Weaker Dollar and Fed Doubts Help Steady Gold Price

Gold Today –New York closed at $1,257.20 yesterday after closing at $1,251.80 Tuesday. London opened at $1,257.95 today. 

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

         The $: € was weaker at $1.1234 after yesterday’s $1.1189: €1.

         The Dollar index was weaker at 97.01 after yesterday’s 97.33

         The Yen was slightly weaker at 111.80 after yesterday’s 111.88:$1. 

         The Yuan was stronger at 6.8737 after yesterday’s 6.8905: $1. 

         The Pound Sterling was slightly weak at $1.2973 after yesterday’s $1.2978: £1.

Yuan Gold Fix
Trade Date Contract Benchmark Price AM 1 gm Benchmark Price PM 1 gm
      2017    5    25

     2017    5    24

     2017    5    23

SHAU

SHAU

SHAU

 

 

279.54

281.40

Trading at 280.00

278.55

281.41

$ equivalent 1oz at 0.995 fineness

@    $1: 6.8737

       $1: 6.8906

       $1: 6.8901     

 

  /

$1,261.82

$1,265.30

Trading at $1,267.00

$1,257.35

$1,265.35

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.]

 New York closed $9.80 lower than Shanghai yesterday. London opened today at a $9.05 discount to Shanghai.

Shanghai prices rose after New York’s close rose too, catching up slightly to Shanghai, as you can see in the reduced discount New York is standing at. London opened at a smaller discount to Shanghai too. If this continues then Shanghai holds the pricing power. The Yuan overnight was quite a bit stronger against the dollar as the People’s Bank of China pressured the banks to take it higher against the dollar, likely to compensate for the weakness in the dollar.

Silver Today –Silver closed at $17.19 yesterday after $17.07 at New York’s close yesterday.

LBMA price setting:  The LBMA gold price was set today at $1,257.10 from yesterday’s $1,251.35.  The gold price in the euro was set at €1,120.81 after yesterday’s €1,118.77.

Ahead of the opening of New York the gold price was trading at $1,257.20 and in the euro at €1,121.30. At the same time, the silver price was trading at $17.18 

Price Drivers

The dollar has again turned weaker against other currencies, particularly against the Yuan which has been weakening with the dollar recently. Yuan strength was necessary to show overall stability against all currencies.

There were no sales or purchases into or from the U.S. based gold ETFs showing U.S. investors sitting on the sidelines and not influencing the gold price.

The gold price remains in a narrowing consolidation phase before a strong move either way.

The Fed

Equity markets have discounted a June rate hike and continue rising. But markets noted the Fed minutes indicated ongoing caution, needing more evidence that the economic slowdown in the first quarter was only temporary. It is a worry that while employment has improved considerably it is not sufficient to cause wages to rise. Service jobs have provided most of the employment, but as much of these are, primarily, temporary there is little wage bargaining power in these.

Swiss Gold Exports to India & China

India was the largest destination for Switzerland’s gold for the fourth straight month, over double 22 metric tonnes, recorded a year earlier, to 48 metric tonnes.

Exports to China totaled 40 metric tonnes in April, up from 19 metric tonnes a year earlier and 68% higher than 24 metric tonnes reported in March.

Ongoing heavy Asian demand continues with Swiss refineries still going flat out re-refining ounces into grams and kilos to meet that demand. Please note such refining is relatively expensive and only done when the change is semi-permanent or permanent. It does represent a permanent shift of gold to the east that has been going on for many years now. The west is seeing seepage of its gold to the Far East which will not return.

Flows west remain low, with exports to the UK falling below 1 metric tonne for the first time since January 2016, from just under 3 metric tonnes in March and 77 metric tonnes a year earlier. The UK was the largest destination for Switzerland’s gold last year due to a surge in investor demand, especially via gold-backed ETFs, but has fallen away significantly this year.

Exports to the US were just under 0.4 metric tonnes, largely unchanged on the month.

London Gold Price Setting [Fix] suffer lower liquidity and greater volatility

Trading volumes in the gold price setting, that replaced the London “Fix”, fell sharply after April 10, when four of the 14 participating banks and brokers stopped taking part after the auction’s administrator, Intercontinental Exchange (ICE), introduced a requirement to clear that meant participants had to modify their own IT systems and procedures.

Lower liquidity, which fuels volatility, led to the benchmark diverging more widely from the underlying spot price, according to the analysis of ICE and trading data, leaving gold buyers and sellers around the world with large unexpected gains or losses.

In the three weeks after clearing was launched, average trading volumes were 25% lower than in the previous three weeks and the average difference from the spot price tripled to 87 cents from 29 cents, the analysis shows. The biggest divergence, on April 11, saw the auction settle $12.20, or 1%, away from the spot price. Even excluding this large swing, the average divergence in the period rose to 42 cents.

ICE was warned by at least two participating banks that the loss of those banks which were not ready to handle clearing would make the benchmark significantly more volatile. This is a bad omen for the London price setters as Shanghai’s benchmark prices reflect spot prices more accurately. Already the Dubai Gold Exchange uses the Shanghai Benchmark prices in its derivatives trading. Producers and manufacturers will be more inclined after this news to turn to Shanghai for their contract pricing in the days ahead.

Gold ETFs – Yesterday, saw no sales or purchases of gold to or from the SPDR gold ETF but no change in the holdings of the Gold Trust. Their holdings are now at 847.452 tonnes and at 202.82 tonnes respectively.

Since January 4th 2016, 248.734 tonnes of gold have been added to the SPDR gold ETF and to the Gold Trust.  Since January 6th 2017 38.678 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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