Gold and silver to thrive in currency war environment

The New York gold price closed Friday at $1,089.10 up from $1,076.90. In Asia on Monday, it was moved down to $1,088.25 and London held slightly higher until it was set by the LBMA at $1,090.45 with the dollar index almost the same at 99.03 up from 98.97 on Friday. The euro was at $1.0891 down from $1.0897 against the dollar. The gold price in the euro was set at €1,001.24 up from €992.29. Ahead of New York’s opening, the gold price was trading at $1,090.00 and in the euro at €1,000.83.  

The silver price in New York closed at $13.90 up 5 cents at Friday’s close.  Ahead of New York’s opening on Monday, the silver price stood at $13.90.

Price Drivers

Friday saw purchases of 3.867 tonnes of gold into the SPDR gold ETF and a purchase of 0.30 of a tonne into the Gold Trust. The holdings of the SPDR gold ETF are now at 657.924 tonnes and at 161.46 tonnes in the Gold Trust.  Without physical sales and with persistent gold purchases into the U.S. gold ETFs, dealers look as though they will be pushed to reflect gold and silver prices moving higher in line with U.S. demand and supply. COMEX speculators have increased their bullish positions last week.

We do see emerging market capital outflows from India, South Africa and importantly China. The People’s Bank of China is doing its best to prevent brutal falls in the Yuan by using Capital Controls [increasing reserve requirements for the offshore Yuan] but all know that the Yuan should be 6% lower at 7.00 to the dollar to just remove the appreciation caused by its ‘peg’ to the dollar. It could fall up to 30% more in time. Meanwhile ahead of the Chinese New Year we see gold demand in China quadrupling to 238 tonnes in the first week of January.

Gold and silver investors should note that currencies are not moving on economic fundamentals but reflect the tsunamis of capital leaving the weaker emerging nations. 2016 will be a year when we see battles to lower exchange rates by individual countries, lessening the credibility of those currencies internationally and undermining monetary system confidence. Gold and silver will thrive in this environment.

China is building an ‘empire’ independent of the developed world through ignoring politics and doing business with anyone. It is now trying to get its feet under the tables of the Middle East on both sides of the Persian Gulf on this basis. Now that Iran has seen sanctions lifted we do not think it will turn to the developed world but to China, so that it is not vulnerable to the U.S. Saudi Arabia too, sees similar advantages in developing ties with China. Over time this will lead to a lower use of the dollar replacing much of it with the Yuan.

The silver price will see a volatile start to the week, but still follow gold.

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

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