Gold price weakens despite huge GLD purchases. Credibility gap opening.

Gold TodayGold closed in New York at $1,252.50 on Friday, up from Thursday’s $1,254.60, a fall of $2.10. On Monday morning in Asia it held at $1,252.50 while the U.S. dollar was relatively unchanged against the euro.

LBMA price setting:  $1,250.40 down from Friday’s $1,256.50.

Yuan Gold Fix

Trade Date Contract Benchmark Price AM Benchmark Price PM
2016  05  23

2016  04  20

SHAU

SHAU

264.36

264.82

263.96

264.46

Dollar equivalent @ $1: 6.5610

+$1: 6.5442

$1,253.24

$1,258.64

$1,251.34

$1,256.93

We are seeing a drop in the volatility of the gold price in Yuan. If we look at the changes in the U.S. dollar exchange rate the swings in the dollar gold price are explained. Exchange rates are morphing into gold price changes, but they are in reality exchange rate changes.

Neither London or New York are moving away from the Yuan gold price, once you take out the swings in exchange rates. But how do these prices remain steady in the face of such strong buying in New York [This is where the SPDR  shares are bought, but the physical buying for the fund by HSBC happens in London.]

But London prices were weaker this morning implying that heavy physical selling over and above normal selling is taking place there to hold prices down.  Something has to give if such buying continues, for even the Chinese Bank ICBC Standard can’t export gold from China to compensate for U.S. buying.

What can happen is that Central Banks and buyers of gold for Asia are standing back momentarily and not competing with western demand, returning only on the days when western demand goes quiet. This is certainly how Shanghai prices can lead the way.

The dollar index is up slightly at 95.33 down from yesterday’s 95.30. The dollar is also stronger against the euro at $1.1209, than Thursday’s $1.1219.

The gold price in the euro was set at €1,115.53 down from Thursday’s €1,118.42.

Ahead of New York’s opening, the gold price was trading at $1,248.85 and in the euro at €1,114.05.  

Silver Today –The silver price closed in New York on Thursday at $16.51, higher than Thursday’s $16.48 a rise of three cents. Ahead of New York’s opening the silver price stood at $16.33.    

Price Drivers

The G-7 meeting failed to produce a statement on currency intervention, leading to the conclusion that the previous statement from the G-7 on this subject has been silently discarded. The warning from the U.S. against a Japanese intervention in the Yen exchange rate emphasizes that there is friction on this subject between the U.S. and Japan. The U.S. Treasury and Fed do not want to see an appreciating dollar, a policy that was reinforced by such a statement.

This implies, once again, not just the end to a dollar bull market, but a preference for a weaker dollar.

Exchange rate friction is the first signal of a move towards protectionism. The imposition of huge tariff increases on steel into the U.S. reinforced this thought. We expect this to be a growing trend leading to division amongst trade blocs.

Gold ETFs – Friday saw purchases of 8.913 tonnes into the SPDR gold ETF but nothing into the Gold Trust. This leaves their holdings at 869.256 and 199.43 tonnes in the SPDR & Gold Trust, respectively.  

Friday’s purchases were huge, clearly by large institutions. Nevertheless, the gold price fall was simply halted, while the volume purchased should have been sufficient to lift the gold price strongly. Many people are asking why, if such large volumes of buying are having no impact, are there no reports of selling. They feel that the separation of COMEX prices from the realities of the physical markets in gold is destroying the credibility of the gold price.

Silver –The silver price may try to go lower still.

Julian D.W. Phillips

GoldForecaster.com | SilverForecaster.com | StockBridge Management Alliance

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