Julian Phillips’ latest take on the gold and silver markets and their key drivers.
New York closed at $1,203.20 down $7.10 on Wednesday. Asia dropped it to $1,195 then London started to lift it. The LBMA Gold price was set at $1,196.00 down $15.10 on yesterday’s level. The euro equivalent stood at €1,114.37 up €0.66. Ahead of New York’s opening, gold was trading higher in London at $1,200.00 again and in the euro at €1,114.36.
The silver price closed at $16.52 down 36 cents yesterday. Ahead of New York’s opening it was trading at $16.33. The silver price is very sensitive to downward moves in gold now and strongly leads the way down.
The gold price was moved against the dollar alone, having risen slightly in the euro. The dollar continues to strengthen at $1.0750 against the Euro up from $1.0905 last week and on the dollar index to 98.36 up from 97.24 last week.
We note that the Fed minutes said that Fed officials didn’t need to see an increase in core price inflation or wage inflation before hiking rates. Further improvement in the labor markets, stabilization of energy prices or a leveling out of the value of the dollar might be enough to move rates.
We are impressed that the Fed now factors in currency values. It shows a global perspective and the vulnerability of the U.S. to events outside their shores. We have seen gold prices being moved by local U.S. factors alone and expect this to continue until global arbitrage operations in the gold market make its price considerably more efficient than it is today. With major currency/global monetary events set to start this year considerably more focus will be seen inside the U.S. on external factors from now on. We see these as gold positive.
There were no sales or purchases from or to the SPDR gold ETF or the Gold Trust yesterday. The holdings of the SPDR gold ETF are at 733.059 tonnes and at 165.28 tonnes in the Gold Trust.
Gold demand remains solid from India in particular and China.
The need in China is for an efficient arbitrage system where Chinese demand can quickly absorb gold sales in New York and London. The same can be said of India, but premiums on gold prices persist in both countries. In India, the government’s continued imposition of duties prevents this, as duties widen the spreads to the extent it is not feasible to arbitrage. In China where premiums today are low, we do expect to see, in 2015/16, such arbitrage operations set up where the large gold banks use a pool of gold to prevent any delivery delay from the import process. This will eliminate the premiums and better reflect global demand and supply balances in daily gold prices.