Will gold fix in yuan take over from London?

Julian Phillips’ latest gold and silver market commentary and what he sees as the main market drivers with Indian imports running at high levels

New York closed at $1,188.80 on Monday. Asia held it there and so did London. The LBMA Gold price was set at $1,187.40 up $8.40 on Friday. The euro equivalent stood at €1,070.69 up €23.62 while the dollar was stronger at $1.1090 up from $1.1260 against the euro. Ahead of New York’s opening, gold was trading higher in London at $1,187.60 and in the euro at €1,069.09.

The silver price closed at $16.42 up 26 cents on Friday’s level. Ahead of New York’s opening it was trading at $16.40.

Yesterday saw very little gold trading done in New York with London closed for the Bank Holiday. The dollar is rising today with the dollar index at 95.80 up from 94.64 yesterday as did the dollar at $1.1084 from Friday’s $1.1269. There were purchases of gold into the SPDR gold E.T.F. of 2.389 tonnes on Friday but none yesterday and none from or into the Gold Trust on Friday or Monday. The holdings of the SPDR gold ETF are at 741.750 tonnes and at 165.58 tonnes in the Gold Trust.

With the dollar’s correction now seemingly over, we expect to see it rise against all currencies again. This time it is possible to see the dollar reach $1: €1. But other currencies such as the Yen may fall further against the dollar.

Indian imports of gold in the first quarter of the year has been reported as up by 19.5% for the 2014-15 year, according to the Reserve Bank of India. Bullion imports rose to $34.32 billion for the 2015 year ending in March, up from $28.7 billion imported in the fiscal 2014. This is roughly 900 tonnes in the last year against roughly 750 tonnes in the previous year. Please note that these figures exclude smuggled gold, which could be 250 tonnes +.

The rise in imports is moving faster now as confirmed by the Commerce Ministry, which reported imports nearly doubling in March to $4.98 billion or roughly 130 tonnes. The implication of this figure, if imports continue to rise throughout the year at this pace, could lead to imports hitting 1,200 tonnes, excluding smuggled gold. While duties of 10% persist, smuggled gold will continue to pour in, particularly if the developed world markets hold prices around the $1,200 level.

Taking Chinese demand at the level we saw last year together with Indian demand, we see a figure way above total newly mined production levels. Add all Asian demand and Middle Eastern demand and we see them taking all available gold in the markets if prices remain down.

This adds a large question mark over using the LBMA Gold price as a reference price for gold contracts. Later in the year we will see a Yuan Gold Fix. If that comes in at a higher level, when translated into dollars, we wonder if the Yuan gold Fix will be used as the reference price for contracts?

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

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