Julian Phillips’ latest outlook on global gold and silver markets and the factors driving them
New York closed at yesterday $1,174.40 down $3.20. Asia took it up $3 but London sent it back to New York’s closing level. The dollar was stronger at $1.1170 down 0.31 of a cent and the dollar Index was higher at 95.44 up from 95.20. The gold price was set this morning at $1,174.60 down $1.15. The euro equivalent was €1,051.57 down €1.89. Ahead of New York’s opening, gold was trading in London at $1,173.45 and in the euro at €1,048.00.
The silver price rose to $15.90 up 7 cents in New York. Ahead of New York’s opening it was trading at $15.80.
China’s Industrial and Commercial Bank of China (ICBC) is interested in participating in the London gold price benchmarking process, the bank said during the LBMA bullion market forum. We believe that if they do we will see more Chinese banks joining. To what end? At the moment the Chinese banks are buying straight out of the Shanghai Gold Exchange which according to government there is an accurate reflection of total Chinese gold imports.
By joining the LBMA gold setting process China will find an alternative source of supply of physical gold, often at better prices than they can in China. Their operations will include arbitrage operations which will remove price disparities between the two markets. For instance, should a speculator short physical gold in London he may find his counterparty from China wants delivery. So to cover his position he may have to pay up for that gold to get it. We may see a considerable decline in such activity as a result as it will sap the liquidity of the London [and likely the New York] market. The gold price will then become a more accurate measure of demand and supply and give China a much bigger level of influence over the gold price.
The gold price in the last few days has been driven by speculative interests in a thin market. As we have said before, we do not see the Greek crisis, flip-flopping from expected deal to no expectations of a deal as presently influencing the price, but by speculators trying to drive the gold price up or down in a thin market where prices are more easily influence by smaller deals. Only when a substantive factor comes into the market will we see solid moves in the gold and silver prices.
There were purchases of 0.895 of a tonne into the SPDR but none into the Gold Trust on Wednesday. The holdings of the SPDR gold ETF are at 705.475 tonnes and at 167.79 tonnes in the Gold Trust.
Silver may show more resilience than gold, now.