Inauguration Day: Gold still consolidating around $1,200

Gold Today –New York closed at $1,201.50 on the 19th January after closing at $1,205.60 on the 18th January. London opened at $1,202.45 today.

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

         The $: € was weaker at $1.0679: €1 from $1.0652: €1 yesterday.

         The Dollar index was weaker at 100.97 from 101.20 yesterday. 

         The Yen was stronger at 114.73: $1 from yesterday’s 114.80 against the dollar. 

         The Yuan was almost unchanged at 6.8765: $1, from 6.8767: $1, yesterday. 

         The Pound Sterling was stronger at $1.2355: £1 from yesterday’s $1.2302: £1.

 Yuan Gold Fix
Trade Date Contract Benchmark Price AM 1 gm Benchmark Price PM 1 gm
      2017    1    20

     2017    1    19

      2017    1    18

SHAU

SHAU

SHAU

/

268.36

271.53

/

268.26

271.12

$ equivalent 1oz @  $1: 6.8765

      $1: 6.8767

$1: 6.8425

  /

$1,213.80

$1,234.28

/

$1,213.35

$1,232.41

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 consolidated yesterday pulling back 3 Yuan or just over 1% with the Yuan a tiny bit stronger against the dollar. The fall does not indicate any more than a healthy correction.

Does this express a loss of pricing power? New York is at a $7 discount to Shanghai and London a narrowing of over $14. It would appear so [but only on a daily basis]. But Shanghai could drive prices tomorrow. We have to allow for corrections where demand on a daily basis [because prices have run too high?] pulls back and supply dominates for the short time it happens, before demand comes back at lower levels.

Some may feel that because London is the main physical market in the developed world it supplies China exclusively. Yes, the world’s main bullion banks are based in London, but they operate in both centers. Their hold over supply is far less than most believe. For instance the Rand Refinery in Johannesburg South Africa will sell to any buyer including the Chinese directly. It does not have exclusive agreements with the world’s main banks, as it had in 1974 with the three main Swiss Banks [the ‘pool’]. Shanghai buys from Switzerland and directly from producers/refineries. Hence we do not accept that London is the sole supplier of Shanghai. Add to that the profitability of the arbitrage trade which will smooth out price differentials. But because Shanghai is by far the largest physical gold market in the world, it does have pricing power normally.  We will see that in the next week/month.

LBMA price setting:  The LBMA gold price setting was at $1,199.10 this morning against yesterday’s $1,203.35. 

The gold price in the euro was set lower at €1,127.93 after yesterday’s €1,129.06 as the dollar weakened.

Ahead of the opening of New York the gold price was trading at $1,200.00 and in the euro at €1,128.77.  At the same time, the silver price was trading at $16.90. 

Silver Today –Silver closed at $17.00 at New York’s close yesterday from $17.08 on the 18th January. 

Price Drivers

On Inauguration Day we see President Trump take the reins. In addition, with the Republicans in the majority in both Congress and the Senate, government, at last is in a position to do something, without the opposition blocking it. The expectations are high, likely too high.

The U.S. economy is healthy so we are open to what the Fed also says as to interest rates. We don’t think they will change rates as they will want to see how the new President will move forward on respecting the economy. Only then will they act, or not.

The U.S. based gold ETFs continue to be relatively static after some buying recently. Exchange rates continue to have a major impact on the gold prices with China playing a strange game. All know that the Yuan should fall and the PBoC is targeting certain types of capital outflow, which do not benefit either the Yuan or the Chinese economy [such as wealth exiting China] but are still intervening in the Yuan exchange rate.

With such blocks on capital outflows, Chinese investors are favoring gold, which is a protection against a falling exchange rate of the Yuan. With gold such a strategic asset the government has encouraged Chinese investors to buy gold hence we do not believe that they have placed restraints on imports of gold.

Gold ETFs – Yesterday, in New York, there were no purchases or sales into or from the SPDR gold ETF (GLD) or the Gold Trustb  (IAU), leaving their respective holdings at 807.96 tonnes and 198.75 tonnes. 

Since January 4th 2016, 205.83 tonnes of gold has been added to the SPDR gold ETF and to the Gold Trust. 

 Julian D.W. Phillips: GoldForecaster.com | SilverForecaster.com | StockBridge Management Alliance 

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