Gold and silver markets: On the brink of a very different monetary world

The New York gold price closed at $1,085.20 up from $1,063.20 on Friday, a rise of $32.50 over the week’s lows.  In Asia prices held at that level as the dollar held just above Friday’s level at 98.42 on the dollar Index. The dollar is at $1.0818 up from $1.0938 on Friday against the euro. The London a.m. price was set at $1,082.70 up from Friday’s $1,063.00.  In the euro the fixing was €1,000.65 up from Friday’s $975.68. Ahead of New York’s opening the gold price was trading at $1,083.35 and in the euro at €1,001.29.  

The silver price in New York closed at $14.55 up 44 cents. Ahead of New York’s opening the silver price stood at $14.56.

Price Drivers

With just over a week to go to the Fed’s announcement on interest rates, the gold and silver markets are likely to move sideways, unless there is a concerted attack on these prices by bears. We don’t think this is likely after the disappointing surprise from the European Central Bank on more stimuli. When the rate rise from the Fed does come, we expect either a 25 basis point rise OR LESS. If we see a smaller than 25 basis point rise, we expect markets to react in a similar way to the way they did last week. This will be positive for gold and silver.

We say this in the context of how critical the $: € is to both the E.U. and the U.S. and how important it will be to ‘manage’ the exchange rate and dollar index. The accepted relationship of the dollar moving the opposite way to the gold price is as strong as ever in the U.S. So when the Fed acts to restrain the dollar in currency markets, it will have a direct impact on the gold and silver prices. With the Yen, the Swiss Franc, the Pound being forced to exchange rate levels that their central banks want, the U.S. dollar will do the same when the Fed acts that way. So after currencies cease to be ‘safe havens’ what’s left for investors, particularly long-term investors?

This should be seen in the context of a steadily evolving currency world gradually being freed from the restraints lifted not only in 1971 but now with nations acting in their own individual interests in exchange rates.  With discipline being lost in the monetary system in this way, we are on the brink of a very different monetary world in 2016 than we saw in 2015 and before.

There were no sales of gold from the SPDR gold ETF or from the Gold Trust, on Friday. The holdings of the two gold ETFs, the SPDR gold ETF and the Gold Trust remain at 638.797 tonnes in the SPDR gold ETF and at 157.07 in the Gold Trust. Seemingly, these investors remain in a holding pattern waiting for the Fed too.

The silver price remains well over $14.00 and even if gold should fall heavily, we may well see silver break away from the gold price and not fall.

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

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