Big purchases into gold ETFs suggest beginnings of change in sentiment

The New York gold price closed Monday at $1,109.30 up from $1,093.50 In Asia it was moved down to $1,100 but in London it slipped back slightly where  the LBMA price was set at $1,097.45 up from $1,096.00 with the dollar index a tad higher at 98.82 up from 98.72 yesterday. The euro was at $1.0882 up from $1.0863 against the dollar. The gold price in the euro was set at €1,010.12 up from €1,010.23 as the euro steadied. Ahead of New York’s opening, the gold price was trading at $1,099.00 and in the euro at €1,011.65.  

Silver Today –The silver price in New York closed at $14.30 up 28 cents.  Ahead of New York’s opening the silver price stood at $14.06.

Price Drivers

The breach of $1,100 has made some investors swallow hard after a strong rise brushed away resistance easily once gold broke above $1,085. The gold price is settling back to support at $1,100. Yesterday saw purchases of 4.166 tonnes into the SPDR gold ETF and a relatively massive purchase of 3.87 tonnes into the Gold Trust. The holdings of the SPDR gold ETF are now at 645.131 tonnes and at 156.42 tonnes in the Gold Trust.  These two purchases confirm a change in attitude towards gold by U.S. investors.

When global markets are so volatile all investors have to increase the ‘charlie suger’ [common sense] and lower emotions in their investment decisions. For instance, the P.E. ratio on Chinese equities is around 60 whereas on developed world markets it is at 18 on average.  The Chinese stock market is peopled by retail investors who rely on ‘good luck’ to dictate the way forward in markets. It is independent of the Chinese economy despite official efforts to make it a conservative reflection of the economy. For the fall in global equities to be attributed to Chinese markets, stretches credibility too far. Developed world equities have been readying for a fall for a long time. While China may have been a ‘trigger’ to their fall, they fell because there is little reason to, on average, to take them higher. Investors are now selling and looking for alternatives. The falls seen to date are only the beginning, we feel. We do see markets in crisis in 2016 with increasing volatility and diminishing liquidity. The potential for rate rises in 2016 to threaten gold, have evaporated as only two small hikes appear to be on the cards for 2016.

The fall in the Yuan is just over 3% of late. Why the fuss over its fall? It is primarily because the U.S. & China’s different interests point to a future currency war should their interests diverge too far. The Chinese purchase of 19 tonnes of gold last month indicates once more, just how committed to gold China is just as U.S. holdings of over 8,000 tonnes shows just how important gold is to the U.S., particularly in view of the potential currency conflict in the future.

The silver price will run up to catch gold when it resumes its rise.

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

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