Gold and silver jump in dollars, not Euros, post Fed

Gold TodayNew York closed at $1,334.00 after the previous close of $1,314.60 yesterday.  London opened at $1,332.70.

    • The $: € was weaker at $1.1232: €1 from $1.1147: €1 yesterday.
    • The Dollar index was weaker at 95.26 from 95.96 yesterday.
    • The Yen was stronger at 100.64: $1 up from 101.50: $1 yesterday against the dollar.
    • The Yuan was stronger at 6.6696: $1 from 6.6726: $1 yesterday.

 

  • The Pound Sterling was stronger at $1.3057: £1 from yesterday’s $1.2998: £1.

 

Yuan Gold Fix

Trade Date Contract Benchmark Price AM Benchmark Price PM
     2016  09  22

     2016  09  21

SHAU

SHAU

286.48

283.14

286.63

284.17

Dollar equivalent @ $1: 6.6696

$1: 6.6726

$1,336.00

$1,319.82

$1,336.69

$1,324.62

New York, Shanghai and London were roughly in line, adjusting them for changing exchange rates as all financial markets reacted to the Fed statement.

All financial markets now need time to digest the announcement and feed this information into prices. Overall, we see the dollar gold price continuing to benefit from the words of Mrs. Yellen.

LBMA price setting:  The LBMA gold price setting was at $1,332.45 against yesterday’s $1,319.60.

The gold price in the euro was set at €1,186.35 against yesterday’s €1,183.55.

Ahead of the opening of New York the gold price was trading at $1,333.10 and in the euro at €1,187.54.  At the same time, the silver price was trading again at $19.88.

Silver Today –The silver price rose to $19.83 at New York’s close yesterday up from $19.23, Friday.  

Price Drivers

Please note that the gold price in the euro is barely changed, but in the dollar higher because of the dollar’s weakness.

As the dealings in the gold ETFs have driven gold prices lately, the big purchase of over 5 tonnes into the SPDR gold ETF was certainly one of the drivers, but not nearly so much as the weakness of the dollar against gold did.

Despite global demand for gold rising well in the gold season, the gold price does not reflect this. It solely reflects U.S. demand via the gold ETFs and COMEX.

Gold as a monetary metal is functioning well in this regard as they reflect the value of currencies, not demand and supply of gold.

On the Technical front mixed signals are being sent out favoring both directions. Will we see a pennant formation developing to give us consolidation mode, or will overhead resistance be challenged, while the current target on this front is below $1,300.

We have a different take on the Fed’s announcement than the one that’s being reported inside the U.S. We see Janet Yellen and her team, although divided, paying great attention to the impact on the dollar, as we have said many times before. Most U.S. institutions look at the U.S. as being the driver of the rest of the world, leading the way forward. But the reality is that the U.S. is not an island, as shown by the dollar’s price in other currencies.

The rest of the world can hurt the U.S. by weakening exchange rates against the dollar [maybe Treasury whispered quietly in the BoJ.’s ear before their meeting]. The angst, we see now from U.S. institutions, is understandable if one disregards the global economy. Inside the U.S. interest rates are seen in the light of the U.S. economy, but looked at through currency eyes interest rate moves have to be seen in terms of other currencies’ values. We repeat the U.S. cannot afford a strong dollar anymore. This is gold positive.

Looking through the eyes of the currency markets we see the Fed removing the ongoing obsession of global markets of the ‘will there be or won’t there be a rate hike’ by stating that by the end of the year there will be a rate hike. Not two but one. The focus from now on will shift to the Presidential elections until the end of the year. We hope the ‘big’ picture will now impact the gold price more directly.

Immediately after the Fed announcement the dollar weakened, across the board.  The gold price leapt to overhead resistance at $1,340 before pulling back in London. Longer term, Yellen’s actions are gold and silver price positive as there are no shocks in the future and rate hikes as we have pointed out before have led to higher gold prices.

The Fed statement pointed far ahead, to prevent volatility over the subject hitting most markets now and in the future. Further, by attempting to put dots in place as to when to expect future hikes, the markets have plenty of time to discount these moves in relatively calm markets.

We will now keep our eyes on inflation rates to give us a clearer view of exactly when rate hikes will occur, as it is real interest rates in the context of global interest rates that count, when we look at potential moves in gold and silver prices.

Gold ETFs – There were purchases of 5.638 tonnes into the SPDR gold ETF (GLD) but no change in the holdings of the Gold Trust (IAU) yesterday, leaving their respective holdings at 944.391 tonnes and 223.51 tonnes.

Silver – Silver prices ignored the price action in gold yesterday climbing a little higher. Once again we say, ‘these are not the influences of fundamentals but U.S. silver investors expecting news that will send both gold and silver prices higher.’

Julian D.W. Phillips

GoldForecaster.com | SilverForecaster.com | StockBridge Management Alliance

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