too many Americans remain unemployed.”

This certainly suggest she will be leaning toward continued loose monetary policy in general.

And, if the employment picture continues to soften, who knows what her ideas may bring in terms of the future of tapering.

Once again, the latest report from the Labor Department on employment is not encouraging. The department reported this morning that job openings at U.S. workplaces ticked down to 3.99 million in December from 4.03 million in November. The number of separations, such as quits and layoffs, rose to 4.37 million in December from 4.28 million in November. Meanwhile, the total number of hires declined to 4.44 million from 4.53 million. The level of hires was almost 5 million when the recession began.

The stock market will be watching Janet Yellen very carefully, no doubt. But there is something else the stock market is watching right now: the charts of the Dow Jones Industrial Average. Those charts show eerie parallels between the stock market’s recent behavior and how it behaved right before the 1929 crash. The chart superimposes the market’s recent performance on top of a plot of its gyrations in 1928 and 1929 and the two lines look shockingly similar. If this correlation continues, the market faces a particularly rough period later this month and in early March.

In reaction to stock market worries, wealthy investors are avoiding stocks and moving into alternative investments, such as art. The markets for art and collectible cars are exploding. At the London auctions this week, Sotheby’s and Christie’s reported record results for their sales. For now, wealthy investors seem to want to buy assets they view as more secure—and certainly more fun and enjoyable to own. Rare coins are another asset class that bridges the gap between fine art and hard assets.

Elsewhere in the tangible asset markets, gold has been performing extremely well in 2014, in contrast with stocks. Gold is enjoying record demand from China and investment demand in the West is returning. One factor largely attributed to causing the decline in gold in 2013 is now absent from the market: ETFs. These funds sold off a great deal of physical gold in 2013. Those ETFs no longer have quantities of gold to sell. Meanwhile, investment demand for gold coins is soaring, as evidenced by reports from mints in the US, the UK, Austria and Australia.