Gold may be at best price to buy

Gold TodayNew York closed at $1,227.70 yesterday after the previous close of $1,256.80 London opened at $1,220.00.

    • The $: € was a stronger at $1.0737: €1 from $1.0909: €1 Friday.
    • The Dollar index was a much stronger at 100.03 from 98.64 Friday.
    • The Yen was weaker at 107.94: $1 from Friday’s 106.51 against the dollar.
    • The Yuan was weaker at 6.8450: $1 from 6.8141: $1 Friday.

 

  • The Pound Sterling was weaker at $1.2522: £1 from Friday’s $1.2577: £1.

 

Yuan Gold Fix

Trade Date Contract Benchmark Price AM 1 gm Benchmark Price PM 1 gm
     2016  11    14      

     2016  11    11

     2016  11    10

SHAU

SHAU

SHAU

269.11

276.93

282.29

269.50

277.87

288.63

$ equivalent 1 oz @ $1: 6.8450

$1: 6.8111

$1: 6.7913

$1,222.83

$1,292.86

$1,300.07

$1,224.60

$1,268.36

$1,327.15

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. [Please note that the 0.5% difference in price can be accounted for by the higher quality of Shanghai’s gold on which their gold price is based over London’s ‘good delivery’ standard of 0.995.]

Shanghai took the gold price lower than at New York’s close and slightly lower than London’s opening of $1,222, when we take the different quality of gold price in Shanghai into account.

The strength of the dollar is remarkable as it hits close to its previous peak. The ‘carry trade’ is retreating back to the U.S., but will we see a continuation of the dollar bull market? We believe that we will see Treasury act to calm the market and bring the dollar down soon.

LBMA price setting:  The LBMA gold price setting was at $1,222.60 against Friday’s $1,255.65. The gold price in the euro was set higher at €1,134.72 against Friday’s €1,154.73.

Ahead of the opening of New York the gold price was trading at $1,223.60 and in the euro at €1,136.65.  At the same time, the silver price was trading at $17.21.

Silver Today –Silver rose to $17.35 at New York’s close Friday from $18.52, the day before.  Price Drivers

With the gold price and now the silver price continuing to fall today [gold down well over $100 on the week] because of heavy sales from the gold ETFs many are, we feel, misreading the consequences of Trump’s impact on the economy regarding gold. With 30-year Treasuries falling in price leaving yields at 3% the dollar continues to surge as carry trades are unwound. We see these moves as part of the initial exuberance after the election. But the question is, “Just how far will this exuberance go?” For gold, long-term investors may be looking at the best gold price they will see again. At the moment gold buyers are sidelined by the selling, which may continue for a short while.

The bond market is telling us that there is an 84% chance of a rate hike in December, but is that what Treasury and the Fed want? Such a rise in yields points to the expectation of a rise in inflation, which Trump has made clear, is most likely. Massive tax cutting alongside major borrowing plans to finance infrastructural renovation cannot avoid a significant jump in inflation. Real interest rates will not overtake inflation leaving a very gold and silver positive environment!

But the digestion of Trump’s policies will have to continue before markets finalize their take on the future. Meanwhile expect volatility to continue and likely both ways.

India attacks “Black Money”. In a concerted campaign by the government an attack on the alternative, secret, financial system has been launched on both gold and banknotes. After withdrawing Rs500 and Rs.1,000 banknotes it turned to the gold markets and jewelers to force an accounting of their gold stocks and track buyers via their PAN details.

In a country where even gold imports were banned previously and circumvented by smugglers, such an attack on the cash society of India has to include forcing the population to use banks, credit cards and checks. Indian culture has a long history of opposing government and accurate reporting of business turnovers, so such an attack by a corrupt government/ bureaucracy and being forced into using banks, goes against the very grain of Indian society. Nothing could encourage smuggling more. It will simply lead to more sophisticated methods of handling the “Black Money” system. We expect ‘official’ figures on gold imports and internal demand to drop substantially, as both will go deeper underground. But the reality is the gold’s demand will jump as smuggled gold provides an underground financial system a boost against government actions.

Gold ETFs – There were sales of 7.118 tonnes of gold from the SPDR gold ETF and sales of 6.70 tonnes from the Gold Trust Friday, leaving their respective holdings at 934.563 tonnes and 218.28 tonnes.

These sales of gold from the SPDR gold ETF and now heavy sales from the Gold Trust are sellers following the lead of Druckenmiller. These were not long-term holders but short to medium term profit seekers. Once they have stopped selling, we expect gold ETF holdings to stabilize. This will bring these sellers back to the gold market and the number of long-term [wealth securing] investors will expand significantly.

Since January 4th this year, the holdings of these two gold ETFs have risen by 351.834 tonnes.

Silver – Silver dropped heavily after retaining a stable level above $18 and then fell back to the lower $17.00 area. We expect silver to continue to track gold either falling more before gathering strength for a rebound.

Julian D.W. Phillips

GoldForecaster.com | SilverForecaster.com | StockBridge Management Alliance

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