Gold dipping but gold ETF purchases still on upwards path

Gold TodayGold closed in New York at $1,249.60 on Monday, down from Friday’s $1,252.50, a fall of $2.90. On Tuesday morning in Asia it fell to $1,246 while the U.S. dollar was relatively unchanged against the euro.

LBMA price setting:  $1,242.65 down from Monday’s $1,250.40.

Yuan Gold Fix

Trade Date Contract Benchmark Price AM Benchmark Price PM
2016  05  24

2016  05  23

SHAU

SHAU

263.32

264.36

262.98

263.96

Dollar equivalent @ $1: 6.5600

+$1: 6.5610

$1,248.50

$1,253.24

$1,246.89

$1,251.34

The movements in gold were small and due to a weakening euro with dealers moving gold against that exchange rate, which is common. But it would be a distortion to read too much into such small moves. We may well see more falls in the gold price before support kicks in.

To give us perspective, the dollar index comes into play. We expect the gold price to go the other way to the index for the rest of this week as the main influence. Once again, the strong gold ETF inflows have had no impact on the gold price. The dollar index stands at 95.47 slightly up from yesterday’s 95.37.  The dollar is stronger against the euro at $1.1171, up from Monday’s $1.1205.

The gold price in the euro was set at €1,112.39 down from Monday’s €1,115.73.

Ahead of New York’s opening, the gold price was trading at $1,241.25 and in the euro at €1,111.14.  After the U.S. opened gold continued to slip comfortably below $1,240.

Silver Today –The silver price closed in New York on Monday at $16.40, lower than Friday’s $16.51. Ahead of New York’s opening the silver price stood at $16.30 and it too was slipping – back by a couple more cents after the NY open.

Price Drivers

Once again the gold price remains relatively steady with exchange rates of the different currencies changing the price of gold in those currencies.

Japan has issued a warning that if the yen moves 5 yean either way, the Bank of Japan will move in to intervene. To us this signifies the discarding of the commitment not to use devaluations to improve international competitiveness. The currency ‘war’ is on again, as each nation looks after its own interests.

The Yuan continues to modestly fall with small corrections. It is a carefully managed devaluation done in a way so as not to disturb the markets.

We expect the E.C.B. to lose any remaining inhibitions on taking similar action to lower the euro.

But there is a major problem with these changes – the U.S. does not want a stronger dollar. While some major U.S. institutions are now starting to punt the dollar higher the Fed have made it clear such a path would be against U.S. interests. With a resilient U.S. economy, perhaps this could be tolerated for a while, but should there be any sign of the ‘recovery’ being damaged by it, actions would be taken to ensure the dollar would go weaker. To clarify this, the expected rate hike has been held back because of the vulnerability of the economic recovery and the exchange rate of the dollar. That concern is ongoing.  A strong dollar we believe, would further delay more hikes.

For foreigners the dollar may well be targeted as a ‘haven’ but in the U.S., gold is being treated [at least in the gold ETFs] as a ‘safe haven’.

 

Gold ETFs – Monday saw purchases of 3.268 tonnes into the SPDR gold ETF but nothing into the Gold Trust. This leaves their holdings at 872.254 and 199.43 tonnes in the SPDR & Gold Trust, respectively.  

As we said yesterday, “Many people are asking, if such large volumes of buying are having no impact, why are there no reports of selling.”

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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