Gold nudging upside resistance

Gold Today –New York closed at $1,260.30 yesterday after closing at $1,255.00 Friday. London opened at $1,260.05 today. 

Overall the dollar was weaker against global currencies, early today. Before London’s opening:

         The $: € was weaker at $1.1252 after yesterday’s $1.1240: €1.

         The Dollar index was slightly weaker at 96.90 after yesterday’s 96.94

         The Yen was slightly stronger at 111.24 after yesterday’s 111.34:$1. 

         The Yuan was barely changed at 6.8901 after yesterday’s 6.8903: $1. 

         The Pound Sterling was weaker at $1.2980 after yesterday’s $1.3018: £1.

Yuan Gold Fix
Trade Date Contract Benchmark Price AM 1 gm Benchmark Price PM 1 gm
      2017    5    23

     2017    5    22

     2017    5    19

SHAU

SHAU

SHAU

279.59

279.29

Trading unavailable

279.76

279.28

$ equivalent 1oz at 0.995 fineness

@    $1: 6.8901

       $1: 6.8903

       $1: 6.8929     

  /

$1,257.10

$1,255.27

/

$1,257.86

$1,255.22

Please note that the Shanghai Fixes are for 1 gm of gold. From the Middle East 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.]

 The Shanghai Gold Exchange was trading at 281.1 towards the close in Shanghai. Adjusting to the higher quality of gold traded there this price translates into $1,263.95. London opened at a $3.90 discount to Shanghai.

London and New York took gold higher yesterday, but today Shanghai lifted the gold price through resistance with London going higher on the back of Shanghai. All in all, the discounts of London and New York to Shanghai are very small, once again.

One misunderstanding some commentators have is that foreign banks are being forced to use the International Gold Exchange in Shanghai. The fact that many foreign banks have local presences and Chinese banks are Chinese means they can participate alongside the Chinese gold investor on the SGE. This places them in a position to effectively arbitrage western markets and Shanghai, through using currency books, positions in London and Shanghai, only moving gold into Shanghai when  their positions get too large in London. It also allows them to remain opaque in their dealings, while continuing to shift gold bullion into China. This means their positions are much, much bigger than seems to be the case on the International Shanghai Gold Exchange.

The result is far closer prices between the three Exchanges than has been the case in the past.

We note a major bank for the first time [Citibank] is acknowledging that Shanghai’s influence on the gold price will grow. But these analysts state that “Shanghai still holds a prominent position as the largest gold futures market outside of the U.S., despite a reduction in Shanghai Futures Exchange volume for the year to date to around 450 million ounces. By comparison, New-York based COMEX gold volume has grown 15% year-on-year to around 2.1 billion ounces.” We believe this distorts the real gold picture in the two markets.

What is true is that COMEX has a turnover of 2.1 billion ounces of ‘paper gold’ [Gold derivatives – Options and Futures] Of this  between 1% and 5% is actual gold bullion, whereas all of Shanghai’s gold trade is physical gold bullion. i.e. COMEX trades between 653 tonnes and 3,266 tonnes to Shanghai’s  almost 14,000 tonnes annually. COMEX’s turnover is far closer to 653 tonnes of physical gold bullion than 3,000 tonnes. This makes New York only 5% of Shanghai’s physical gold bullion turnover.

This is why we see Shanghai becoming, if not there already, the world’s gold hub for physical gold.

Silver Today –Silver closed at $17.14 yesterday after $16.84 at New York’s close yesterday.

LBMA price setting:  The LBMA am gold price was set today at $1,259.90 from yesterday’s $1,255.25.  The gold price in the euro was set at €1,119.61 after yesterday’s €1,117.17.

Ahead of the opening of New York the gold price was trading at $1,259.65 and in the euro at €1,121.35. At the same time, the silver price was trading at $17.13. 

Price Drivers

The gold price continued to rise in the U.S. dollar but only slowly in the euro. For a convincing breakout in the gold price we need to see it rise strongly in the euro too. With the Chinese Yuan doing its best to stay close to the moves in the dollar, we expect Shanghai to remain stable. The dollar continues to slip albeit at a slower pace. Meanwhile it continues to consolidate, while nudging overhead resistance.

As you can see below U.S. buying of physical gold via the SPDR gold ETF [GLD] resumed gently. This is not enough to move prices heavily, but it is an indication of returning U.S. demand.

Gold ETFs – Yesterday, saw purchases of 1.776 of a tonne into the SPDR gold ETF but no change in the holdings of the Gold Trust. Their holdings are now at 852.483 tonnes and at 202.82 tonnes respectively.

Since January 6th 2017 43.709 tonnes have been added to the SPDR gold ETF and the Gold Trust.

 Julian D.W. Phillips 

 GoldForecaster.com | SilverForecaster.com | StockBridge Management Alliance 

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