China leading gold prices higher

Gold TodayNew York closed at $1,262.00 on yesterday after the previous close of $1,254.60.  London opened at $1,261.00.

    • The $: € was stronger at $1.0997: €1 from $1.004: €1 yesterday.
    • The Dollar index was weaker at 97.69 from 97.73 yesterday.
    • The Yen was stronger at 103.36: $1 from 103.90: $1 yesterday against the dollar.
    • The Yuan was slightly stronger at 6.7370: $1 from 6.7378: $1 yesterday.

 

  • The Pound Sterling was slightly weaker at $1.2285: £1 from Friday’s $1.2290 £1.

 

Yuan Gold Fix

Trade Date Contract Benchmark Price AM 1 gm Benchmark Price PM 1 gm
     2016  10  19

     2016  10  18

SHAU

SHAU

274.76

273.89

274.43

273.84

Dollar equivalent

1 oz @ $1: 6.7370

$1: 6.7378

$1268.52

$1,264.35

$1,266.99

$1,264.12

Please note that the Shanghai Fixes are for 1 gm of gold. From the Middle Eat eastward metric measurements are used against 0.9999 quality gold.

New York’s close and London’s opening was barely different. But Shanghai spent the day well above their prices by $5 and more. But as London’s morning progresses we saw the gold price jump over $1,270. This implies that the ‘premium’ in Shanghai is not a premium but a more accurate pricing of gold, as London quickly followed, then led Shanghai higher at the price setting of the LBMA this morning.

It is becoming evident that while gold jewelry demand is down by around a third in China this year so far, institutional/investment demand is gaining ground as evidenced by the increase in sales of 1 Kg bars over the smaller 50 and 100 gm bars. We repeat gold is an integral part of the Chinese financial system now.

These metric denominations are becoming the norm as far west as Switzerland. This makes them a more liquid form of gold in international markets.

LBMA price setting:  The LBMA gold price setting was at $1,269.75 against yesterday’s $1,261.65. The gold price in the euro was set higher at €1,154.63 against yesterday’s €1,146.95.

Ahead of the opening of New York the gold price was trading at $1,271.30 and in the euro at €1,159.05.  At the same time, the silver price was trading at $17.73.

Silver Today –The silver price rose to $17.62 at New York’s close yesterday from $17.44, Monday.  

Price Drivers

The Technical picture favors a run higher at the moment, but how far? The strong move we expected is to the upside.  

With U.S. data not nearly as robust as was hoped, there are now expectations of, at least, a mild recession in the U.S. next year. The U.S cannot afford even a mild one. Certainly the Fed cannot afford a rate hike just ahead of one. If one arrived after a rate hike, the blame may be placed on that for the recession, instead of a general decline in economic activity in the U.S.

If the U.S. is headed to a recession, then certainly the rest of the developed world is too, and one that will be far worse than seen in the U.S.  

Globally debt levels are extraordinarily high. A recession will lead to these levels being raised even more. This brings forward either heavy defaults or more Q.E. which will cause inflation and not promote growth.

 

Thus 2017 looks to take the developed world and the Chinese economy further into uncharted waters. We certainly expect a turbulent year in 2017!

Gold ETFs – There was no change in the holdings of either the SPDR gold ETF or the Gold Trust, leaving their respective holdings at 967.208 tonnes and 227.56 tonnes.  Hence, the rise in the gold price was not driven by physical demand.

Silver – Silver prices are moving higher with gold but cautiously and should accelerate past gold soon.

Julian D.W. Phillips

GoldForecaster.com | SilverForecaster.com | StockBridge Management Alliance

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