Gold breaches $1,250 level as dollar enters bear market

 Gold Today –New York closed yesterday at $1,243.70. London opened at $1,247.00 today. 

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

         The $: € was much weaker at $1.1657 after yesterday’s $1.1532: €1.

         The Dollar index was much weaker at 94.09 after yesterday’s 94.77

         The Yen was stronger at 111.69 after yesterday’s 111.94:$1. 

         The Yuan was weaker at 6.7697 after yesterday’s 6.7549: $1. 

         The Pound Sterling was slightly weaker at $1.3001 after yesterday’s $1.3033: £1.

Yuan Gold Fix
Trade Date     Contract Benchmark Price AM 1 gm Benchmark Price PM 1 gm
      2017    7    20

     2017    7    19           

     2017    7    18

SHAU

SHAU

SHAU

/

271.44

271.41

Trading at 273.6

271.36

271.17

$ equivalent 1oz at 0.995 fineness

@    $1: 6.7697

       $1: 6.7549

       $1: 6.7481     

  /

$1,244.87

$1,245.99

Trading at $1,252.06

$1,244.50

$1,244.88

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 only $0.80 lower than  Shanghai yesterday and has been trying to follow Shanghai all the way up, with London opening today at a discount to Shanghai’s trading today of $5.06 an narrower discount than  we have seen this week. Both London and New York are being pulled up by Shanghai. With this strong Chinese demand the chances of both London and New York breaking through $1,250 were greatly increased.  In the event gold did breach the $1,250 level.  The question is whether it can maintain this.

Today, the U.S. dollar weakened heavily after Draghi of the E.C.B.’s announcement.

Silver Today –Silver closed at $16.30 yesterday after $16.27 at New York’s close Wednesday.

LBMA price setting:  The LBMA gold price was set this morning at $1,247.25 from yesterday’s $1,239.85.  The gold price in the euro was set at €1,071.61 after yesterday’s €1.074.72.

Just after the opening of New York the gold price was trading at $1,249.75 and in the euro at €1,072.93. At the same time, the silver price was trading at $16.43. 

Price Drivers

The gold price is attacking overhead resistance in the $1,250 area. If it maintains its strength it will have broken overhead resistance.

Draghi was more dovish than the markets expected, basically saying that there will be no change in the stance of the E.C.B. We expected that that would slow or halt the rise of the euro, but not a bit of it. The euro is stronger again today, with a gold price in the euro that is slightly lower, while the gold price in the dollar is strong. As with the U.S. inflation is just not rising as the central banks want and need it to. Both the U.S. Fed and the E.U.’ E.C.B. will hold back tapering incentives until they see inflation and wages rise. We expect that will take a long, long time still.

Of very great significance is the dollar index. We now call the dollar bear market which has begun in earnest! We see the dollar weakening for several years now. We believe the world’s monetary system is confirming that it has entered a multi-currency system from the dollar hegemony system it has been in since the early 1970’. This means that gold will gather a far more significant role in the global monetary system as a reserve asset. Over time, from now on gold will improve its investor attraction considerably. Silver will follow it.

We expect the euro gold price to rise as Europeans are not selling gold, but we see them increasing their demand for gold. Gold continues to hold higher levels in the euro, which shows real demand for physical gold in the E.U.

Gold ETFs – Yesterday saw sales of 5.323 tonnes from the SPDR gold ETF and purchases of 0.45 of a tonne in the Gold Trust. The SPDR gold ETF and Gold Trust holdings are at 816.125 tonnes and at 211.86 tonnes respectively.

The U.S. selling from the SPDR gold ETF persists with very large sales of physical gold as the gold price rises. Clearly these investors are seeing the gold price being turned back at these levels. Yes, there may be institutional attempts to break the gold price down, but so far this week they have failed to do this. Chinese demand is strong simply because the economy and middle class are growing and is likely to continue to do so. We see the sellers halting sales if the gold price confirms it has broken overhead resistance and rises. Then we expect to see U.S. demand come in strongly. We do not underestimate the demand from LMEprecious arbitraging gold into Hong Kong. Gold price differentials between London and China are already narrowing!

Since January 6th 2017 15.528 tonnes have been added to the SPDR gold ETF and the Gold Trust.

Julian D.W. Phillips 

 GoldForecaster.com | StockBridge Management Alliance 

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