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lw ucLawrence (Lawrie) Williams is a well known London-based writer and commentator on financial and political subjects, but specialising in precious metals news and commentary.  He is a qualified and experienced mining engineer having graduated in mining engineering from The Royal School of Mines, a constituent college of Imperial College, London – recently described as the World’s No. 2 University (after MIT).

He has worked in mines in South Africa (gold, uranium and platinum), Canada (uranium), Zambia (copper) and U.K (coal) and holds a South African Mine Managers certificate.  He also worked as a gold mining company analyst for one of the major South African mining houses. He left South Africa to join Mining Journal as Financial Editor and worked his way through that organisation to edit Mining Magazine, and then join the Board.  He was Managing Director (CEO) of the company for 13 years up until it was sold in 2001.  During part of this period he was also President of Nevada-based U.S. company Mining Media Inc which was publisher of North American Mining magazine.

Following his time at Mining Journal he became editor, and then General Manager, of Mineweb.Com, taking it from lossmaker to becoming highly profitable before taking partial retirement in 2012.  Since then he continued to write for Mineweb up until September 2015, and now writes for other organisations including Sharpspixley.com as contributing editor, Seeking Alpha and for Johannesburg Stock Exchange special supplements and his articles are picked up and linked to by numerous websites around the world.   Again these articles mostly concentrate on precious metals markets and mining.

LawrieOnGold.com has been set up as a vehicle to publish articles by Lawrie Williams not published elsewhere and will also link to some of his other articles. It will also include contributions from other selected specialist writers as well as links to other carefully chosen articles of interest to those interested in the precious metals sector.

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Gold looking for a new bottom

Julian Phillips has been offline for a couple of weeks (since November 25th).  We now hope he will  back with his regular contributions.

Gold Today –New York closed at $1,175.70 on the 2nd December and at $1,189.30 on the 25th November. London opened at $1,170.00 today.

 Overall the dollar was weaker against global currencies, except sterling.

         The $: € was stronger on Friday at $1.0663: €1 from $1.0576: €1 25th November.

         The Dollar index was weaker on Friday at 100.69 from 101.62 on the 25th November. 

         The Yen was weaker at 113.56: $1 on Friday from 25th November’s 113.15 against the dollar. 

         The Yuan was stronger at 6.8832: $1 on Friday from 6.9198: $1 on the 25th November. 

         The Pound Sterling was stronger at $1.2714: £1 on Friday from 25th November’s $1.2454: £1.

 Yuan Gold Fix

Trade Date Contract Benchmark Price AM 1 gm Benchmark Price PM 1 gm
      2016  12    5

      2016  11    25

      2016  11    24

SHAU

SHAU

SHAU

264.99

267.40

270.16

265.48

266.77

269.95

$ equivalent 1oz @  $1: 6.8832

      $1: 6.9198

$1: 6.9278

  $1,197.42

$1,201.92

$1,212.93

$1,199.64

$1,199.01

$1,211.98

Please note that the Shanghai Fixes are for 1 gm of gold. From the Middle Eat eastward metric measurements are used against 0.9999 quality gold. [Please note that the 0.5% difference in price can be accounted for by the higher quality of Shanghai’s gold on which their gold price is based over London’s ‘good delivery’ standard of 0.995.]

 Gold prices in Shanghai are $19 higher than New York’s close and $24 higher than London’s opening [allowing for the difference in the quality of gold priced in the different markets]. Many reports blame the restrictions on gold imports for the differential or on the restraints on exporting Yuan. If this is true, then the demand in China is extremely strong. In the main physical gold market in the world such demand tells us that the gold price has tremendous support there. To what extent these restraints are so effective is not clear. To what extent there are restrictions is also not clear.  

Because of the very strong and capable presence of the Chinese bank [ICBC-Standard] and their warehousing facilities we see the Chinese using their arbitrage system to good effect and amassing gold in London, as it is sold. Of course, HSBC has the same capability, restraints or no restraints. It is unthinkable that in the light of the Chinese presence in London it cannot move or hold gold for China in its vaults there.  

Since November 25th we have seen over 26 tonnes of gold sold from the SPDR gold ETF and the Gold Trust. Each day the gold price falls at the open of New York and rises after it closes. This is because New York is a seller and Shanghai a buyer. With the dollar price controlled in New York we are seeing  the movement of physical gold from the west to the east in a continuous process. So we see, not a premium in Shanghai, but a discount in New York that will persist until the U.S. stops selling. China wants ounces not prices!

 LBMA price setting:  The LBMA gold price setting was at $1,164.90 this morning against 25th November’s $1,187.50. 

The gold price in the euro was set higher at €1,088.18 against 25th November’s €1,121.55.

Ahead of the opening of New York the gold price was trading at $1,168.30 and in the euro at €1,091.16.  At the same time, the silver price was trading at $16.68.

 Silver Today –Silver closed at $16.68 at New York’s close Friday from $16.39 on the 25th November. 

 

Price Drivers

While we were being blighted by computer problems we had a chance to look from a distance at what’s going on in the gold markets of the world. We see silver stronger than when we last reported to you and gold weaker in line with ETF gold sales. It became very clear that Chinese bank activities in the gold market are to say the least opaque. As we said above their objective all along has been to acquire ounces.  We see them using the falling dollar gold prices as an opportunity to acquire physical ounces. In this market there are more ounces available when the price is falling than when it is rising. The Chinese see developed world investors buying on the rise and selling on the fall. By taking gold on offer they maximize their purchasing. Higher prices in Shanghai make this all the more easy as a ready market exists for the gold bought.

Since November 25th the currency markets have settled down with the exception of the Pound Sterling which is climbing back. Today with the Italian referendum producing shockwaves in political circles attention is moving to the Italian banks which are looking wobbly as is the country with debt to GDP at 133%. The euro has looked relatively steady but for sure the prospects for the Eurozone holding together as it is now took a beating.

Add to this the latest tweets from President elect Trump against China and the world took another step towards instability. The fundamentals for gold are very strong with the exception of the U.S. and ETF sales. When these stop downward pressure on the gold price will stop too.

Gold ETFs – Since November the 25th there were sales of 21.347 tonnes from the SPDR gold ETF and sales of 5.95 tonnes from the Gold Trust, leaving their respective holdings at 870.220 tonnes and 199.29 tonnes. 

Since January 4th this year, 268.501 tonnes of gold has been added to the SPDR gold ETF and to the Gold Trust. 

 Silver –Silver is holding its ground while gold continues to slip. We see this pattern continuing, unless there is a precipitous fall in the gold price.  

 Julian D.W. Phillips 

 GoldForecaster.com | SilverForecaster.com | StockBridge Management Alliance 

 

 

Benavides new Minera IRL CEO

In a move that many will consider should have happened some time ago, Diego Benavides – who has headed up the Minera IRL Peruvian operating company for some years – has been accepted onto the parent company board and will be the company’s new Chief Executive.  Benavides will have been seen by the company’s Peruvian shareholders in particular as the saviour of the company in protecting the operating company’s gold mining revenues from the alleged predations of the Hodges Board, keeping the Ollachea community onside and being primarily responsible for negotiating the Ollachea financing deal with COFIDE.

In an announcement today, Benavides and three others, were welcomed to the Board by the company’s sole remaining director following the recent AGM.  At the AGM  three of the previous five directors did not offer themselves for re-election and a fourth, the Chairman and CEO, Frank O’Kelly was voted off the Board after a hard-hitting anti-Board campaign by Latin American focused blog, Inca Kola News who felt that some of the AGM proposals were  designed to be for the benefit of Board members rather than the shareholders.  While much of the anti-Board focus was aimed at the three Board members who stood down, O’Kelly was  also voted off  although his downfall was perhaps the perception  that he did not exert sufficient control and guidance and that his choice of fellow directors was misguided.  O’Kelly had been a long time consultant to Minera IRL dating back to the days of company founder – the late Courtney Chamberlain – and thus a  long time associate of company co-founder Benavides.  It was notable that in the announcement of the new Board, the remaining director from the old Board and Independent Chairman, Gerardo Perez, paid a tribute to O’Kelly thus: “I wish to extend my sincere thanks to Frank O´Kelly for his outstanding support in the management of our Company.  It has been a pleasure  to have worked closely with Frank.”

Now we hope that Minera IRL will be able to get on with the development of its flagship Ollachea mine where development is already well in progress.  As O’Kelly himself pointed out prior to his being voted off the board of the company with which he had been involved for many years, Minera IRL has an operating gold mine in Peru in Corihuarmi, which is close to the end of its operating life.  But its flagship project is the major advanced new gold mine development, Ollachea, located in Puno in the South of Peru. This project is fully funded by a Peruvian State Development Bank ($240 million facility of which $70 million has been advanced). The mine is fully permitted and has subscribed a 30 year social license with the local community. The mineral resource exceeds 2.40 million ounces Au and M+I reserves of 1 million ounces, which will sustain a production of 100,000 ounces of gold per annum for a decade. The company is presently drilling off an already constructed 1.2 km access tunnel with a target of adding an additional 600,000 ounces to the resource. The down dip extension which is currently being drilled reports intersections up to 20 m with grades from the only 3 holes for which so far have assays reporting 5 g/t Au, some 40% better grade than the main ore body which was delineated with 82,000 m of drilling. AMEC has filed a NI 43-101 compliant feasibility study.

In anticipation of production by the end of 2018 the company has negotiated a fixed price turnkey EPC contract with Peru’s largest mine construction company, Graña y Montero, and is currently assembling what it describes as a first class owner’s management team. MIRL is in the process of commencing detailed design and placing orders for long lead capital items of equipment.

The company reckons that there are only a handful of advanced gold projects in the world in the condition of Ollachea and there should be enthusiastic acceptance from investors.

This is a situation where prior controversy has depressed the share price to levels of an order of magnitude of what other less advanced gold project are commanding. There is a capacity for a very substantial increase in the share price reckoned O’Kelly.

 

He went on to note that companies like Dalradian command a market cap ten times that of MIRL, whilst possessing comparable resources but still have permitting and financing challenges ahead. Meanwhile MIRL has a producing gold mine, a fully funded project with all the permits in place, a 1.2 km access tunnel, an EPC fixed price contract with Peru’s largest mine construction company and a 30 year social license for the local community. One can count on one hand, he says, the number of gold projects as advanced as Ollachea.

 

Gold, GFMS, China Demand – Koos speaks out

An edited version of a post which I placed on info.shsarpspixley.com at the weekend – click here for original.  Article was posted before we knew the results of the Italian referendum which, contrary to expectations saw the gold price fall back despite a No vote.  I have already written an article on this for the Sharps Pixley site which I may post here tomorrow.

The article below deals with the ongoing argument about estimates of Chinese gold demand/consumption as disseminated by major gold consultancies and the World Gold Council and thus treated as the definitive figures by much of the world’s media, yet they come in enormously below known gold supply into mainland China which,in our view, makes them decidedly suspect as a true measure of gold flows into China which are perhaps a better indicator of real Chinese gold demand.  Methodology used by the major consultancies is probably key to the huge differences.

Bullionstar’s Koos Jansen has been carrying on a several year-long crusade against precious metals analytical consultancy, GFMS, for publishing what he describes as incomplete and misleading statistics which, he reckons, hugely underestimate true Chinese gold demand.  But it should also be borne in mind that other highly respected consultancies like Metals Focus (which has usurped GFMS’s previous position as supplier of statistical data to the World Gold Council) and America’s CPM Group, although they may not be quite as downbeat on the Chinese statistics as GFMS, also produce far lower estimates for Chinese gold consumption than Jansen’s preferred measure of Shanghai Gold Exchange withdrawal figures.

Jansen actually goes further in suggesting that other GFMS global gold demand data also underestimates the true position, and he calls the consultancy’s figures a cover-up to protect their longstanding business model.

What is more all the above consultancies have tended to come up from time to time with differing reasoning for the apparent consumption discrepancy – all of which have been stated with apparent absolute certainty – until the next year when the latest reasoning is replaced by the next theory.

In a new posting on bullionstar.com – Debunking GFMS’ Gold Demand Statistics – Jansen looks at all GFMS’ latest opinions on this, and why they are all, in his view, incorrect – indeed he describes them as a cover-up, which also has to apply to the theories on this matter promulgated by the other major precious metals analysts.  It is hardly surprising that Metals Focus’ analysis comes up with something close to that of GFMS, although perhaps not quite so downbeat.  This is because the latter consultancy utilises the services of Hong Kong based consultancy Precious Metals Insights for its Chinese data whose managing director is Philip Klapwijk, former executive chairman of GFMS and who will thus have had ultimate responsibility for the original GFMS research on Chinese consumption.  Given Metals Focus provides, as noted above, the data used by The World Gold Council in its pronouncements, this is often the data used by global media as the definitive Chinese gold demand figure.

This might not be a problem if the GFMS and Metals Focus/WGC data was anywhere close to the kinds of figures  which Jansen comes up with, but the figures they use are only less than half those suggested by Jansen who bases his calculations on Shanghai Gold Exchange (SGE) gold withdrawals.  In part this is because what the consultancies count as gold demand ignores financial/institutional intake, which can be substantial, and which is why Jansen considers the data misleading. Last year, for example, SGE withdrawals amounted to over 2,596 tonnes of gold – a new record – whereas GFMS calculations for Chinese consumption came in at under 900 tonnes a figure also picked up by much of the world’s mainstream media.  The difference between that and the SGE figure is ENORMOUS.

We have pointed out here beforehand that the real, and obvious, anomaly comes in when you look at actual gold supply into China.  If we add known Chinese gold imports – from Hong Kong, Switzerland, the UK, the USA and Australia, all of which publish gold export figures  – and add in Chinese gold production (China is the world’s No. 1 gold producer – some 450 tonnes in 2015)  plus an estimate of scrap supply, not to mention direct imports from countries which don’t publish export statistics, we come up with a combined figure of around 2,000 tonnes or more (if anything Jansen’s calculations are even higher).  As gold exports from China are officially prohibited – which isn’t to say that absolutely zero goes out, but close – these figures would seem to make the GFMS calculations even more untenable.

This year though Chinese gold demand is going to be lower by almost any standards.  Up until end-October SGE withdrawals were 1,560 tonnes – 28% down on the record 2015 year and now perhaps suffering a reported import clampdown, although expectations for November withdrawals, due to be announced this week or next, are likely to be far higher than in recent months due to restocking demand ahead of the Chinese New Year holiday, the annual total is likely to be under 2,000 tonnes for the first time since 2012

Even at this reduced level, Chinese gold demand, as represented by the SGE figures is still running at over 60% of global gold output.  Rising premiums also suggest Indian gold demand is back on the up which could be seen as positive for the global gold price but rhe immediate price triggers are probably the result of the constitutional referendum in Italy, the Austrian Presidential vote and the likelihood of the U.S. Fed raising rates when it meets next week – seen as high!

Major divergence between SGE and London gold benchmarks

Readers of lawrieongold will be well aware that I have not been posting articles here during my recent nearly 8-week hospitalisation.  I am happy to say that I am now recuperating at home – still very shaky on my feet so not getting out much, but fully intend to get back writing again, so here is an edited version of an article I published on the Sharps Pixley website yesterday.  To read the original article click here

The principal additional comment I’d like to make here is to note the almost 20 hour time difference between the Shanghai and London PM ‘fixes’.  In a rapidly moving gold market this can account for a significant price change and some days will indeed have seen that, but in general terms this won’t have accounted for nearly all the difference.  There has definitely been a sharp anomaly between Shanghai and London prices as can be noted from the Shanghai fixes and the Western spot prices as noted by sites like kitco.com at the same time, and in all cases the Shanghai price has been significantly higher.  Do read the article bearing this in mind.  It follows below:

Few seem to have commented on what appears to be an increasing trend towards large anomalies appearing between the Shanghai and London gold benchmark prices.  Up until the beginning of November prices were pretty much in sync give or take a few dollars – a variation based on trading activity during the day, and, in some cases due to a difference between the gold tenor quality required under the two systems.  The SGE specification is for 99.99% gold content or better, while London works to LBMA Good Delivery specifications where the requirement is only 99.5%.  But on one ounce of gold this should only make for a maximum difference in price of around $5-6 at around a $1200 gold spot price.

But recently – as the table below comparing SGE and LBMA (London) PM price benchmarks for the past month makes very obvious the price difference – virtually always strongly in favour of the SGE benchmark since early in the month.  This has been consistently $10-20 or more (often $20-30) – even rising as high as $46 on November 23rd, although a significant part of this difference on that day was due to the sharp intra-day fall in the London gold price,  (as noted in the introductory paragraph above) as will also have been the case on November 9th when there was a somewhat similar $45 difference.

Note that this morning the Shanghai set benchmark price at $1,197.17 was around $24 higher than the prevailing spot gold price on the international market at the same time!

SGE and London PM Gold ‘Fixes’ (US$

Date SGE PM Gold Price London PM Gold Price Price diffce. SGE PM over London
Nov 1st 1283.95 1288.45 -4.50
Nov 2nd 1296.08 1303.75 -7.67
Nov 3rd 1306.66 1301.00 +5.66
Nov 4th 1300.75 1302.80 – 2.05
Nov 7th 1293.91 1283.05 +10.86
Nov 8th 1290.17 1282.35 +7.82
Nov 9th 1326.88 1281.40 +45.48
Nov 10th 1293.91 1267.50 +26.41
Nov 11th 1267.47 1236.45 +31.02
Nov 14th 1227.97 1213.60 +14.37
Nov 15th 1236.99 1226.95 +10.04
Nov 16th 1241.65 1229.20 +15.45
Nov 17th 1237.30 1226.75 +10.55
Nov 18th 1219.26 1211.00 +8.26
Nov 21st 1224.54 1214.25 +10.29
Nov 22nd 1235.43 1212.25 +23.18
Nov 23rd 1231.70 1185.35 +46.35
Nov 24th 1212.41 1186.10 +26.31
Nov 25th 1200.91 1187.70 +13.21
Nov 28th 1218.64 1187.00 +31.64
Nov 29th 1216.15 1186.55 +29.60
Nov 30th 1210.24 1178.10 +32.14
Dec 1st 1199.35 1161.85 +37.50

Source: www.Kitco.com

As we pointed out here yesterday a part of the reasoning behind the higher SGE benchmark price levels is something of a squeeze on Chinese gold supply which is local market specific – particularly now that gold traders and fabricators may be looking to build stocks ahead of anticipated additional demand from the Chinese New Year holiday, and a reported reduction in gold import quotas by the Chinese Government to curb capital outflows. But part may also be due to Shanghai looking to establish itself as the true gold price setting exchange and thus usurping the still dominant position of COMEX and the LBMA.  As China is the world’s biggest physical gold market, while COMEX and London are largely paper markets, it is probably only a matter of time before this comes to pass but for the moment the Western markets look to still be calling the tune as far as the accepted global gold price is concerned despite some hugely anomalous movements from time to time which many observers put down to manipulation.  The latest such was only yesterday when a rise in U.S. jobless claims, which might normally be considered gold positive, saw the price marked down sharply after an initial small rise.

Gold back on the Fed Grindstone

Edited version of another of my articles published on the Sharps Pixley website.  To read original click here

Gold followers will hardly be unaware that every time a Fed Open Market Committee Meeting draws near the gold price moves, often  quite sharply, on the will she, won’t she prospect of Janet Yellen announcing that at long last the Fed will start to raise interest rates again.  Now we are coming up to the December FOMC meeting – a full year after the last Fed rate rise.  Well the meeting is due to take place on December 13thand 14th and perhaps there is actually a realistic likelihood that indeed on this occasion it will be a case of ‘she will’.

So the gold price has been moving accordingly, but perhaps not quite in such a volatile manner as on previous occasions when the likelihood of a Fed rate raising decision was rather more uncertain.  During European and North American trading the futures markets have managed to control it in the $1,170s and $1,180s for the most part, with a so far brief foray into the $1.160s but any moves to the higher levels seem to be swiftly capped and brought back down again.  There does seem to have been something of a plethora of adverse gold price comment being released at present and when this has happened in the past it has sometimes been associated with a significant price takedown.  It remains to be seen whether this is a portent of yet another instance of such.

The anomaly here appears to be the Shanghai Gold Exchange Benchmark Pricing which seems to be coming in at levels above $1,200 two or three times this week so far, although these higher levels don’t seem to appear in the Kitco gold price charts.  We do know that Chinese gold prices are running higher at the moment and carrying the highest price premiums over London and New York prices seen for some time.  Some put this down to reports that the Chinese Government is already restricting, or is planning to restrict, the number of gold import licences.  This has been running in parallel to rumours that India, the other major global importer of gold, is planning to ban gold imports altogether, although one suspects that if this were to happen the amount of gold smuggled into the country would soar.  The caution here though is that when Chinese and Indian demand was just about at its strongest back in 2012, the gold price tanked due to heavy withdrawals out of the big gold ETFs and we have again been seeing some major outflows from GLD in particular.

The other reason for the Chinese high premiums – reportedly approaching $30 an ounce on some days – is that traditionally this is the time of year for Chinese fabricators and gold retail outlets to stock up ahead of the Lunar New Year festivities which can create temporary gold shortages, particularly in a year when gold imports have been running at a lower level.  In 2017 the Chinese New Year falls on January 28th, followed by a full week of holidays (The Spring Festival Golden Week) and gold has always played a hugely significant part in gift giving over the period.

It should be noted, though, in respect of something of an anti-gold media campaign that reports are surfacing that a number of major bank analysts are now seeing a period of substantial gold price weakness ahead coupled with the Fed rate rise decision. and more  Whether these analysts should be given any credence or not given most analysts were predicting that a Donald Trump victory in the U.S. Presidential election would see gold surge and the stock market crash, is a moot point.

Perhaps before drawing any conclusions one should wait for the results of this weekend’s Italian constitutional referendum.  A defeat for the Renzi  Government position,  which the opinion polls are suggesting, given the set anti-euro positions of the opposition could put the EU in turmoil again, which could give the gold price a welcome boost.  But then, after the Brexit vote and the U.S. Presidential election result, who believes the opinion polls any more?

In the context of a Fed rate increase those with only a short memory may also recall that after the last rate increase a year ago, gold fell back just a little, and briefly, in a knee-jerk reaction and then set off on a six month bull run!

The past year has seen a number of major destabilising events occurring (the Brexit vote, Trump victory and Indian banknote cancellation fiasco all within the past few months) and with the Italian referendum perhaps adding another.  In the long term such uncertainties have to be gold positive, but  there could well be some negatives in the interim and perhaps the first will be the actuality of a Fed rate increase.  Prepare for a bumpy ride.Gold

Out of hospital

At long last Lawrie is out of hospital, although still far from back to normal physically, and hopes to resume posting on the site shortly.

Much has occurred since he had his stroke around 8 weeks ago – notably of course Donald Trump winning the U.S. Presidential election.  Virtually all the pundits, who were  mostly pro-Hillary, predicted that a Trump victory would see gold soar and markets collapse, yet the reverse happened.  Moral – don’t pay any attention to the pundits.

Also has anyone else noticed that nearly all the media pictures of Trump pre the election were decidedly unflattering, yet most after it have actually made the Donald look almost Presidential!  The media is talking up the U.S. economy likening Trump’s somewhat off-the-cuff policy  proposals to Reaganomics.  At some stage reality will rear its head.  Trump remains a loose cannon on the political front.  The next few years could prove to be ‘interesting times’ in the Chinese  proverbial sense.  Hillary would perhaps have been more predictable as President, but whether she would have proven to be a better leader of the so-called ‘free world’ we will presumably never know.

Gold: What’s Next?

 

After an initial surge in the hours after Donald Trump’s election, the price of gold has been under pressure. To gauge what’s ahead for the yellow metal, we dissect the forces that may be at play.

By Axel Merk,  Merk Investments

We have argued in the past that for investors to consider any investment, including gold, in their portfolio, it needs to satisfy two conditions: it needs to exhibit low correlation to their existing investments; and there should be an expectation of a positive return. Let’s evaluate the changing investment landscape for gold in the context of the election:

Gold as a diversifier?
Since 1971, the price of gold has had a zero correlation to the S&P 500 index based on our analysis (-0.016 based on daily returns, to be precise). From that point of view, gold may be a long-term diversifier. That said, there are times when the correlation is positive; others when it is negative:

The traditional way to look at a portfolio is one that contains both equities and bonds. As such, let’s also look at the correlation of gold versus bonds: since 1971, that correlation is 0.024, i.e. also quite low. However, if you look at the chart below, you will see that the correlation to bonds has been at historical highs of late:

We will talk more about bonds below when we discuss fundamental drivers, but as far as whether the relatively high correlation to bonds of late will persist – if history is any guide, it may well fizzle out rather soon.

Differently said, when it comes to gold as a diversifier, we believe the long-term case is strong, but some investors may not appreciate it when correlations to equities or bonds flares up.

In the past, we have said gold may well be one of the ‘easiest’ diversifiers, meaning gold is easier to wrap one’s head around than, say, a long/short equity or currency strategy that, by design, may also have a near zero correlation to other asset classes. But that ‘easy’ diversification comes with a price: the low correlation isn’t stable, and there are times when correlation can be elevated.

Gold in a market downturn
Staying on the theme of gold as a potential diversifier, the price of gold has had a positive return in each bear market in equities since 1971, with the notable exception of what I might call the Volcker-induced bear market when interest rates were rose substantially:

We will talk about interest rates in a second, but let me explain a fundamental reason why gold might have performed well in each of these bear markets: in an era where “risk premia” are compressed, i.e. where prices of risky assets – be that junk bonds or equity prices – are elevated, we believe those prices are vulnerable should risk premia rise once again. That is, if for whatever reason, the market is allowing risk once again to be priced more highly into assets, it could provide major headwinds to both stocks and bonds. As a result, gold, with its low correlation to risk assets, might shine in a bear market.

Gold to provide positive returns?
While investors may appreciate diversification, they may appreciate positive returns even more. We have had a notable selloff in bonds since the election; and, as one can see from above, the price of gold has, of late, been correlated to those of bonds. So what is going on?

We have often argued that the biggest competitor to gold is cash: if investors get properly compensated for holding cash, the case to hold gold, an unproductive asset, is reduced. A “proper” compensation for cash may be an acceptable real interest rate on cash.

Currently, real interest rates, i.e. interest rates net of inflation, are close to zero (let’s sidestep the discussion whether any particular metric of inflation fully reflects cost of living increases). The question then is to what extent will a Trump presidency change that. Two of the major themes that come to mind are infrastructure spending and less regulation:

  • Infrastructure spending. We believe a) Trump will get at least some infrastructure spending done, and b) that it will be inflationary. Trump is a deal maker, so he may well promise some Senator their favorite bridge to nowhere if he will let him build his wall. This is a simplified way of saying that in Washington, it should be possible to spend money by making promises across the aisle, even if budget conscious Republicans object. In an environment where unemployment is already low, we believe this will induce wage inflation. Last time we checked, the government is usually not the most efficient in allocating resources, i.e. a fiscal spending program may foremost increase the deficit. Incidentally, we observe that currencies of countries where inflation ticks up often rise versus peers; while that may sound counter-intuitive, the reason is that investors assume central banks will counter inflationary pressures with higher interest rates. As such, if one believes the Fed will be “ahead of the curve”, i.e. hike interest rates before inflation picks up, that would be a negative for gold. If, however, investors believe that the Fed will fall further “behind the curve,” we believe there’s a good chance gold will do well, even as nominal rates move higher.
  • Even if Congress doesn’t pass legislation a President Trump proposes, he should have substantial influence on how agencies are run, suggesting that he should be able to execute on his promise to reduce the regulatory burden on business. If history is any guide, the pendulum is unlikely to swing quite as much as hoped for (or feared – depending on where one stands on this debate); however, on the margin, this should be a positive for investments. One of the reasons the long-term bonds have yielded so little is because businesses have preferred to purchase financial assets (e.g., share buybacks) rather than invest in real business. As such, to the extent that the selloff in the bond market reflects that businesses would now rather invest in new ventures (rather than the prospect of higher inflation), we believe it is negative for the price of gold.

There’s also the proposed tax cut; we’ll have to see to what extent what is on the drawing board can be implemented, but any simplification of the tax code might also encourage investment.

We have not seen Trump propose any serious fix to what may be the soaring cost of entitlements. That is, even before additional fiscal spending proposed by President-elect Trump, deficits may balloon in a few years.

What we haven’t mentioned is the potential impact of a trade war. At this stage, the market appears to suggest that Trump might back off from his anti-trade rhetoric. The reason we think so is because we think the dollar is vulnerable in a trade war; that’s because we need foreigners to finance U.S. deficits; the U.K. is the latest example of a country that relies on financing from abroad to have seen its currency suffer when trade barriers have risen (a vote for “Brexit” suggests the introduction of trade barriers). The dollar might not decline versus the Mexican peso or other emerging market currencies, but it may well decline versus major currencies and gold.

So what will happen to the price of gold?
We expect to see a battle of the various forces discussed above. For now, the market may be pricing in stronger real growth through less regulation, with a Fed able to raise interest rates as the economy strengthens. In many ways, we have seen this movie before, with the market anticipating a rate hike due to improving fundamentals.

The problem is that we have such a leveraged economy, that higher bond yields and the anticipation of higher rates may well cause risk premia to rise, i.e. volatility in the market to increase, possibly toppling over equity prices. The associated volatility may cause ‘financial conditions to deteriorate’ as the Fed likes to put it, causing them to back off from any hawkish plans. That is, the anticipation of higher real rates may fizzle out yet again, providing support for the price of gold.

And aside from higher rates being a source of market volatility, it may well be that Trump policies themselves, such as the introduction of trade barriers, may cause volatility to rise and gold to benefit.

In short, if investors believe the future is bright, with businesses increasing investments and with the Fed’s magic wand doing wonders to keep inflationary pressures just right without causing too much of a stir, gold might not rise in value.

If however, investors believe that this tug of war between the different forces will ultimately get the Fed to be ‘behind the curve,’ i.e. inflationary pressures to increase; or if investors believe the stock market might experience another bear market, then gold may continue to be a worthy diversifier.

For those who believe that this will be a repeat of Reaganomics, we would like to caution that Reagan came into office when unemployment was much higher and with a most hawkish Federal Reserve Chair.

Finally, in addition to all of the above, the Fed continues to sit on a huge balance sheet; that balance sheet hasn’t been a problem with lackluster growth; but we see major challenges ahead for both stocks and bonds if indeed we get significant growth out of the Trump policies. We shall dive into these risks more in a future analysis.

We don’t have a crystal ball, but we believe in prudent risk management. As such, we encourage investors to assess the risks of certain scenarios unfolding. If we then add to that the fact that gold has a low correlation to bonds and equities, we believe investors may want to consider including gold in a prudent asset allocation.

Axel Merk

Merk Investments, Manager of the Merk Fund

This report was prepared by Merk Investments LLC, and reflects the current opinion of the authors. It is based upon sources and data believed to be accurate and reliable. Merk Investments LLC makes no representation regarding the advisability of investing in the products herein. Opinions and forward-looking statements expressed are subject to change without notice. This information does not constitute investment advice and is not intended as an endorsement of any specific investment. The information contained herein is general in nature and is provided solely for educational and informational purposes. The information provided does not constitute legal, financial or tax advice. You should obtain advice specific to your circumstances from your own legal, financial and tax advisors. Past performance is no guarantee of future results.

Correlation is a measure of how two securities or asset classes move in relation to each other.

Gold and silver stabilizing

Gold TodayNew York closed at $1,228.00 yesterday after the previous close of $1,218.20 London opened at $1,230.00 but then fell back from Shanghai prices even further.

    • The $: € was a stronger at $1.0699: €1 from $1.0773: €1 yesterday.
    • The Dollar index was a stronger at 100.43 from 99.72 yesterday.
    • The Yen was weaker at 109.69: $1 from yesterday’s 107.91 against the dollar.
    • The Yuan was weaker at 6.8741: $1 from 6.8556: $1 yesterday.

 

  • The Pound Sterling was weaker at $1.2437: £1 from yesterday’s $1.2493: £1.

 

Yuan Gold Fix

Trade Date Contract Benchmark Price AM 1 gm Benchmark Price PM 1 gm
     2016  11    16      

     2016  11    15

     2016  11    14

SHAU

SHAU

SHAU

274.11

272.33

269.11

274.03

272.48

269.50

$ equivalent 1 oz @ $1: 6.8741

$1: 6.8556

$1: 6.8450

$1,240.27

$1,235.55

$1,222.83

$1,239.91

$1,236.23

$1,224.60

Please note that the Shanghai Fixes are for 1 gm of gold. From the Middle Eat eastward metric measurements are used against 0.9999 quality gold. [Please note that the 0.5% difference in price can be accounted for by the higher quality of Shanghai’s gold on which their gold price is based over London’s ‘good delivery’ standard of 0.995.]

Shanghai is walking a different road to both London and New York as you can see. The gold quality differential is around $5, so we take that off London and New York prices to get a valid comparison. This leaves Shanghai trading $5 above London’s opening and this figure rose during the morning to move to $10 as Shanghai closed.  Just how far the differentials between New York and Shanghai go in the next few days will give us a clear indication of who’s leading who.

With the dollar now breaking through overhead resistance at 100 on the dollar index and the Yuan continuing to weaken, it is not surprising that Chinese investors are increasing demand as gold remains one of the most stable of investments. But of key concern to us is the point at which arbitrageurs smooth out the differences between the two markets.   Our forecast of the Yuan to reach 7: $1 by year’s end is on track, thus encouraging more demand for gold inside China.

In dollar terms the gold price in New York and London is relatively stable against the dollar and rising in all other currencies.

LBMA price setting:  The LBMA gold price setting was at $1,225.70 against yesterday’s $1,222.60. The gold price in the euro was set higher at €1,143.89 against yesterday’s €1,134.72.

Ahead of the opening of New York the gold price was trading at $1,223.50 and in the euro at €1,143.99.  At the same time, the silver price was trading at $16.95.

Silver Today –Silver rose to $17.07 at New York’s close yesterday from $16.85, the day before.  

Price Drivers

The dollar is powering ahead and above 100 on the dollar index. It is allowing the dollar price of gold to fall while the euro price of gold is rising. Gold is moving much higher in the Yuan and other world currencies so providing a haven against national currencies in the local markets.

The B.I.S. is warning that a strong dollar will bring global financial instability. But one of the driving forces behind the dollar is the near market certainty that there will be a rate hike in December. The ‘carry’ trade [borrowing dollars and lending into high interest rate currencies] is therefore retreating as any interest gains made to date are being eroded by weaker exchange rates and a higher cost dollar.  

The strong dollar is not gaining confidence outside the U.S. It is a technical ‘carry trade’ exercise that will stop in the short term.

Once again the financial media’s focus until the next FOMC meeting will be on the Fed.

India’s draconian money controls. – As a result of Finance Min[ster Arun Jaitley’s statement that India’s business community should prepare for cashless economy using checks, cards, payment gateways or digital transactions, is causing havoc not just at retail levels, but in most of India’s industries. Trading in cotton, for instance has virtually stopped as they wait for available cash to do business in, in what is a cash business. But this is not the first time that the Indian government has done this. In 1978 all notes above Rs.100 [today 66.80 Rupees = $1] were banned, but later re-issued.  

In an attempt to dispose of these notes from hands that had not disclosed that they were profits, people were buying gold at $2,250 an ounce with these notes since the removal of these notes from circulation.

Overall, this is an attempt by the government to impose a developed world monetary system on the country in less than one month. Such an imposition has been seen in the developed world and it succeeded, but in India we doubt that it will have success in achieving its aims. [We will discuss this in depth in the next issue of Gold Forecaster for subscribers!] –

Gold ETFs – There were sales of 1.483 tonnes of gold from the SPDR gold ETF and sales of 1.65 tonnes from the Gold Trust yesterday, leaving their respective holdings at 927.446 tonnes and 211.02 tonnes.

These sales of gold from the SPDR gold ETF and from the Gold Trust are slowing considerably and caused the gold price to begin recovering.

Since January 4th this year, 337.457 tonnes of gold has been added to the SPDR gold ETF and to the Gold Trust.

Silver – Silver is stabilizing around $17 in line with gold finding a bottom around $1,220. The selling pressure is easing on both metals ahead of a rally.

Julian D.W. Phillips

GoldForecaster.com | SilverForecaster.com | StockBridge Management Alliance

Gold steadying despite massive ETF sales

Gold TodayNew York closed at $1,218.20 yesterday after the previous close of $1,227.70 London opened at $1,226.00 but then rose in the morning in line with Shanghai prices.

    • The $: € was a weaker at $1.0773: €1 from $1.0737: €1 yesterday.
    • The Dollar index was a weaker at 99.72 from 100.03 yesterday.
    • The Yen was almost unchanged at 107.91: $1 from yesterday’s 107.94 against the dollar.
    • The Yuan was weaker at 6.8556: $1 from 6.8450: $1 yesterday.

 

  • The Pound Sterling was weaker at $1.2493: £1 from yesterday’s $1.2522: £1.

 

Yuan Gold Fix

Trade Date Contract Benchmark Price AM 1 gm Benchmark Price PM 1 gm
     2016  11    15      

     2016  11    14

     2016  11    11

SHAU

SHAU

SHAU

272.33

269.11

276.93

272.48

269.50

277.87

$ equivalent 1 oz @ $1: 6.8556

$1: 6.8450

$1: 6.8111

$1,235.55

$1,222.83

$1,292.86

$1,236.23

$1,224.60

$1,268.36

Please note that the Shanghai Fixes are for 1 gm of gold. From the Middle Eat eastward metric measurements are used against 0.9999 quality gold. [Please note that the 0.5% difference in price can be accounted for by the higher quality of Shanghai’s gold on which their gold price is based over London’s ‘good delivery’ standard of 0.995.]

Shanghai, as you can see above, feels that the fall has gone too far and lifted it $17 from New York’s close. London rose  in its morning to almost Shanghai levels rather than stayed low alongside New York. In the last day it is clear that pricing power today, has gone to Shanghai and away from New York. The large physical sales in New York did send the gold price down $120 in the last week but yesterday’s ETF sales [as you see below], which should have continued to push prices down did not and prices rose in the face of yesterday’s nearly 11 tonne sales. Yes, it is a time for a correction, but it is significant that Shanghai had sufficient control to set it in motion!

The dollar is seeing its run stronger weakening. It has been so strong that it was time for a correction before moving again. This is not to say it is going stronger or weaker as markets continue to move prices brutally. We at Gold Forecaster do expect it to be restrained by the U.S. Treasury as 100 on the dollar index is a step too far for the U.S. economy.

LBMA price setting:  The LBMA gold price setting was at $1,228.90 against yesterday’s $1,222.60. The gold price in the euro was set higher at €1,140.88 against yesterday’s €1,134.72.

Ahead of the opening of New York the gold price was trading at $1,226.00 and in the euro at €1,138.14.  At the same time, the silver price was trading at $16.98.

Silver Today –Silver rose to $16.85 at New York’s close yesterday

Price Drivers

When a market is as exuberant as we see currency, gold and silver markets at present, prices always fall too far or rise too high. We have seen that beautifully demonstrated in the last week. With China now taking gold higher we are looking to see just who follows who in the global gold markets. While a market then settles down, volatility rules prices. We expect that to continue, both ways.

India imposes draconian money controls. Finance Minster Arun Jaitley informed India’s business community that it should prepare for cashless economy using checks, cards, payment gateways or digital transactions.

In the developed world such a move would be considered extreme, particularly when imposed in the brutal fashion it has been in India. But in India, a cash society, such moves [making Rs.500 and Rs.1,000 notes not valid tender anymore] alongside inadequate preparations for their exchange has made the government across the country deeply unpopular.

We know of only one time when the government and financial system attacked its competition in this way. As an extension of this attack government bureaucrats are calling to account gold jewelers across the country in an attempt to curtail illegal gold trading as we mentioned yesterday. Rumors of a ban on gold imports into India are spreading. Overall, this is an attempt by the government to impose a developed world monetary system on the country. What next? [We will discuss this in depth in the next issue of Gold Forecaster for subscribers. It has significant ramifications for both institutions and individuals outside of government!]

Gold ETFs – There were sales of 5.634 tonnes of gold from the SPDR gold ETF and sales of 5.61 tonnes from the Gold Trust yesterday, leaving their respective holdings at 928.929 tonnes and 212.67tonnes.

These sales of gold from the SPDR gold ETF and continuing heavy sales from the Gold Trust are ongoing sellers who traded the gold price in the short to medium term. Funds that actively trade several times during the year are the main players moving gold in and out of these gold ETFs. Soros sold before the election, Drukenmiller just after and sellers since then are a similar crowd who could now have sold at the bottom? Paulson continues to hold his position.

They have now sold over 55 tonnes in the last week. But as you have no doubt noted, their impact on the gold price is lessening as gold is starting to hold lower price levels, despite the huge size of these daily sales. The amounts sold from the Gold Trust are particularly large in relative terms.

Inflows into SPDR gold ETF and Gold Trust have risen to a three-year high in the third quarter from January 4th this year, to close to 400 tonnes. Currently, this figure has now dropped back to 340.59 tonnes. We do expect these holdings to rise strongly as future intended inflation prospects will cause real interest rates to remain negative. Gold is far more popular now, as a hedge against inflation, which, when Trump solidifies his plans, will start to run strongly.

Silver – Repeat: Silver dropped heavily after retaining a stable level above $18 and then fell back to just below $17.00. We expect silver to continue to track gold perhaps falling more before gathering strength for a rebound.

Julian D.W. Phillips

GoldForecaster.com | SilverForecaster.com | StockBridge Management Alliance

Gold may be at best price to buy

Gold TodayNew York closed at $1,227.70 yesterday after the previous close of $1,256.80 London opened at $1,220.00.

    • The $: € was a stronger at $1.0737: €1 from $1.0909: €1 Friday.
    • The Dollar index was a much stronger at 100.03 from 98.64 Friday.
    • The Yen was weaker at 107.94: $1 from Friday’s 106.51 against the dollar.
    • The Yuan was weaker at 6.8450: $1 from 6.8141: $1 Friday.

 

  • The Pound Sterling was weaker at $1.2522: £1 from Friday’s $1.2577: £1.

 

Yuan Gold Fix

Trade Date Contract Benchmark Price AM 1 gm Benchmark Price PM 1 gm
     2016  11    14      

     2016  11    11

     2016  11    10

SHAU

SHAU

SHAU

269.11

276.93

282.29

269.50

277.87

288.63

$ equivalent 1 oz @ $1: 6.8450

$1: 6.8111

$1: 6.7913

$1,222.83

$1,292.86

$1,300.07

$1,224.60

$1,268.36

$1,327.15

Please note that the Shanghai Fixes are for 1 gm of gold. From the Middle Eat eastward metric measurements are used against 0.9999 quality gold. [Please note that the 0.5% difference in price can be accounted for by the higher quality of Shanghai’s gold on which their gold price is based over London’s ‘good delivery’ standard of 0.995.]

Shanghai took the gold price lower than at New York’s close and slightly lower than London’s opening of $1,222, when we take the different quality of gold price in Shanghai into account.

The strength of the dollar is remarkable as it hits close to its previous peak. The ‘carry trade’ is retreating back to the U.S., but will we see a continuation of the dollar bull market? We believe that we will see Treasury act to calm the market and bring the dollar down soon.

LBMA price setting:  The LBMA gold price setting was at $1,222.60 against Friday’s $1,255.65. The gold price in the euro was set higher at €1,134.72 against Friday’s €1,154.73.

Ahead of the opening of New York the gold price was trading at $1,223.60 and in the euro at €1,136.65.  At the same time, the silver price was trading at $17.21.

Silver Today –Silver rose to $17.35 at New York’s close Friday from $18.52, the day before.  Price Drivers

With the gold price and now the silver price continuing to fall today [gold down well over $100 on the week] because of heavy sales from the gold ETFs many are, we feel, misreading the consequences of Trump’s impact on the economy regarding gold. With 30-year Treasuries falling in price leaving yields at 3% the dollar continues to surge as carry trades are unwound. We see these moves as part of the initial exuberance after the election. But the question is, “Just how far will this exuberance go?” For gold, long-term investors may be looking at the best gold price they will see again. At the moment gold buyers are sidelined by the selling, which may continue for a short while.

The bond market is telling us that there is an 84% chance of a rate hike in December, but is that what Treasury and the Fed want? Such a rise in yields points to the expectation of a rise in inflation, which Trump has made clear, is most likely. Massive tax cutting alongside major borrowing plans to finance infrastructural renovation cannot avoid a significant jump in inflation. Real interest rates will not overtake inflation leaving a very gold and silver positive environment!

But the digestion of Trump’s policies will have to continue before markets finalize their take on the future. Meanwhile expect volatility to continue and likely both ways.

India attacks “Black Money”. In a concerted campaign by the government an attack on the alternative, secret, financial system has been launched on both gold and banknotes. After withdrawing Rs500 and Rs.1,000 banknotes it turned to the gold markets and jewelers to force an accounting of their gold stocks and track buyers via their PAN details.

In a country where even gold imports were banned previously and circumvented by smugglers, such an attack on the cash society of India has to include forcing the population to use banks, credit cards and checks. Indian culture has a long history of opposing government and accurate reporting of business turnovers, so such an attack by a corrupt government/ bureaucracy and being forced into using banks, goes against the very grain of Indian society. Nothing could encourage smuggling more. It will simply lead to more sophisticated methods of handling the “Black Money” system. We expect ‘official’ figures on gold imports and internal demand to drop substantially, as both will go deeper underground. But the reality is the gold’s demand will jump as smuggled gold provides an underground financial system a boost against government actions.

Gold ETFs – There were sales of 7.118 tonnes of gold from the SPDR gold ETF and sales of 6.70 tonnes from the Gold Trust Friday, leaving their respective holdings at 934.563 tonnes and 218.28 tonnes.

These sales of gold from the SPDR gold ETF and now heavy sales from the Gold Trust are sellers following the lead of Druckenmiller. These were not long-term holders but short to medium term profit seekers. Once they have stopped selling, we expect gold ETF holdings to stabilize. This will bring these sellers back to the gold market and the number of long-term [wealth securing] investors will expand significantly.

Since January 4th this year, the holdings of these two gold ETFs have risen by 351.834 tonnes.

Silver – Silver dropped heavily after retaining a stable level above $18 and then fell back to the lower $17.00 area. We expect silver to continue to track gold either falling more before gathering strength for a rebound.

Julian D.W. Phillips

GoldForecaster.com | SilverForecaster.com | StockBridge Management Alliance

Gold and the markets: Volatile, Volatile, Volatile

Gold TodayNew York closed at $1,274.50 yesterday after the previous close of $1,275.60 London opened at $1,278.00.

    • The $: € was very strong at $1.0940: €1 from $1.1240: €1 yesterday.
    • The Dollar index was much stronger at 98.45 from 96.36 yesterday.
    • The Yen was much weaker at 105.40: $1 from yesterday’s 102.38 against the dollar.
    • The Yuan was much weaker at 6.7909: $1 from 6.7644: $1 yesterday.

 

  • The Pound Sterling was weaker at $1.2408: £1 from yesterday’s $1.2488: £1.

 

Yuan Gold Fix

Trade Date Contract Benchmark Price AM 1 gm Benchmark Price PM 1 gm
     2016  11    10      

     2016  10    9

     2016  10    8

SHAU

SHAU

SHAU

282.29

282.74

280.73

/

288.63

/

$ equivalent 1 oz @ $1: 6.7913

$1: 6.7644

$1: 6.7785

$1,292.86

$1,300.07

$1,288.14

/

$1,327.15

/

Please note that the Shanghai Fixes are for 1 gm of gold. From the Middle Eat eastward metric measurements are used against 0.9999 quality gold. [Please note that the 0.5% difference in price can be accounted for by the higher quality of Shanghai’s gold on which their gold price is based over London’s ‘good delivery’ standard of 0.995.]

Shanghai pulled gold prices back but not to the level seen at New York’s close. The exuberance of yesterday’s action quickly subsided [a fall of $35] and gave way to a more sober market.

Pricing power has not shown where it lies yet as the disparity remains at $13, allowing for the differences in the quality of gold priced in the two markets.

The dollar is surging and before New York opened the Dollar index rose to 99.06. Will it be allowed to rise further?

LBMA price setting:  The LBMA gold price setting was at $1,280.90 against yesterday’s $1,304.55. The gold price in the euro was set higher at €1,175.14 against yesterday’s €1,174.74.

Ahead of the opening of New York the gold price was trading at $1,278.75 and in the euro at €1,175.05.  At the same time, the silver price was trading at $18.63.

Silver Today –Silver rose to $18.40 at New York’s close yesterday from $18.34, the day before.  

Price Drivers

Volatility is what we saw in all global markets. We doubt the volume of trading in physical gold was that much, but dealers and speculators showed their confusion taking gold and silver prices very high at first only to pull them back to their lows later in the day. But as always these gentlemen are ‘full of sound and fury and signify nothing’. It certainly was no place for widows and orphans. As we can all see, the emotional content of all global financial markets was huge, sowing confusion all around. But as the shock or awe subside, the fog will clear and a trend established.

What may sow further confusion is the present media attitude, ‘it’s not as bad as it seems, after all Trump won’t stick to his election promises’. But then the huge media input on the subject of the elections showed a definite bias which turned out to be manifestly wrong. We have expressed our views on what to expect from President Trump and how it will affect gold and silver in the latest issue of the Gold Forecaster.

The physical demand and supply of gold in the U.S. showed the same confusion, but, netted out, physical demand was solid.   

The U.S. should see a huge infrastructural program going forward that will boost economic growth and dollar debt levels. But we cannot foresee a strong dollar longer term, unless ‘protectionist’ policies are imposed. Otherwise the U. S Economy will be hurt badly. This is positive for gold.

Gold ETFs – There were purchases 5.338 tonnes of gold into the SPDR gold ETF and sales of 3 tonnes from the Gold Trust yesterday, leaving their respective holdings at 955.026 tonnes and 227.99 tonnes.  

Since January 4th this year, the holdings of these two gold ETFs have risen by 382.007 tonnes.

As we forecast yesterday the action picked up in the U.S. based gold ETFs, but in a confused manner with big sales and big purchases. It may take the rest of the week before we see a clear trend emerge.

Silver – Silver did move better than gold overall rising when gold fell. The picture should clear this week.

Hillary Trumped – What Now For Gold?

For the second time in four months I’ve woken up in the morning to a hugely unexpected political vote outcome.  First there was the Brexit referendum where the result confounded the opinion polls and now there is the U.S. Presidential election where the polls strongly predicted a comfortable victory for Hillary Clinton, but were overturned in reality by a definitely unanticipated victory for Donald Trump.  Market reaction was negative with all major stock indices turning downwards sharply.  Initially the gold price soared to the high $1,330s led by the Shanghai afternoon ‘fix’ as a Trump victory looked to be on the cards but once the Trump victory was assured, gold was somewhat unexpectedly marked down in Europe to comfortably below the $1,300 level.  At the time of writing it’s back in the $1,270s!

In reality I should not have been overly surprised by either the Brexit vote, or the Trump victory as I had cautioned against the possibility of both occurring.  Regardiing  Brexit I was conscious of a strong underswell of anti-EU feeling and worries about uncontrolled immigration from EU states now that the European comnglomeration had been expanded to incorporate a number of poorer European nations bringing together an unholy alliance of the working class, worried about job security and pressure on education and health facilities which might result from unfettered immigrant inflows, and the right wing establishment, more worried about loss of sovereignty to overriding EU institutions and legislation.  I thus suggested the British investors should buy gold as insurance against a possible Brexit vote.  Those who did so were, in the event, well rewarded, at least in pound sterling terms.

As for the U.S. Presidential election I also suggested that a Clinton victory was not a foregone conclusion.  At the time I analysed the projected voting breakdowns for all the states as they appeared to be trending at the time and concluded that at that time, and with the data I had, it would only take one state with a signifcant electoral college vote – notably Florida – to be captured by Trump to swing the final result in his direction.  In the event, of course, Trump not only won Florida, but a number of other battleground states as well.

So what of gold?  The big surge once it became clear that Trump was likely to win given his assumed unpredictability, was hardly unexpected.  But the yellow metal’s subsequent $60 drop back will have been a surprise.  Maybe it was a case of the big money, which is capable of manipulating the futures markets, having too much to lose from a significantly higher gold price. A guide to what happens next may come from Shanghai overnight with its price settings.  Most of the world sees Trump as a potentially loose cannon and uncertainty so engendered should be gold positive.  We thus see some volatility in precious metals prices ahead, but as a physical gold market we suspect that Shanghai will ultimately call the tune relegating the COMEX gold futures market and the London markets to subsidiary roles although this may yet take some time to play out.

Article first published on Nov 9th on info.sharpspixley.com

Lawrie Health Update

Hospital stays are not really conducive to writing analytical articles which is why lawrieongold has not carried any original articled from yours truly for the past few weeks.  My apologies, but am likely to remain in hospital for the next two weeks at least as I recover from a stroke which has left me unable to walk without assistance, and what is even more frustrating an inability to swallow so I’m being fed through a tube to the stomach via my nose.  Muscular co-ordination isn’t great either, which makes typing a bit problematic.  I have managed to write an article for sharpspixley,com looking at the aftermath of the Trump election win  and its likely effect on gold and that is included in full as a separate article on the site.  Meanwhile I will continue to publish articles from some commentators who submit material to me in order to keep readers up with is going on in the markets.  Hopefully I’ll be back in full swing  by the end of the year, but progress is frustratingly slow.

Gold’s Trump card. Price soars then stutters

Gold TodayNew York closed at $1,275.60 yesterday after the previous close of $1,281.50 London opened at $1,302.00.

    • The $: € was very weak at $1.1240: €1 from $1.1043: €1 yesterday.
    • The Dollar index was weaker at 96.36 from 97.76 yesterday.
    • The Yen was stronger at 102.38: $1 from yesterday’s 104.45 against the dollar.
    • The Yuan was stronger at 6.7644: $1 from 6.7785: $1 yesterday.

 

  • The Pound Sterling was stronger at $1.2488: £1 from yesterday’s $1.2390 £1.

 

Yuan Gold Fix

Trade Date Contract Benchmark Price AM 1 gm Benchmark Price PM 1 gm
     2016  11    9      

     2016  10    8

     2016  10    7

SHAU

SHAU

SHAU

282.74

280.73

282.27

288.63

/

281.99

$ equivalent 1 oz @ $1: 6.7644

$1: 6.7785

$1: 6.7745

$1,300.07

$1,288.14

$1,295.97

$1,327.15

/

$1,294.69

Please note that the Shanghai Fixes are for 1 gm of gold. From the Middle Eat eastward metric measurements are used against 0.9999 quality gold. [Please note that the 0.5% difference in price can be accounted for by the higher quality of Shanghai’s gold on which their gold price is based over London’s ‘good delivery’ standard of 0.995.]

Shanghai was watching New York very carefully, but not COMEX, but the campaign headquarters of both sides. The complete surprise with which Trump’s Presidency sprang on the globe is reflected in the change in gold Fixings in Shanghai from a.m. to p.m. as you see above. London pulled back the gold price but we wait until tomorrow to see if Shanghai holds these higher levels or not. This will give an indication of where pricing power lies.

Across the board the dollar is weaker today as a Trump Presidency arrives, much to everyone’s surprise [including his!]. The PB o C was also caught off-guard as the Yuan strengthened against all currencies. We expect the Yuan’s fall will accelerate now to compensate for this, in the next few days.

LBMA price setting:  The LBMA gold price setting was at $1,304.55 against yesterday’s $1,284.00. The gold price in the euro was set higher at €1,174.74 against yesterday’s €1,162.41.

Ahead of the opening of New York the gold price was trading at $1,306.35 and in the euro at €1,176.31.  At the same time, the silver price was trading at $18.77.

Silver Today –The silver price fell to $18.34 at New York’s close yesterday from $18.22, Thursday.  

Price Drivers

The U.S. now knows that ‘Brexit’ feeling and then some! As you can see above, gold and silver will be direct beneficiaries. But here we are not just talking about a rise in prices, but a change in concept for gold, as we see global monetary turbulence, uncertainty and substantial changes to the status quo we have had for nearly a decade.

We see this as accelerating the progress of gold as a monetary asset to a pivotal position in the multi-currency system. We also foresee a move by central banks to either grip onto what they have or to acquire more gold for their reserves. The time that it will central banks will want to take gold from investors, particularly the major holders of gold [including dealers] is advancing fast now.

Gold ETFs – There were no purchases or sales of gold into or from the SPDR gold ETF or the Gold Trust Friday, leaving their respective holdings at 949.688 tonnes and 230.99 tonnes.  

Since January 4th this year, the holdings of these two gold ETFs have risen by 379.669 tonnes.

Now that the U.S. has a President Trump we expect action in the gold ETFs as well as in the broader gold and silver markets.

Silver – Silver should move further than gold today, upwards!

Julian D.W. Phillips

GoldForecaster.com | SilverForecaster.com | StockBridge Management Alliance

Gold price waiting on election results

Gold TodayNew York closed at $1,281.50 yesterday after the previous close of $1,304.20 London opened at $1,284.00.

    • The $: € was stronger at $1.1043: €1 from $1.1073: €1 yesterday.
    • The Dollar index was slightly stronger at 97.76 from 97.54 yesterday.
    • The Yen was unchanged at 104.45: $1 from yesterday’s 104.46 against the dollar.
    • The Yuan was weaker at 6.7785: $1 from 6.7745: $1 yesterday.

 

  • The Pound Sterling was weaker at $1.2390: £1 from yesterday’s $1.2446 £1.

 

Yuan Gold Fix

Trade Date Contract Benchmark Price AM 1 gm Benchmark Price PM 1 gm
     2016  11    8      

     2016  10    7

     2016  10    4

SHAU

SHAU

SHAU

280.73

282.27

283.64

/

281.99

283.00

$ equivalent 1 oz @ $1: 6.7785

$1: 6.7745

$1: 6.7619

$1,288.14

$1,295.97

$1,304.69

/

$1,294.69

$1,301.75

Please note that the Shanghai Fixes are for 1 gm of gold. From the Middle Eat eastward metric measurements are used against 0.9999 quality gold. [Please note that the 0.5% difference in price can be accounted for by the higher quality of Shanghai’s gold on which their gold price is based over London’s ‘good delivery’ standard of 0.995.]

Shanghai closed in line with other world gold markets today. No p.m. Fixing was given. The Yuan continues to weaken and will continue doing so. Ironically, its fall is being tempered by the People’s Bank of China which is selling dollars to ensure the fall is not ‘brutal’ and stem accusations of manipulation.

LBMA price setting:  The LBMA gold price setting was at $1,284.00 against yesterday’s $1,286.80. The gold price in the euro was set higher at €1,162.41 against yesterday’s €1,162.95.

Ahead of the opening of New York the gold price was trading at $1,284.20 and in the euro at €1,162.49.  At the same time, the silver price was trading at $18.34.

Silver Today –The silver price fell to $18.22 at New York’s close yesterday from $18.39, Thursday.  

Price Drivers

Global financial markets are on hold until we hear the results of the U.S. Presidential election tomorrow. As we saw earlier in the last week, when Mrs. Clinton looked to be in trouble with the FBI, gold rose, discounting a Trump victory, but when exonerated, the gold price pulled back as a Clinton victory was discounted. At current levels a Clinton victory remains discounted in all world markets. The amount by which it is being discounted is not that large, so don’t expect major dramas unless Trump wins, which appears only likely if the desire for change brings out voters who don’t usually vote. The world waits, braced! The gold and silver markets are no place for widows and orphans right now!

Meanwhile we are hearing that in India demand is down heavily. We find that hard to believe as Indians have no qualms in buying smuggled gold to avoid the taxes on gold now and likely in the future. The latest suggestions imply that bureaucrats will attempt to pry open the black market in gold, which as decades ago, failed. All that has happened is that smuggling has become institutionalized. We believe that Indian gold demand is strong.

In China, while the disclosed figures point to a 28% fall in demand as stated by Shanghai withdrawals demand levels annualized point to over 2,000 tonnes with up to 520 tonnes being mined locally. Bear in mind exports of gold are not permitted from China. Overall the numbers remain opaque as the SGE can hold gold by itself and these figures are not reported. Likewise the People’s Bank of China can hold gold in its agencies for its reserves without disclosing these figures.

Gold ETFs – There were no purchases or sales of gold into or from the SPDR gold ETF or the Gold Trust Friday, leaving their respective holdings at 949.688 tonnes and 230.99 tonnes.  

Since January 4th this year, the holdings of these two gold ETFs have risen by 379.669 tonnes. This reflects the wait and see attitude of investors.

Silver – Silver should move further than gold after the results are announced, either way!

Julian D.W. Phillips

GoldForecaster.com | SilverForecaster.com | StockBridge Management Alliance

Gold price retreat as Clinton victory looms

Gold TodayNew York closed at $1,304.20 Friday after the previous close of $1,302.90 London opened at $1,288.00.

    • The $: € was slightly weaker at $1.1073: €1 from $1.1099: €1 Friday.
    • The Dollar index was slightly stronger at 97.54 from 97.26 Friday.
    • The Yen was weaker at 104.46: $1 from Friday’s 103.29 against the dollar.
    • The Yuan was weaker at 6.7745: $1 from 6.7619: $1 Friday.

 

  • The Pound Sterling was weaker at $1.2446: £1 from Friday’s $1.2457 £1.

 

Yuan Gold Fix

Trade Date Contract Benchmark Price AM 1 gm Benchmark Price PM 1 gm
     2016  11    7      

     2016  10    4

     2016  10    3

SHAU

SHAU

SHAU

282.27

283.64

283.42

281.99

283.00

283.75

$ equivalent 1 oz @ $1: 6.7745

$1: 6.7619

$1: 6.7626

$1,295.97

$1,304.69

$1,304.24

$1,294.69

$1,301.75

$1,305.72

Please note that the Shanghai Fixes are for 1 gm of gold. From the Middle Eat eastward metric measurements are used against 0.9999 quality gold. [Please note that the 0.5% difference in price can be accounted for by the higher quality of Shanghai’s gold on which their gold price is based over London’s ‘good delivery’ standard of 0.995.]

Shanghai closed lower than New York and London moved in line with Shanghai to take the gold price lower than the close in New York. London followed through on the back of Shanghai well before London’s opening [after market dealings, without the benefit of all the players, makes such prices volatile and unreliable].

The dollar has strengthened slightly on the back of Mrs. Clinton’s e-mails being found not criminal.

LBMA price setting:  The LBMA gold price setting was at $1,286.80 against Friday’s $1,301.70. The gold price in the euro was set higher at €1,162.95 against Friday’s €1,172.70.

Ahead of the opening of New York the gold price was trading at $1,288.30 and in the euro at €1,164.72.  At the same time, the silver price was trading at $18.17.

Silver Today –The silver price rose to $18.39 at New York’s close Friday from $18.34, Thursday.  

Price Drivers

We see the price changes after Shanghai’s close as being dealers marking prices down without much physical dealing going on. The strength of the dollar today before London opened was seen as the reason gold prices were lowered. And the strong dollar was attributed to the conclusion that Mrs. Clinton is going to be the next U.S. President. In two days time we should know! Of course, if Trump wins, the action last Friday confirms that the gold price will sprint higher taking silver with it.

With over 41 million votes already cast before the FBI’s exoneration of Mrs Clinton we don’t know if this will change voters’ minds sufficiently to give the Democrats a win?

For the gold community a Clinton win emasculates the U.S. government as it has done for so long already preventing all the measure possible being taken to enable a convincing U.S. economic recovery. i.e. more of the same for the next four years. The gold price will continue to climb slowly until the next financial crisis which is sitting on the horizon already.

A Trump victory empowers the Republicans to get the job done Trump’s way. To gold this means the price will rise strongly from now on and the government in Washington being shaken up from the top as a demagogue takes power. It will stay on the uptrend and see the monetary world badly shaken and changed drastically in the near future.

China will bring major changes about in pricing power as we are seeing start today as Shanghai dominates the gold price.

Gold ETFs – There were no purchases or sales of gold into or from the SPDR gold ETF or the Gold Trust Friday, leaving their respective holdings at 949.688 tonnes and 230.99 tonnes.  

Since January 4th this year, the holdings of these two gold ETFs have risen by 379.669 tonnes.

Silver – Silver continues to pause, waiting for gold to break resistance around $1,320 and higher.

Julian D.W. Phillips

GoldForecaster.com | SilverForecaster.com | StockBridge Management Alliance