Shanghai beginning to dominate global gold pricing

Gold Today –New York closed at $1,173.40 on the 6th January after closing at $1,181.20 on the 5th January. London opened again at $1,178.20 today.

Overall the dollar is stronger against global currencies today. Before London’s opening:

         The $: € was stronger at $1.0532 €1 from $1.0596: €1 Friday.

         The Dollar index was stronger at 102.36 from 101.61 Friday. 

         The Yen was weaker at 117.40: $1 from Friday’s 116.08 against the dollar. 

         The Yuan was weaker at 6.9329: $1, from 6.9211: $1, Friday. 

         The Pound Sterling was weaker at $1.2185: £1 from Friday’s $1.2386: £1.

 Yuan Gold Fix

Trade Date Contract Benchmark Price AM 1 gm Benchmark Price PM 1 gm
      2017    1    9

     2016    1    6

      2016  12    5

SHAU

SHAU

SHAU

/

265.17

264.76

/

264.97

264.87

$ equivalent 1oz @  $1: 6.9329

      $1: 6.9211

$1: 6.8874

  /

$1,189.65

$1,185.75

/

$1,188.75

$1,196.15

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.]

 As you can see above Friday’s Shanghai nprices were $11.25 higher than the close of New York and only $5 higher than London. The People’s Bank of China’s efforts to hold the Yuan up appear to be failing as it falls.

LBMA price setting:  The LBMA gold price setting was at $1,176.10 this morning against yesterday’s $1,178.00. 

The gold price in the euro was set higher at €1,117.54 after Friday’s €1,113.16.

Ahead of the opening of New York the gold price was trading at $1,178.05 and in the euro at €1,119.82.  At the same time, the silver price was trading at $16.51. 

Silver Today –Silver closed at $16.51 at New York’s close Friday from $16.62 on the 5th January. 

Price Drivers

Shanghai’s price performance continues to lead the way higher with London following with more enthusiasm than New York. Can New York operate independently of London? No!

London is the developed world’s heart of the physical gold market. New York is the paper market. ‘Paper gold prices’ cannot overrule physical prices. It seems obvious, but it isn’t as COMEX has dominated gold prices [with the support of physical sales into London] for several years. As we saw over the weekend COMEX pulled prices down after Shanghai had lifted them in the morning before New York opened. But London took them back up to within $5 of Shanghai prices [allowing for the difference in the quality of gold being priced – $5].

Since Shanghai penalized speculators by halving the contract amounts to 500 kg on January 1st, the cost of speculation has jumped significantly there. Hence it is more difficult to profit from short-term moves in the gold price. This is reducing speculation in China. This in turn reduces volatility and the width of daily moves in the global gold price. Overall, not only does it make it costly to speculate, it reduces the profitability of speculation.

In turn, we do expect the dominance over the gold price to stay in Shanghai and we expect both London and New York to move much close to Shanghai prices not the other way around.

Gold ETFs – Friday in New York, there were no sales from the SPDR gold ETF but there was a purchase of 0.9 of a tonnes into the holdings of the Gold Trust, leaving their respective holdings at 813.591 tonnes and 198.30 tonnes. 

Last week saw net purchases into the Gold Trust of over a tonne.

Since January 4th this year, 211.011 tonnes of gold has been added to the SPDR gold ETF and to the Gold Trust.  We remain at almost at half the level accumulated in 2016.

Julian D.W. Phillips 

 GoldForecaster.com | SilverForecaster.com | StockBridge Management Alliance 

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