Fed concerned about the Chinese Yuan!

 

Gold TodayGold closed in New York at $1,254.60 on Thursday, up from Wednesday’s $1,257.30, a fall of $21.70. On Friday morning in Asia it held at $1,254.60 while the U.S. dollar weakened slightly.

LBMA price setting:  $1,256.50 up from Thursday’s $1,253.75.

Yuan Gold Fix

Trade Date Contract Benchmark Price AM Benchmark Price PM
2016  05  20

2016  04  19

SHAU

SHAU

264.82

265.15

264.46

264.47

Dollar equivalent @ $1: 6.5442

+$1: 6.5646

$1,258.64

$1,256.30

$1,256.93

$1,253.08

With such small moves overnight all global gold markets recorded prices moving only slightly. No conclusions can be drawn from their moves against each other, right now.

The gold price reacted to the stronger dollar while the Chinese Yuan stabilized at slightly higher levels against the dollar.

What we find of note is that in the Fed minutes concerned was expressed, “because of unanticipated developments associated with China’s management of its exchange rate.” No such concern was expressed by the moves of the euro or the Yen. Why?

We feel it is because the U.S. Treasury can influence both the euro and the Yen exchange rates, but not the Yuan, as the Yuan and the Chinese economy is not directly influencable by the U.S. As the volume of trade with China is very large, it does affect the U.S. economy.

The current policy of a slow devaluation of the Yuan may well be an important topic at the G-7 meeting going on at the moment.

The dollar index is almost up strongly at 95.30 down from yesterday’s 95.36 The dollar is also stronger against the euro at $1.1219, than Thursday’s $1.1194.

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

Ahead of New York’s opening, the gold price was trading at $1,256.30 and in the euro at €1,119.80.  

Silver Today –The silver price closed in New York on Thursday at $16.48 lower than Tuesday’s $16.84 a fall of 36 cents. Ahead of New York’s opening the silver price stood at $16.54.

 

Price Drivers

With the meeting of the G-7 in Japan today, one of the topics of great importance to them, which will be discussed, is the devaluation of currencies to gain competitive advantage against the globe’s main currencies. It was discussed at previous meetings to little avail apart from a broad commitment not to do it.

Since then both Japan and the Eurozone have blatantly embarked on such policies without direct intervention in the foreign exchange markets. Now Japan has a dire need to follow such a policy with direct intervention in their foreign exchanges. Will the G-7 OK this?

At the same time China, whose exchange rate against the U.S. dollar became a point of focus for U.S. politicians and remains so [see above], was dragged up by its dollar peg to be overvalued by around 10%. It is allowing its currency to gently slip towards 7.00 against the dollar, from a peak of close to 6.08. It now stands at 6.54 to the dollar.  This suits its interests but it may well become a hotbed of objection again, if this continues. Should they, if others are blatantly doing the same?

There is no doubt in our minds that the structure of China’s gold market, under the eye [and control]  of the PBoC and its keenness to see Chinese investors long of gold, is being encouraged, as they see currency turmoil in the future, when eastern and western interests diverge strongly.

Gold ETFs – Wednesday saw purchases of 4.457 tonnes into the SPDR gold ETF and a purchase of 1.05 tonnes into the Gold Trust. This leaves their holdings at 860.343 and 199.43 tonnes in the SPDR & Gold Trust, respectively.  

Once again these were substantial purchases on a daily basis, and yet dealers in New York simply slowed the fall in prices

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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