Gold and silver on the back foot for now

Gold TodayGold closed in New York at $1,257.30 on Wednesday, from Tuesday’s $1,279.00, a fall of $21.70. On Thursday morning in Asia it fell to $1,254.00, after the minutes of the Fed were published yesterday and the dollar rebounded.

LBMA price setting:  $1,253.75 down from Wednesday’s $1,270.90.

Yuan Gold Fix

Trade Date Contract Benchmark Price AM Benchmark Price PM
2016  05  19

2016  04  18

SHAU

SHAU

265.15

268.71

264.47

268.15

Dollar equivalent @ $1: 6.5646

+$1: 6.5540

$1,256.30

$1,275.22

$1,253.08

$1,272.57

None of the main global gold markets dominated the others as they all moved with the dollar. As you can see from the above, the fall in the Yuan was far less than that of New York or London as the Yuan continued to show weakness, softening the fall in the Yuan. The fall was most clearly seen in the dollar which has risen strongly in the last two days.

The trading pattern of gold is reflecting exchange rates and not so much the balance of supply and demand for gold. This is what gold should do, but with the influence of dealers moving prices down in the expectation of sellers, the price does exaggerate its moves, as a measure of value, to some extent.

The dollar index is almost up strongly at 95.36, up from yesterday’s 94.83. The dollar is also stronger against the euro at $1.1194, stronger than Wednesday’s $1.1275.

The gold price in the euro was set at €1,118.42 down from Wednesday’s €1,126.47.

Ahead of New York’s opening, the gold price was trading at $1,250.00 and in the euro at €1,116.67, and then slipped a further few dollars after the open.

Silver Today –The silver price closed in New York on Wednesday at $16.84 lower than Tuesday’s $17.23 a fall of 39 cents of 2.26%. Ahead of New York’s opening the silver price stood at $16.50. But then slipped further in percentage terms bringing the gold:silver ratio up to over 76 for the first time since mid-April.

Price Drivers

The publication of the Fed minutes yesterday galvanized the markets, including precious metal markets. As with all patterns that we saw yesterday, where gold and silver prices come into balance, any news can have a disproportionate impact, either way. This happened today with gold prices dropping $25 in the strong move we were forecasting.

It was the dollar that precipitated the move as it bounced to $1.1225 against the euro. As you can see above it was seen solidly in the dollar index. Why? The Fed minutes mentioned the “stabilization” of the dollar, as part of the factors that points to a potential rate hike in July.

The Fed is fully aware that the publication of the minutes would have a market impact as it has done. We see this as part of a process of ‘testing the water’ to see what would happen with a rate hike.

For instance, what does “dollar stabilization mean? To us it means that the dollar rise has been contained and will not threaten the U.S. economy because it will not rise further. The market reaction was to make it rise but not to anywhere near its peaks. Today and for a while, the dollar may continue to bounce and the Fed will be watching this carefully.

They were also concerned because of, “Unanticipated developments associated with China’s management of its exchange rate.” As you can see above the Yuan is continuously falling in small steps, something they need to do to counter the fall in the euro and Yen in particular.

They do not want a strong dollar and this is important enough to postpone a rate hike, if it is seen.

Meanwhile gold is on the back foot for now. Who are the main beneficiaries of this fall? It’s the east, China mainly, as the west slows its buying and makes available more gold for the eastern interests.

Gold ETFs – Wednesday saw no purchases or sales into or from the SPDR gold ETF or the Gold Trust. This leaves their holdings at 855.886 and 198.38 tonnes in the SPDR & Gold Trust, respectively.  

Silver –The Silver price pulled back sharply and needs more time to find its bottom still.

Julian D.W. Phillips

GoldForecaster.com | SilverForecaster.com | StockBridge Management Alliance

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