Expect more vigor in gold and silver markets as margin call fear subsides

The New York gold price closed Wednesday at $1,101.20 up from $1,087.20 up $14. In Asia on Thursday, it was lifted to over $1,103.75 before London opened and then was set by the LBMA at $1,096.80 up from $1,093.20 with the dollar index lower at 99.03 down from 99.21 on Wednesday. The euro was down at $1.0901 from $1.0906 against the dollar. The gold price in the euro was set at €1,006.15 up from €1,002.38. Ahead of New York’s opening, the gold price was trading at $1,101.65 and in the euro at €1,010.22.  

The silver price in New York closed at $14.15 up 12 cents at Wednesday’s close.  Ahead of New York’s opening on Monday, the silver price stood at $14.05.

Price Drivers

Tuesday’s clarification that the market wanted to go higher took charge yesterday and the gold price broke through the $1,100 level, pointing the way higher.

Against a backdrop of global bear markets coming into being today, [U.K., Japan, etc] all markets are being pulled down and while gold is solid around $1,100 the dealers are still marking prices down in fear of sellers looking for liquidity to cover margin calls. When this fear subsides, we expect to see more vigor in the gold and silver markets. It must be said that the bulk of U.S. gold holders are holders holding for the very long term. It is unlikely they are the sort to leverage up these holdings or have large leveraged positions in other markets. Successful investors hive off profits into other entities to ensure they are not vulnerable in markets like these.

Wednesday saw purchases of 2.38 tonnes into the SPDR gold ETF but none into the Gold Trust. The holdings of the SPDR gold ETF are now at 660.304 tonnes and at 161.46 tonnes in the Gold Trust.  These purchases were enough to push gold higher and hold there overnight. This showed that the attempt to push gold down again had no physical substance, so could not hold prices down.

We have not seen a financial situation in markets like this since 2008, but this time the reasons are different. This is not a ‘credit crunch’, it is a broad set of falls caused by uncertainty over the future. We see China’s 6.9% growth as robust as it swings over to internal consumption from its focus on exports and infrastructure build. So, we do not see China as a cause for world markets falling. The failure of quantitative easing to bring about a robust economic recovery in the developed world is a more likely cause for doubts over future growth in that world.

We note too, these market falls are not because of expectations of economic collapses to come, but indicate systemic problems in financial markets. If we are right, then we expect deeper equity falls in 2016 and major volatility as the structural financial and monetary changes in the global balance of wealth and power re-adjust developed world markets, in particular.

Silver is showing a solid performance ready to run higher the moment gold resumes its rise. –    

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

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