Battle reigns in the physical gold markets

Gold TodayNew York closed yesterday at $1,328.90 Friday.  London opened at $1,327.00.

    • The $: € was slightly stronger at $1.1219 down from $1.1271 Friday.
    • The Dollar index was weaker at 94.40 from 94.94 Friday.
    • The Yen was stronger at 102.08 up from 102.12 Friday against the dollar.
    • The Yuan was weaker at 6.6808 from 6.6798 Friday.

 

  • The Pound Sterling was weaker at $1.3297 from Friday’s $1.3297.

 

Yuan Gold Fix

Trade Date Contract Benchmark Price AM Benchmark Price PM
     2016  09  12

     2016  09  9

SHAU

SHAU

285.53

287.79

286.04

287.75

Dollar equivalent @ $1: 6.6808

$1: 6.6798

$1,329.33

$1,340.05

$1,331.70

$1,339.86

Shanghai has always been keen to go higher than London and New York. This is not because there is a shortage of gold, waiting for imports using premiums to attract it to the country. China’s supply from outside describes its huge appetite, which is continuing. Shanghai continues to try to keep its prices in line with other global gold markets.

Physical supplies will continue to flow into the country while New York prices are being held back.

The difference on Friday was that just under 12 tonnes of gold was sold from the SPDR gold ETF which caused the fall in the gold price.  Physical sales of gold such as these do drive the gold price down, just as earlier, 14 tonne purchases drove it up to $1,350. The battle in the physical markets is on!

LBMA price setting:  The LBMA gold price setting on Monday was at $1,327.50. Friday it was at set at $1,335.65.

The gold price in the euro was set on Monday at €1,183.05 against Friday’s 1,185.61.

Ahead of the opening of New York the gold price was trading at $1,327.10 and in the euro at €1,182.38.  At the same time, the silver price was trading at $18.85.

 

Silver Today –The silver price was pulled back to $19.07 at New York’s close on Friday down from $19.62, Thursday.  

Price Drivers

Today, we have a very important question on the shape of the global economy and in particular the U.S. economy. After so much stimuli globally, inflation should have taken off by now. It hasn’t. All it has managed to do is to counter deflation leaving both interests and inflation at extremely low levels.

But something else is happening: Liquidity levels are dropping, as is the velocity of money.

Central bank efforts, via stimuli, appear to be starting to lose the battle against deflation. In the past, when this has happened, the pressure to add more stimuli to the economy to continue to counter deflation grows. But larger and larger amounts also fail and even more stimulus is needed to counter rising deflation. More is added, then more needed and so on. At some point inflation takes off like a rocket but also fails to counter deflation, which also takes off, with an economy now starting to shrink. This is a fact of history and one very much in danger of being repeated!

Are we on the brink of that?

This time round governments will be unable to act strongly, as in many developed countries, they appear to be emasculated having not acted decisively since the ‘credit crunch’. And central banks, which should have been backed by government actions, were left holding the baby, without the full array of tools to even approach the problem. They are looking increasingly exhausted and unable to anything different, only more of the same.

The prime loser will be the value of currencies as they fall in value against gold [and silver].

Gold ETFs – There was a massive sale of 11.871 tonnes from the SPDR gold ETF but no change in the holdings of the Gold Trust, leaving their respective holdings at 939.940 tonnes and 225.39 tonnes. This sale did not cause the gold price to breakdown convincingly. We expect the next moves by large SPDR gold investors may give the gold price the direction it is looking for.

Silver – The silver price tumbled lower to just above $19.00 showing the typical exaggeration of the moves in the gold price. Silver price volatility will continue.

Julian D.W. Phillips

GoldForecaster.com | SilverForecaster.com | StockBridge Management Alliance

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