Gold and silver react to US Fed & BoJ

Gold TodayGold closed in New York at $1,341.40 on Wednesday after Tuesday’s close at $1,319.80.  

    • The $: € was down at $1.1084 from $1.0991.
    • The dollar index fell to 96.54 from 97.29 Wednesday.
    • The Yen was stronger at 104.68 from Wednesday’s 105.64 against the dollar.
    • The Yuan was stronger at 6.6610 from 6.6709 Wednesday.

 

  • The Pound Sterling was stronger at $1.3178 up from Wednesday’s $1.3120.

 

Yuan Gold Fix

Trade Date Contract Benchmark Price AM Benchmark Price PM
2016  07  28

2016  07  27

SHAU

SHAU

286.93

283.34

287.55

283.17

Dollar equivalent @ $1: 6.6610

$1: 6.6709

$1,339.82

$1,321.09

$1,342.71

$1,320.30

Shanghai prices were on the same momentum track as New York, rising after the Fed statement. We expect the Bank of Japan to issue a statement ahead of New York’s Friday opening which could well have the same impact as the Fed’s statement on gold & silver prices.

We have watched and listened to the media’s fascination with Fed statements over the last few years and seen how the markets have been led by it. But with hindsight it is clear that the reality is that the Fed is following, not leading the data. When we look at that data there is little to inspire economic optimism and belief that rates are going to rise soon. The future, on the contrary, points to around a decade of very low interest rates as the global economy struggles with structural changes and a solid wave of deflation.

The desperate battle of exchange rates is dominating total returns and while emerging currencies yield good returns at the moment their exchange rates can become mercurial in a heartbeat, ensuring risk levels in the medium to long term remain heightened. We expect another episode in this story to unfold in the days not far ahead.

LBMA price setting:  $1,341.30 after Wednesday 27th July’s $1,321.25.

The gold price in the euro was set at €1,218.15 up €16.55 from Wednesday’s €1,201.60.

Ahead of the opening in New York the gold price stood at $1,342.35 and in the euro at €1,210.74.  

Silver Today –The silver price closed in New York at $20.38 on Wednesday up from $19.64 on Friday.  Ahead of New York’s opening the price was trading at $20.37.

Price Drivers

The report from the Fed was positive on the U.S. economy but not so positive as to indicate September could see a rate hike. Why not? Most U.S. observers are riveted on the U.S. economy in isolation from the rest of the world. But that is myopic. The Fed has made it clear that the global economy does affect the U.S. economy.  The dollar exchange rate does affect the U.S. economy and cannot be ignored or removed from the formula that defines when a rate hike will occur.

The monetary system is under stress reflecting deep ailments [Japan, Italy, Brexit, low growth, burgeoning debt] and the Fed is quite right to bring these into their formulae for rate hike decisions. Gold and silver prices barely reflect these ailments. Should these weaknesses burst upon the global economy [and we cannot see reasons why they shouldn’t] , we will not only see very different global financial markets but a structurally different approach to precious metals.

The Fed’s announcement produced the reaction we expected and tomorrow’s Bank of Japan will likely extend this reaction.

Gold ETFs – In New York on Thursday there were no sales or purchases into or out of the SPDR gold ETF (GLD) or the Gold Trust (IAU) leaving their holdings at 954.235 tonnes and 217.99 tonnes, respectively.

We are starting to hear well-respected investment advisors recommending increasing the percentage of gold held in portfolios from 10% to 25%. To us this signifies recognition of the depth of global financial market changes that lie ahead of the world.

Silver –Silver prices showed the potential for running ahead of gold as they jumped 4% yesterday against gold’s 1.5%. But all silver price movements rely on gold leading the way, both up and down. Such price movements do not reflect the fundamentals of the silver market, only the relationship to gold prices.

Julian D.W. Phillips

GoldForecaster.com | SilverForecaster.com | StockBridge Management Alliance [Gold Storage geared to avoid its confiscation]

 

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