Second day of big SPDR gold ETF purchases – back over 700 tonnes

New York closed with the gold price at $$1,182.90 down from $1,187.90 yesterday. In Asia this morning gold pulled back to $1,177.50 ahead of London’s opening. London held it around that level before the LBMA price setting fixed it at $1,176.00 down $7.00. The dollar Index was stronger at 94.61 up from 94.04 and the dollar was trading against the euro at $1.1354 up from $1.1441. In the euro the fixing was €1,035.85 up from €1,034.31.  Ahead of New York’s opening gold was trading at $1,181.20 and in the euro at €1,040.52.  

The silver price closed at $16.13 down 3 cents over Wednesday’s close. Ahead of New York’s opening, silver was trading at $16.02.

Price Drivers

The fall, after hours or in Asia, while a normal part of price fluctuations, emphasizes that these markets are inefficient. But that has been the case for a long time. We do not have a global gold price reflecting the balance of demand and supply. What we do have is a gold price that reflects COMEX’s opinion of where the gold price should be. This does not reflect global demand and supply of the physical gold market.

Today, with the dollar recovering a tad, dealers marked prices down to reflect the slip in the euro against the dollar. But this is a very short term reaction, for the dollar, in our opinion, will not be allowed to get much stronger. This will contain gold price moves, based on currency exchange rates.

The reason for the fall, this morning, is the rise in the U.S. dollar which has pulled back from $1.1441 to $1.1390 before London opened. Dealers decide whether the gold price should reflect the euro’s performance against the dollar or the dollar’s performance against the euro. Tomorrow it may change.

On the U.S. physical side, we again saw large purchases into the SPDR gold ETF of 5.063 tonnes but none into the Gold Trust. This is the second day of large purchases by U.S. investors on the back of a much better Technical position. The holdings of the SPDR gold ETF are at 700.002 tonnes and 161.75 tonnes in the Gold Trust.

Gold has broken upwards for sure and is approaching overhead resistance. But this may prove less of a hurdle than appears at first sight. The data out of the States is proving disappointing with Manufacturing likely to show that, that sector may have started contracting. This is a key reason why the Treasury does not want to see a stronger dollar.

Silver will rise with gold but at a faster pace.

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

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