Julian Phillips’ latest market commentary on gold and silver
New York closed yesterday at $1,230.40 down $3.40 as the euro continued slipping. In Asia the gold price slipped to $1,227.30 down $11.10 with the euro at $1.1790 ahead of London’s opening. The Fix saw the gold price set at $1,228.75 down $10.25 and in the euro, at €1,044.989 down €4.922 while the euro was half a cent weaker at $1.1758. Ahead of New York’s opening gold was trading in London at $1,229.20 and in the euro at €1,045.77.
The silver price closed at $17.01 up 44 cents. Ahead of New York’s opening it was trading at $16.70.
There were no purchases or sales of gold into or from the SPDR gold ETF or the Gold Trust yesterday. The holdings of the SPDR gold ETF are at 707.821 and at 162.62 tonnes in the Gold Trust.
The Technical picture on gold remains positive despite this morning’s drop into the $1,220s. The euro continues to fall and may well have some way to fall still. With no physical sales in the gold ETFs in the U.S. the pullback appears to be more of an arbitrage action to smooth out prices globally in the gold market. In the past traders and speculators would use the euro’s rate against the dollar as the measure of gold. But as you have seen the gold price rise so strongly in the euro, this link has broken down. Gold’s rise in the dollar, as good economic reports out of the U.S. continue, also weakens the theory that gold will fall if the U.S. economy is strong.
We feel it important to readers to understand the inefficiencies of markets in today’s financial world. In most commodity markets as well as precious metals, it is the marginal supply or demand that dominates prices as the bulk of sales between supply and demand are contracted, with only reference to the market price, at the time of delivery. Hence speculators and traders often have a disproportionate impact on prices.
In the oil market Saudi Arabia has decided to lower its prices on its supplies. This movement into the price, albeit within the contract, removed the pricing power from marginal supply and demand and overwhelmed it. It doesn’t matter that OPEC only supplies 30% of the market. When they move prices all other suppliers have to do so. It is this pricing power that dominates prices.
Of importance to the structure, not only to the gold market, but to the global monetary system is the testing by Russia of its competitor to the SWIFT system of clearing in Belgium which accommodates a very large proportion of the world’s cash flow. It appears that this new system will take Russia out of the developed world’s money clearing so alleviating financial pressures on Russia. Together with the support of China financially, we may see the pressure on the Ruble ease considerably.
What it does imply is that dollar hegemony is being weakened further. This enhances gold’s role in the future.
The silver price continues to run much as forecast.