China demand confuses gold price picture

Asian demand seems to be setting support at a little below $1200 for the gold price currently, while a potential Greek default waits in the wings.  Julian Phillips’ latest thoughts on the gold and silver markets and price drivers.

New York closed at $1,192.50 down $7.20 on Tuesday in NY. Asia held it there with London taking it to $1,190 ahead of the LBMA Gold Price. The LBMA Gold price was set at $1,189.85 down $1.60 on Tuesday’s level. The euro equivalent stood at €1,123.67 down €4.01 against a better $: € rate of $1.0595. Ahead of New York’s opening, gold was trading higher in London at $1,191.45 and in the euro at €1,123.90.

The silver price closed at $16.20 down 10 cents on Tuesday. Ahead of New York’s opening it had fell faster than gold and was trading at $16.15.

The moves we are seeing in the gold price are typical of a consolidation phase with the current price sitting on support, at the moment. Asian demand comes in when prices are below $1,200 but developed world demand tends to run away if the Technical picture points lower. It is this pattern that may confuse developed world investors, as they believe more falls are coming but then Asian demand kicks in. So it becomes far more difficult to forecast prices in the current market than ever before.

China further confuses the picture because underlying any price patterns is this persistent demand for gold coming in from investors who, for the first time are able to purchase gold for security. They are not so price sensitive. Second time buyers become more so but nowhere near the extent that developed world investors are.  We expect more consolidation still. The dollar index is holding at 99.27 and the euro at $1.0581 so far today.

With the E.C.B.’ Draghi speaking today we expect the euro to decline further and the dollar index to rise more in the near future.

Greece appears to be sitting back and waiting for the inevitable. It is clear that they have run out of money and are now waiting for the E.U. to give them more funds. We are astounded that Greece has taken the step of threatening to default and like others feel that this could be just a ploy. With no back-up plan [and we believe that Greece does have one] a bankrupt Greece will leave the E.U. and euro and embrace capital and exchange controls in the next month or so. Brace yourselves for volatile currency markets then. Gold is a currency, cash and an asset, so will benefits from these fundamental currency disturbances.

There were purchases of 1.791 tonnes yesterday after a purchase of 1.754 tonnes of gold on Friday showing that there is now two-way traffic in the SPDR gold E.T.F. There were no changes in the Gold Trust in the last two business days. The holdings of the SPDR gold ETF are at 736.081 tonnes and at 165.28 tonnes in the Gold Trust.

Julian D.W. Phillips for the Gold & Silver Forecasters – www.goldforecaster.com and www.silverforecaster.com

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