Julian Phillips’ latest analysis of the gold and silver markets and their key drivers.
The key news of yesterday was the drop in U.S. GDP growth to 0.2% in the first quarter. More importantly the data coming out of the U.S. is for a continued slowdown with it possibly worsening. With no weather constraints now, the current quarter is crucial to what the Fed will do in the future. It has made it clear in the past that its actions are data driven so speculation as to whether a rate rise will happen in June, September or even later, appears pointless as future data will make that decision.
If the U.S. is slowing you can be sure the Eurozone is too, with the prospect of a recession there starting again. It is possible that, as different economic flows converge, we could see a very different global scene in the second half of the year to the one we are seeing now. How will that affect gold? One of the main flows that will directly affect gold this year is the continued path to a truly global gold market alongside the move of the Yuan to center stage in the global monetary system, while economic weakness returns. We see this to the detriment of the dollar. We know that the U.S. could use a much weaker dollar now, but China too, would like to see a steady to weak Yuan going forward. In this climate the environment for gold is distinctly positive.
Just remember that we have had 7 years of quantitative easing in the U.S. and now see it at massive levels in Japan and the Eurozone. If growth falters, questions about the abilities of governments to control growth jump up! That is gold positive!
New York gold closed at $1,204.00 down $8.20 on Wednesday. Asia saw it hold there and London took it up a dollar. The LBMA Gold price was set at $1,204.30 down only 50 cents. The euro equivalent stood at €1,076.13 down almost €20 while the dollar was weaker at $1.1192 down from $1.0993 against the euro. Ahead of New York’s opening, gold was trading in London at $1,203.40 and in the euro at €1,075.81.
The silver price closed at $16.53 down 8 cents on Wednesday. Ahead of New York’s opening it was trading at $16.57.
The dollar index fell, again, this morning to 94.61 from 95.89 yesterday with the dollar continuing to lurch lower against the Euro from $1.1008 to $1.1212 today. The fall of gold in the Euro is extraordinary and may spur arbitrageurs to lift the gold price in the Euro soon. The question this poses is, “Is gold priced in the dollar or the euro?” So now a weak dollar means a weak gold price?
There were no sales or purchases of gold from the SPDR gold E.T.F. or from or into the Gold Trust on Wednesday. The holdings of the SPDR gold ETF are at 739.065 tonnes and at 165.58 tonnes in the Gold Trust.