Shockingly Low Gold Prices

02/12/2014 10:15 am EST

Focus: COMMODITIES

Daniel Gramza

President, Gramza Capital Management, Inc.

Trader Dan Gramza reviews the fundamental forces that determine gold prices and what that may mean for prices as we near the end of 2013.

SPEAKER 1:  My guest today is Dan Gramza.  We’re talking about gold prices as we come into the end of 2013 and into the beginning of 2014.  Dan, a lot of people are shocked right now as we come into the last half of the year and part of the year here that gold is still as low as it is.  What’s going on here?  What are your thoughts here as we come into the end of the year and next year as well?

DAN GRAMZA:  Well, I have to tell you, Tim, I’m bullish on gold but we haven’t seen any consistent buying coming into that market.  That’s really the issue that we’re facing.  Let’s take a look at some of the motivators for gold.  Inflation, right, that motivates people to switch to gold but we really don’t have much inflation.  We’re down way below 2%.  Uncertainty in the world, well, the world right now has been kind of calm.  We have things out there that are potentials but it’s kind of calm.  Political uncertainty in terms of interest rates and other issues that we see, we already kind of know what China said they’re going to be doing, what Japan said they’re going to be doing, the ECB said they’re going to be doing, and our Fed has said they’re going to be doing.  There’s no real strong motivation there either for people now to start pulling in that gold.  I think we’re just not seeing the good reasons for this market to be purchased and that’s the result of it.

SPEAKER 1:  For all the reasons you just talked about, it makes me very nervous because when we get into this kind of complacency and nothing is really going on, all it takes in one event and boom.  We could see that gold shoot up.  Are you one of those people that feel like you’re waiting for something to happen because it is so calm like there’s got to be something in store.

DAN GRAMZA:  The calm before the storm, first, I think that’s an excellent observation, but yes.  I need price to motivate me to do something.  I need to know that I have company.  By price giving me a set movement that you’re implying there then I know I got somebody along with me for that ride and I’m more than happy to join them but until I see that, I don’t want to be overly aggressive.  You could say its cheap now.  We could buy some but it can go lower.  I need some proof that somebody else is there.

SPEAKER 1:  What about real tapering, not just talk of it?  Do you see that as having a direct impact on gold if they actually really do start to taper back on the Fed.?

DAN GRAMZA:  A couple things on that one, that’s a great point to rise.  First, one of the things that the Fed said, first, before we talk about that, Tim, I think we got to think about this.  When did they actually do the $85 billion a month that they put in there.  Did it start in March of ’09 when the market started to move up?  No.  Our market was moving up before they ever started to do this additional infusion of money into the market.  That’s one thing I think we should keep in mind.  The other thing is they tied this policy to a number.  They told us a number, 6.5% for unemployment.  We’re at 7.3%.  I said earlier in the year that I don’t expect that to change much and it hasn’t.  I feel the same way going into next year with their interest rates the way they are.  We have an unemployment number at 6.5%.  That isn’t going to happen anytime soon.  Inflation over 2%, inflation is way below 2%.  We don’t really have a reason for the Fed to make any changes.  What bothers me is when some of the Fed presidents come out and say well, you know we could taper if we have any changes, positive changes, in the economic news.  I totally agree with that but that’s not new.  That’s not a new statement for that.  When it comes to gold, I think gold is one the sidelines.  We haven’t seen gold reacting to it as the stock market has to that information.  The other thing, when they do start tapering, which I believe, could go beyond March of 2014, they’re not going to drop it all at once, maybe $10 billion at a time, that type of thing.  They may start throttling down if unemployment starts coming down but I still think it’s going to be a while yet.  I don’t think that’s going to have the direct impact into the gold market unless they do a surprise tactic like you were talking about.

SPEAKER 1:  Dan, thanks very much for your time.

DAN GRAMZA:  It’s always good to be with you, Tim.

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