Will Gold and Silver Pull Back or March Ahead?

By Stefan Gleason*

Either way, long-term gold bulls shouldn’t sweat this particular technical level. Major bull markets need to pull back and reconsolidate periodically.

Whether that starts happening this week, or later on at higher price levels, a downturn of some magnitude is inevitable.

One indicator that may be pointing toward a pullback sooner rather than later is the negative divergence in gold mining stocks which are often leading indicators for the yellow metal.

Gold Price Chart

Despite gold spot prices rallying along with the broader U.S. equity market last week, the HUI Gold BUGS (Basket of Unhedged Gold Stocks) Index fell by 3.8%. That suggests that some big institutional speculators are turning bearish on gold near term.

If you’re looking to accumulate bullion, a pullback should be welcomed as an opportunity to get in at lower levels. Long-term bulls will not want to see anything as severe as the drawdown that occurred in the second half of 2016, however. They will be looking for any coming correction to bottom out above the $1,125/oz low hit in December.

Higher highs and higher lows characterize a major bull market. The December 2016 low was a higher low than the one from 2015. A higher high will occur when gold prices can move above $1,375. At that point, the public might start taking notice of precious metals markets – which so far this year have been overshadowed by the series of record highs in the U.S. stock market.

President Donald Trump has taken credit for the rally in stocks. His vows to cut taxes and regulations have, no doubt, driven buying by investors.

Over the weekend, Trump sent out this tweet: “Great optimism for future of U.S. business, AND JOBS, with the DOW having an 11th straight record close. Big tax & regulation cuts coming!”

Great optimism for future of U.S. business, AND JOBS, with the DOW having an 11th straight record close. Big tax & regulation cuts coming!

Trump also wants a weaker dollar to help boost U.S. manufacturing. That could put him in conflict with the Janet Yellen Fed if it moves to raise interest rates.

Trump will have the opportunity to appoint multiple new members to the Federal Reserve Board. It’s one of the reasons why top financial and geopolitical analyst Jim Rickards is so bullish on gold.

“If Trump follows through on the logic of the cheaper dollar, he’s going to appoint doves to the Board. The market’s going to get the signal immediately and the price of gold is going to soar,” Rickards said in a recent Money Metals podcast interview. “We’ve got some very short run headwinds, maybe between now and April, but for certainly the second half, even the last three quarters of the year, I’m extremely bullish on gold.”

There will be some bumps along the way. But those who hang on tight for the ride in gold and silver markets stand to be rewarded.

Gold: $1,250 resistance becoming support

 Gold Today –New York closed at $1,256.70 on the 24th February after closing at $1,248.80 on the 23rd February. London opened at $1,255.00 today.

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

         The $: € was slightly stronger at $1.0586: €1 from $1.0589: €1 on Friday.

         The Dollar index was slightly stronger at 101.06 from 100.95 on Friday. 

         The Yen was slightly stronger at 112.30:$1 from Friday’s 112.85 against the dollar. 

         The Yuan was weaker at 6.8800: $1, from 6.8717: $1, Friday. 

         The Pound Sterling was weaker at $1.2412: £1 from Friday’s $1.2553: £1.

Yuan Gold Fix

Trade Date Contract Benchmark Price AM 1 gm Benchmark Price PM 1 gm
      2017    2    27

     2017    2    24

      2017    2    23

SHAU

SHAU

SHAU

/

278.49

276.08

/

279.76

275.93

$ equivalent 1oz @  $1: 6.8800

      $1: 6.8717

$1: 6.8786

  /

$1,260.53

$1,248.37

/

$1,266.28

$1,247.69

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.]

 At the close in Shanghai today, the gold price was trading at 280.0 Yuan, which directly translates into $1,265.84. But allowing for the difference of gold being traded this equates to a price of $1,260.84. This is $4 higher than the New York close and $6 higher than London.

Shanghai opens the week pulling both London and New York higher again but with the two centers following close behind.

LBMA price setting:  The LBMA gold price was set today at $1,256.25 up from Friday’s $1,255.35.  

The gold price in the euro was set higher at €1,187.05 after yesterday’s €1,185.02.

Ahead of the opening of New York the gold price was trading at $1,255.20 and in the euro at €1,185.94.  At the same time, the silver price was trading at $18.37. 

Silver Today –Silver closed at $18.35 at New York’s close Friday against $18.18 on the 23rd February.

Price Drivers

Looking back over the last week, we see only purchases of 0.44 tonnes of gold into the U.S. based gold ETFs. This confirms to us that the upward pressure on the gold price is coming from the Far East, primarily Shanghai.

This is remarkable as the gold price has risen around $20 in the same period, breaking through persistent overhead resistance on the way.It clearly shows that U.S. factors and U.S. buying has not provided the upward pressure on the gold price and confirmed our view that it has been upward pressure from Shanghai.

Political uncertainty is certainly preventing any selling in the developed world as we move towards the Dutch, French and German elections. Italy is looking like a major source of such uncertainty too.

Gold ETFs – Friday again saw no sales or purchases from or into the SPDR gold ETF or the Gold Trust.  Their respective holdings are now at 841.169 tonnes and 201.82 tonnes. 

 Julian D.W. Phillips 

 GoldForecaster.com | SilverForecaster.com | StockBridge Management Alliance 

Structural Change in Global Gold Markets as Price Touches $1,260

 

 Gold Today –New York closed at $1,248.80 on the 23rd February after closing at $1,238.10 on the 22nd February. London opened at $1,254.00 today.

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

         The $: € was weaker at $1.0589: €1 from $1.0545: €1 on yesterday.

         The Dollar index was weaker at 100.95 from 101.36 on yesterday. 

         The Yen was stronger at 112.85:$1 from yesterday’s 113.20 against the dollar. 

         The Yuan was stronger at 6.8717: $1, from 6.8786: $1, yesterday. 

         The Pound Sterling was stronger at $1.2553: £1 from yesterday’s $1.2477: £1.

Yuan Gold Fix
Trade Date Contract Benchmark Price AM 1 gm Benchmark Price PM 1 gm
      2017    2    24

     2017    2    23

      2017    2    22

SHAU

SHAU

SHAU

/

276.08

275.89

/

275.93

275.8

$ equivalent 1oz @  $1: 6.8717

      $1: 6.8786

$1: 6.8818

  /

$1,248.37

$1,246.93

/

$1,247.69

$1,246.53

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.]

 At the close in Shanghai today, the gold price was trading at 279.50 Yuan, which directly translates into $1,265.10. But allowing for the difference in quality of gold being traded this equates to a price of around $1,260.10. This is $8 higher than the New York close and $7 higher than London.

Bearing in mind that the prices of the 23rd [yesterday] above are the prices ahead of London’s opening and well ahead of New York’s opening. As you can see both London and New York were dragged higher by Shanghai. Looking at Shanghai’s closing prices today [not in the table as they have not yet been officially released], we are looking at prices over $1,260. If London and New York continue to follow Shanghai, which we believe will happen, then both London and New York will see good rises today.

LBMA price setting:  The LBMA gold price was set today at $1,255.35 up from yesterday’s $1,237.35.  

The gold price in the euro was set higher at €1,185.02 after yesterday’s €1,172.40.

Ahead of the opening of New York the gold price was trading at $1,257 80 and in the euro at €1,186.16.  At the same time, the silver price was trading at $18.30. 

Silver Today –Silver closed at $18.18 at New York’s close yesterday against $18.04 on the 22nd   February.

Price Drivers

The media will continue to attribute rises in the gold price to events in the U.S. with an occasional nod towards gold ETF buying. But today we see there was no purchases into the U.S. based gold ETFs. The dollar weakened against most currencies, but even in the euro against which the dollar is most often measured, the gold price rose almost the same as it did in the dollar. So, today is a day when the gold price has again risen against all currencies, with Shanghai leading the way! This pattern, now that the slowdown in Chinese demand due to the Lunar New Year is out of the way, seems to be taking hold of the gold markets.

It is a structural change in the global gold markets and appears to us that effective arbitraging [dealing between two markets] has become efficient. Banks that are permitted to take gold into China must be active in doing this but the main player has to be the ICBC which is a member of the price setting committee and a ‘market maker’ in London with their vaults, in total, accommodating 3,500 tonnes of gold for clients and itself.

Gold ETFs – Yesterday saw no sales or purchases from or into the SPDR gold ETF or the Gold Trust.  Their respective holdings are now at 841.169 tonnes and 201.82 tonnes. 

Julian D.W. Phillips 

 GoldForecaster.com | SilverForecaster.com | StockBridge Management Alliance 

To ensure you can benefit from the future higher gold prices we will see then, you need to hold it in a manner that makes sure it can’t be taken from you. Contact us at admin@stockbridgemgmt.com to buy physical gold in a way that we feel, removes the threat of it being confiscated. We’re the only storage company that offers that!

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  Global Gold Price (1 ounce)
  Today Yesterday
Franc Sf1,263.52 Sf1,250.94
US $1,257.80 $1,240.15
EU €1,186.16 €1,174.00
India Rs.83,818.53 Rs. 82,866.82

 

Gold price measuring the value of currencies – not vice versa

Gold Today –New York closed at $1,236.30 on the 21st February after closing at $1,239.00 on the 20th February. London opened at $1,235.00 today.

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

         The $: € was stronger at $1.0505: €1 from $1.0558: €1 on yesterday.

         The Dollar index was stronger at 101.59 from 101.37 on yesterday. 

         The Yen was stronger at 113.32:$1 from yesterday’s 113.56 against the dollar. 

         The Yuan was stronger at 6.8818: $1, from 6.8866: $1, yesterday. 

         The Pound Sterling was stronger at $1.2491: £1 from yesterday’s $1.2423: £1.

Yuan Gold Fix
Trade Date Contract Benchmark Price AM 1 gm Benchmark Price PM 1 gm
      2017    2    22

     2017    2    21

      2017    2    20

SHAU

SHAU

SHAU

/

275.57

274.98

/

275.19

275.04

$ equivalent 1oz @  $1: 6.8818

      $1: 6.8866

$1: 6.8783

  /

$1,244.62

$1,243.45

/

$1,242.90

$1,243.72

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.]

 At the close in Shanghai today, the gold price was trading at 275.8 Yuan, which directly translates into $1,246.53. But allowing for the difference of gold being traded this equates to a price of $1,241.53. This is $5 higher than New York and $1 higher than London. We watch to see if London and New York continue to follow Shanghai or not.

LBMA price setting:  The LBMA gold price was set today at $1,237.50 up from yesterday’s $1,228.70.  

The gold price in the euro was set higher at €1,177.79 after yesterday’s €1,166.30.

Ahead of the opening of New York the gold price was trading at $1,237.70 and in the euro at €1,177.51.  At the same time, the silver price was trading at $18.00. 

Silver Today –Silver closed at $17.98 at New York’s close yesterday against $18.03 on the 20th February.

Price Drivers

With the gold price still struggling to break through $1,240 – $1,250 we expect the price to keep pushing higher against the dollar. It is rising well in all other currencies.

We all watch the gold price in dollars to see whether it is rising or falling. This way of thinking is deeply embedded, going back to the time when the dollar was entrenched as the world’s most important currency.

This has extended to each of us, looking first at our expectations of which way the gold price is going in the dollar, then our view of the currency under which we live, against the dollar. Our objective is to see how gold will perform in our currency [if it is not the dollar]. The separation of our currency against the dollar and the dollar against gold is because the dollar, right now, is the global currency. But this is waning. Indeed, the gold price in the dollar is slowly becoming a measure of the dollar against gold, not the other way around.

Over time as we move into a multi-currency system and when the biggest physical gold market, China, dominates the gold price [which is happening right now], we will have to shift our thinking back to measuring supply and demand for gold.

How will we see this measure the gold price? We have reported the alignment of the world’s three gold markets, London, New York and Shanghai as Shanghai gains in prominence. We are seeing far smaller impacts of speculative action, that dominates New York. We are seeing London’s bullion banks ensure they are as prominent in the Chinese market as they are in London. China has made speculative trading much more expensive than New York, and since then we see more stability in the gold price. This tells us the effect of the Chinese gold market is becoming easily visible.

In turn we see the gold price more effectively measuring the value of currencies, as it has over several millenniums. Today’s action shows the gold price rising in all currencies, but more in the euro than in the dollar. In other ‘soft’ currencies the gold price is an excellent hedge against a weakening currency and more so over the long term. Over the very long term the gold price outperforms most other investments. For instance in the early ‘70’s a South African investor would have bought a Krugerrand for R300, it is now priced at around R16,200.

Gold ETFs – Yesterday saw no sales or purchases from or into the SPDR gold ETF or the Gold Trust.  Their respective holdings are now at 841.169 tonnes and 201.38 tonnes. 

 Julian D.W. Phillips 

 GoldForecaster.com | SilverForecaster.com | StockBridge Management Alliance 

Greenspan, Inflation and China boost gold

By Frank Holmes – CEO and Chief Investment Officer US Global Investors

With U.S. inflation rising, a March rate hike now looks all but imminent. Many economists—including the Goldman Sachs economists I had the pleasure to hear speak this week—expect to see at least three such hikes this year alone.

US Inflation Zooms up 5 Year High
click to enlarge

Gold responded accordingly, closing above $1,240 for the first time since soon after the November election. Below you can see the gold price charted against the inflation-adjusted 10-year Treasury yield, which is now in subzero territory.

US Inflation Zooms up 5 Year High
click to enlarge

The question I have is: Why would an investor deliberately choose to lose money? But that’s precisely what’s happening now with inflation where it is.

2-Year 3-Year 10-Year
Treasury Yield 1.22% 1.95% 2.45%
Consumer Price Index 2.50% 2.50% 2.50%
Real Yield -1.28% -0.55% -0.05%
As of February 16
Source: Federal Reserve, U.S. Global Investors

These were among some of the topics addressed by former Fed Chair Alan Greenspan, who spoke with the World Gold Council (WGC) for the winter edition of its “Gold Investor.”

Gold primary global currency

“Significant increases in inflation will ultimately increase the price of gold,” Greenspan said. “Investment in gold now is insurance. It’s not for short-term gain, but for long-term protection.”

He also reiterated his view, which I share, that gold is much more than just a metal but a currency:

I view gold as the primary global currency. It is the only currency, along with silver, that does not require a counterparty signature. Gold, however, has always been far more valuable per ounce than silver. No one refuses gold as payment to discharge an obligation. Credit instruments and fiat currency depend on the credit worthiness of a counterparty. Gold, along with silver, is one of the only currencies that has an intrinsic value. It has always been that way. No one questions its value, and it has always been a valuable commodity, first coined in Asia Minor in 600 BC.

Although major stock indices continue to hit fresh all-time highs on hopes of tax reform and fiscal stimulus, it’s important to temper the exuberance with a little prudence. The bull market, currently in its eighth year, is facing some significant geopolitical and macroeconomic uncertainty, and we could be getting late in the economic cycle. This makes gold’s investment case even more attractive. For the 10-year period, the yellow metal has shown an inverse correlation to risk assets such as stocks and high-yield bonds. It might be time to ensure that your portfolio has the recommended 10 percent in gold—that includes 5 percent in gold coins and jewelry, the other 5 percent in quality gold equities and mutual funds.

China and India to Lead World Economy by 2050

The long-term investment case for gold looks just as compelling following bullish reports last week from PricewaterhouseCoopers (PwC) and Morgan Stanley. China and India are the world’s top two consumers of gold, and both countries are expected to make huge economic gains in the next few decades. This is likely to boost gold demand even more, which has a high correlation with discretionary income growth.

China alone consumed approximately 2,000 metric tons in 2016, or roughly 60 percent of all the new gold that was mined during the year, according to veteran mining commentator Lawrie Williams, who based his estimates partially on calculations made by BullionStar’s Koos Jansen. The 2,000 metric tons is a much higher figure than what analysts and the media have been telling us, but I’ve always suspected China’s annual consumption to run higher than “official” numbers.

According to PwC’s models, China and India should become the world’s number one and number two largest economies by 2050 based on purchasing power parity (PPP). China, of course, is already the largest economy by that measure, but PwC sees the Asian giant surpassing the U.S. economy on an absolute basis by as early as 2030.

Top 10 Economies Dominated Emerging Markets 2050
click to enlarge

As for India, it “currently comprises 7 percent of world GDP at PPP, which we project to rise steadily to over 15 percent by 2050,” PwC writes. “This is a remarkable increase of 8 percentage points, gaining the most ground of any of the countries we modeled.”

I think it’s also worth highlighting Indonesia, which is expected to replace Japan as the fourth-largest economy by midcentury. E7 economies, in fact, could end up dominating the top 10, with Mexico moving up to number seven and France dropping off. You can see the full list on PwC’s site.

China Set to Become High Income by 2027

Then there’s Morgan Stanley’s 118-page report, “Why we are bullish on China.” The investment bank sees a number of dramatic changes over the coming years, the most significant being China’s transition from a middle-income nation to a prosperous, high-income nation sometime between 2024 and 2027. (The high-income threshold is a gross national income (GNI) of around $12,500 per capita.) This would make China one of only three countries with populations over 20 million that have managed to accomplish this feat in the past 30 years, the other two being South Korea and Poland.

Top 10 Economies Dominated Emerging Markets 2050
click to enlarge

This trajectory is supported by a number of expectations, including, most importantly, Morgan Stanley’s confidence that China will manage to avoid a debt-related financial crisis, as some investors might now believe is forthcoming. The bank’s view is that the Chinese government will successfully provide “adequate policy buffers and deft management of the policy cycle” to ensure the growth of per capita incomes.

Other key transitions will additionally need to take place for the country to reach high-income status by 2027, including transitioning from a high investment economic model to high consumption and implementing meaningful state-owned enterprise reform. Although China is currently transitioning from a manufacturing economy to one that’s focused on consumption and services, the country will also need to emphasize high value-added manufacturing.

chineseshoppers

 In addition, since President Donald Trump has officially withdrawn the U.S. from the Trans-Pacific Partnership (TPP), China could very well use this as an opportunity to take the lead in global trade, Morgan Stanley writes. This view aligns with comments I’ve previously made. China is already reportedly weighing its options with two alternative free-trade agreements (FTAs), one that includes the U.S. (the Free Trade Area of the Asia Pacific) and one that does not (the Regional Comprehensive Economic Partnership). It’s probably safe to say, however, that given Trump’s opposition to FTAs, trade negotiations involving the U.S. are unlikely to happen anytime soon.

Investors Underweight China

Taken together, this is all good news for gold. Again, when incomes rise in China and India, gold demand has historically benefited.

But it also makes China a compelling place to invest in. And yet investors have tended to be shy, underweighting the country for at least a decade in relation to the broader emerging markets universe.

Time Reverse Course China Stocks 2050
click to enlarge

This, despite the fact that China has largely outperformed emerging markets for the last 15 years. According to Morgan Stanley, the MSCI China Index has delivered a compound annual growth rate (CAGR) of 13 percent for the 15-year period, versus the MSCI Emerging Markets Index’s CAGR of 10 percent over the same period.

Stronger dollar dents gold price

 Gold Today –New York closed at $1,239.00 on the 20th February after closing at $1,235.60 on the 17th February. London opened at $1,233.00 today.

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

         The $: € was stronger at $1.0558: €1 from $1.0619: €1 on yesterday.

         The Dollar index was stronger at 101.37 from 100.87 on yesterday. 

         The Yen was weaker at 113.56:$1 from yesterday’s 113.17 against the dollar. 

         The Yuan was weaker at 6.8866: $1, from 6.8783: $1, yesterday. 

         The Pound Sterling was weaker at $1.2423: £1 from yesterday’s $1.2462: £1.

Yuan Gold Fix
Trade Date Contract Benchmark Price AM 1 gm Benchmark Price PM 1 gm
      2017    2    21

     2017    2    20

      2017    2    17

SHAU

SHAU

SHAU

/

274.98

275.81

/

275.04

275.89

$ equivalent 1oz @  $1: 6.8866

      $1: 6.8783

$1: 6.8654

  /

$1,243.45

$1,248.64

/

$1,243.72

$1,249.91

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.]

 LBMA price setting:  This morning’s LBMA gold price was set today at $1,228.70 down from yesterday’s $1,235.35.  

The gold price in the euro was set higher at €1,166.30 after yesterday’s €1,163.12.

Ahead of the opening of New York the gold price was trading at $1,231.65 and in the euro at €1,169.21.  At the same time, the silver price was trading at $17.92. 

Silver Today –Silver closed at $18.03 at New York’s close yesterday against $18.00 on the 17th February. Silver is hitting overhead resistance, but if it can rise 50 cents it could become extremely vigorous.

Price Drivers

Today’s action was dollar dominated with the gold price in dollars falling and the euro price rising.  With no buying or selling of U.S. based gold ETF shares the New York gold price had little reason to rise but it did.

In London the gold price fell back as the dollar held higher ground. But the gold price apart from currencies, is standing still and, once again, simply reflecting exchange rate moves. Nevertheless, the fundamentals for gold are extremely strong.

It appears to be that the gold price is in “the quiet before the storm”.  Just what will trigger it is not necessarily a dramatic event, but an event that occurs when demand and supply are in balance. That should be soon!

In India, the forecast for there to be enough new currency to replace the old, now illegal tender, by May appears to be becoming accurate. The demand from India for gold is not yet feeding through to London in the volumes expected, yet.

Gold ETFs – Yesterday was a holiday in the USA vand thus saw no sales or purchases from or into the SPDR gold ETF or the Gold Trust.  Their respective holdings are now at 841.169 tonnes and 201.38 tonnes. 

 Julian D.W. Phillips 

 GoldForecaster.com | SilverForecaster.com | StockBridge Management Alliance 

Gold price consolidating again

 Gold Today –New York closed at $1,235.60 on the 16th February after closing at $1,239.30 on the 17th February. London opened at $1,234.00 today.

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

         The $: € was stronger at $1.0619: €1 from $1.0645: €1 on Friday.

         The Dollar index was slightly stronger at 100.87 from 100.69 on Friday. 

         The Yen was weaker at 113.17:$1 from Friday’s 112.85 against the dollar. 

         The Yuan was weaker at 6.8783: $1, from 6.8654: $1, Friday. 

         The Pound Sterling was stronger at $1.2462: £1 from Friday’s $1.2407: £1.

Yuan Gold Fix
Trade Date Contract Benchmark Price AM 1 gm Benchmark Price PM 1 gm
      2017    2    20

     2017    2    17

      2017    2    16

SHAU

SHAU

SHAU

/

275.61

275.34

/

275.89

274.79

$ equivalent 1oz @  $1: 6.8783

      $1: 6.8654

$1: 6.8603

  /

$1,248.64

$1,248.35

/

$1,249.91

$1,245.85

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.]

 Shanghai was trading at 275.30 Yuan towards the close today. This equates to $1,244.90, but allowing for the different quality of gold being traded [0.9999 fineness] it stands at $1,239.90. Shanghai is in line with both London and New York.

If we look back to the time when the SGE started to make speculation more expensive, earlier this year, we see that the price differentials between London, New York and Shanghai have narrowed and when Shanghai is not leading the way the three markets remain in line. This implies that the efforts of arbitrageurs appear to be succeeding in smoothing prices out. This makes the global gold price a reliable one with speculators losing their power to shift the gold price heavily without additional physical gold action.

Consequently, we expect in the future to see fewer violent swings in the gold price between markets. We do see that gold prices are reflecting exchange rate moves, which is what gold should do.

LBMA price setting:  The LBMA gold price was set today at $1,235.35 down from Friday’s $1,241.40.  

The gold price in the euro was set higher at €1,163.12 after Friday’s €1,166.29.

Ahead of the opening of New York the gold price was trading at $1,236.35 and in the euro at €1,163.90.  At the same time, the silver price was trading at $18.02. 

Silver Today –Silver closed at $18.00 at New York’s close Friday against $18.08 on the 16th February

Price Drivers

The week has started in a quiet mood with no startling gold related news moving prices. Sales from the U.S. based gold ETFs have held back prices below $1,240, but we don’t see them as precipitating a fall in the gold price today. We expect to see more consolidation today.

The august Alan Greenspan has said, “The European Central Bank (ECB) has greater problems than the Federal Reserve. The asset side of the ECB’s balance sheet is larger than ever before, having grown steadily since Mario Draghi said he would do whatever it took to preserve the euro.  I have grave concerns about the future of the Euro itself.  Northern Europe has, in effect, been funding the deficits of the South; that cannot continue indefinitely. The Eurozone is not working.” Greenspan said Brexit is almost certainly set to trigger a collapse of the ECB despite the UK not having signed up to take on the currency.

Alan Greenspan says that investors are back to safe havens including precious metals because there is no trust in the banking system. And he said countries cannot continue to borrow in the way that they have been signaling that quantitative easing is not working. He added: “I view gold as the primary global currency.

Alan Greenspan is not selling anything, is not given to extreme statements, but is an ex-Chairman of the U.S. Federal Reserve.

Central banks in all nations have to control their national currency. The more currencies face loss of confidence the more control over their own citizen’s money is needed. Within their own jurisdiction central banks almost cannot be held to account. That’s why Japan can sustain its horrendous debt, most of it is owned by their own citizens.

Outside it they are in danger [as we see in Greece today].  So, when Alan Greenspan himself makes the above statements we should be looking to gold, particularly those who have to live with the euro, before they can’t!

Gold ETFs – Friday saw sales of 2.37 tonnes from the holdings of the SPDR gold ETF and sales of 0.65 of a tonne from the Gold Trust.  Their respective holdings are now at 841.169 tonnes and 201.38 tonnes. 

Since January 4th 2016, 241.939 tonnes of gold have been added to the SPDR gold ETF and to the Gold Trust.  Since January 6th 2017 31.858 tonnes have been added to the SPDR gold ETF and the Gold Trust.

 Julian D.W. Phillips 

 GoldForecaster.com | SilverForecaster.com | StockBridge Management Alliance 

Chinese gold consumption: Far higher than most analysts and media tell us

Edited version of article which first appeared on news.sharpspixley.com on Feb 15th

Once again we are indebted to Koos Jansen for crunching the numbers on China’s gold imports in 2016.  He has added together direct imports to mainland China from the following nations/areas which publish detailed export statistics – namely Hong Kong (771 tonnes), Switzerland (442 tonnes), Australia (53 tonnes up until September – October to December figures not yet available) and the UK (only 15 tonnes, although most UK gold exports to China now seem to be being routed via Switzerland where the refiners take good delivery gold bars from the UK and re-refine them to the sizes and purities demanded in the East).  Jansen sees little more going directly into mainland China from other sources and allowing for around 20 tonnes going in from Australia for the final quarter of the year comes up with a grand total of Chinese gold imports at approximately 1,300 tonnes. (See: CHINA Net Imported 1,300t Of Gold In 2016)

In addition – the USA will have exported around 4.5 tonnes direct to the Chinese mainland, and Jansen also comments that South Africa doesn’t break down its gold export figures so he may well suspect that some is going in from there too – but the amounts will be relatively small so we can stick to 1,300 tonnes as a nice round figure.

Add to that China’s own gold output, estimated by Jansen at 453 tonnes and there will also have been a scrap gold element to be taken into account.  This suggests that China ‘consumed’ around 2,000 tonnes of gold in 2016, which equates quite closely to the Shanghai Gold Exchange (SGE) gold withdrawals figure for the year of 1,970 tonnes – (See: 2016 SGE gold withdrawals lowest for four years).  This would seem to confirm Jansen’s oft-made assertion that SGE gold withdrawals are equivalent to total Chinese gold demand – a premise largely dismissed (perhaps without any adequate reason) by the major gold consultancies which virtually all put Chinese demand at less than 1,000 tonnes.

In part, this discrepancy relates to what the major consultancies label as ‘demand’.  They tend to ignore what Jansen labels as institutional demand which he puts at at least 778 tonnes plus, depending on the amount of supply from scrap sources.

In terms of Chinese gold flows though, all the above figures ignore Chinese central bank demand.  While this, at least in terms of reported additions to its gold reserves, appears to have slipped in 2016, it still came to a little over 80 tonnes – so overall gold flows for China last year look to have been in excess of the 2,000 tonnes noted above, although not by much.  This equates to 60% plus of the total of global new mined gold in 2016.

One other point from the latest statistics is the continuing reduction of the proportion of gold flows into the Chinese mainland via Hong Kong.  Too often we still see media headlines suggesting Chinese gold demand has risen, or fallen, purely based on the stats coming out of Hong Kong.  Based on the gold import figures alone, Hong Kong now accounts for less than 60% of the gold going into mainland China.  Thus the Hong Kong figures can no longer be considered a proxy for total Chinese gold imports.  As Jansen points out in his article:

Most likely Hong Kong’s position as the largest gold exporter to China will slowly fade in the coming years, as the State Council is stimulating gold freight to go directly to Chinese cities (hoping the Shanghai International Gold Exchange will eventually overtake Hong Kong’s role as the primary gold hub in the region). Consequently, gold exports to China are increasingly bypassing Hong Kong.  In December 2016 we got a preview of what is about to come: Switzerland net exported an astonishing 158 tonnes directly to China, up 418 % from November 2016, up 168 % from December 2015, and 106 tonnes more than Hong Kong did.”

See our own take on the Swiss December figures: China 154, Hong Kong 39.  Swiss Dec gold exports show remarkable gold flows.  We have long been pointing out the decline in importance of exports from Hong Kong to the mainland in the overall Chinese gold import figures.  Perhaps our message will eventually get through to much of the mainstream media – and some ‘expert’ commentators and analysts – who continue to ignore this point and continue with headlines which appear to collate Chinese total gold imports with those coming in from its Special Administrative Region!

Gold building a base above $1,240

 Gold Today –New York closed at $1,239.30 on the 16th February after closing at $1,232.60 on the 15th February. London opened at $1,240.00 today.

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

         The $: € was weaker at $1.0645: €1 from $1.0627: €1 on yesterday.

         The Dollar index was weaker at 100.69 from 100.80 on yesterday. 

         The Yen was stronger at 112.85:$1 from yesterday’s 113.70 against the dollar. 

         The Yuan was weaker at 6.8654: $1, from 6.8603: $1, yesterday. 

         The Pound Sterling was weaker at $1.2407: £1 from yesterday’s $1.2494: £1.

Yuan Gold Fix
Trade Date Contract Benchmark Price AM 1 gm Benchmark Price PM 1 gm
      2017    2    17

     2017    2    16

      2017    2    15

SHAU

SHAU

SHAU

/

275.34

273.26

/

274.79

273.34

$ equivalent 1oz @  $1: 6.8654

      $1: 6.8603

$1: 6.8694

  /

$1,248.35

$1,237.27

/

$1,245.85

$1,237.64

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.]

 Shanghai was trading at 275.90 Yuan towards the close today. This equates to $1,249.96, but allowing for the different quality of gold being traded [.9999 fineness] it stands at $1,244.96. Shanghai continues to lead the way over New York by $5 and $3 over London.

With Capital Controls over Yuan outflows reducing turnover volumes in its currency we are watching the classic central bank battles against moves in a currency. We have yet to see a central bank win the battle over controlling an exchange rate.

Such controls are defeating the internationalization of the Yuan. We expect them to drop the battle at some point in time and for the Yuan to lurch lower then. The Chinese gold investor, we think, is aware of such pressures and is happy to own gold rather than Yuan.

We are of the opinion that despite the above the government of China will continue to allow the outflow of Yuan to pay for gold imports, while controlling other outflows.

LBMA price setting:  The LBMA gold price was set today at $1,241.40 up from yesterday’s $1,236.75.  The gold price in the euro was set higher at €1,166.29 after yesterday’s €1,163.67.

Ahead of the opening of New York the gold price was trading at $1,243.10 and in the euro at €1,166.57.  At the same time, the silver price was trading at $18.06. 

Silver Today –Silver closed at $18.08 at New York’s close yesterday against $17.97 on the 15th February. 

Price Drivers

With even Blackrock recommending gold in portfolios we expect more U.S. buying to follow in gold. Today it is building a base over $1,240 and looking as though it wants to run.

One of the most difficult features of financial markets today is the demand for short term performance even within monthly time slots.

Gold has always been for the long term outperforming all other investments over that time, but in the world today it’s the fund manager that meets trading demands that is deemed the best manager. Indeed, we have always seen that the best portfolio manager is measured over the medium to long term and is not a trader. Warren Buffett backs that and proves the point.

We have absolutely no doubt that if you measure gold from today over the next five years or longer, gold will outperform all other investments. Look back over the past decade and we prove our point.

Having said that we expect to see gold from today to the end of the year likely outperform all other investments. Even Alan Greenspan has recently stated that gold is the ultimate insurance policy.

This seems more than appropriate in a world that is moving from dollar hegemony to a multi-currency monetary system as ‘popularism’ is spreading across the developed world. With French and German elections pointing towards change and an E.U. that Greenspan says is ‘not working’ gold seems to be a relatively safe place to weather coming storms.

Gold ETFs – Yesterday we no change in the holdings of the SPDR gold ETF or the Gold Trust.  Their respective holdings are now at 843.539 tonnes and 202.03 tonnes. 

 Julian D.W. Phillips 

 GoldForecaster.com | SilverForecaster.com | StockBridge Management Alliance 

Gold stronger today in all currencies

 Gold Today –New York closed at $1,232.60 on the 15th February after closing at $1,227.40 on the 14th February. London opened at $1,238.00 today.

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

         The $: € was stronger at $1.0627: €1 from $1.0572: €1 on yesterday.

         The Dollar index was weaker at 100.80 from 101.29 on yesterday. 

         The Yen was stronger at 113.70:$1 from yesterday’s 114.47 against the dollar. 

         The Yuan was stronger at 6.8603: $1, from 6.8694: $1, yesterday. 

         The Pound Sterling was stronger at $1.2494: £1 from yesterday’s $1.2457: £1.

Yuan Gold Fix

Trade Date Contract Benchmark Price AM 1 gm Benchmark Price PM 1 gm
      2017    2    16

     2017    2    15

      2017    2    14

SHAU

SHAU

SHAU

/

273.26

273.51

/

273.34

274.10

$ equivalent 1oz @  $1: 6.8603

      $1: 6.8694

$1: 6.8681

  /

$1,237.27

$1,238.64

/

$1,237.64

$1,241.31

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.]

 Shanghai was trading at 274.40 Yuan towards the close today. This equates to $1,239.08, but allowing for the different quality of gold being traded [.9999 fineness]. As you can see Shanghai is leading the way over London and New York but only slightly now.

Thus  Shanghai is once again leading the way higher and pulling other markets with it. But the differential between the global gold markets is only slight now.

In 2016 China consumed close to 2,000 tonnes of gold, mostly drawing it off from the west.

LBMA price setting:  The LBMA gold price was set today at $1,236.75 up from yesterday’s $1,225.15.  

The gold price in the euro was set higher at €1,163.67 after yesterday’s €1,161.22.

Ahead of the opening of New York the gold price was trading at $1,237.40 and in the euro at €1,164.01.  At the same time, the silver price was trading at $18.06. 

Silver Today –Silver closed at $17.97 at New York’s close yesterday against $17.94 on the 14th February

Price Drivers

The dollar rises seen in the last few days, are largely due to speculative, emotional, positioning punting a bullish picture for the dollar. Yes, the superficial view of the factors pointing to a strong dollar, such as higher interest rate differentials coming, more potential dynamic growth and potential cash inflows from repatriated funds look positive for the dollar. But we cannot ignore the desire of the Fed and Treasury to see a weaker dollar for the sake of U.S. international trade.

Yesterday we said, “We are watching the dollar carefully to see if it does jump or be contained at these or lower levels. This will point the way forward in the U.S. to its gold price.” And the day after it slipped again. It is at a critical juncture where it can go either way in the near term.

What does appear to be happening is that uncertainties across the world are worrying investors and they are being seen to favour gold investments. Here we are talking about directly held gold bullion under the control of the investor, not ‘electronic gold’. This demand is growing, as reported by our friends in Swiss refineries, etc, who continue to be going flat out refining gold into metric formats for trading in markets in Switzerland and eastwards. It is most enlightening to hear that such Swiss gold people are not at all happy to receive dollars in payment, only euros or Swiss Francs. This tells quite a story!

Gold ETFs – Yesterday we purchases of 2.667 tonnes into the SPDR gold ETF and o.74 of a tonne into the Gold Trust.  Their respective holdings are now at 843.539 tonnes and 202.03 tonnes.  We focus only on these two ETFs as they represent U.S. gold demand well, but the total increase in global ETFs is around 51 tonnes in the last 10 days.

Since January 4th 2016, 244.959 tonnes of gold have been added to the SPDR gold ETF and to the Gold Trust.  Since January 6th 2017 34.878 tonnes have been added to the SPDR gold ETF and the Gold Trust.

Julian D.W. Phillips 

 GoldForecaster.com | SilverForecaster.com | StockBridge Management Alliance 

Gold drops on U.S. economic data. Earlier rate rise possible?

 Gold Today –New York closed at $1,227.40 on the 14th February after closing at $1,225.90 on the 13th February. London opened at $1,226.45 today.

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

         The $: € was stronger at $1.0572: €1 from $1.0623: €1 on yesterday.

         The Dollar index was stronger at 101.29 from 100.78 on yesterday. 

         The Yen was weaker at 114.47:$1 from yesterday’s 113.48 against the dollar. 

         The Yuan was weaker at 6.8694: $1, from 6.8681: $1, yesterday. 

         The Pound Sterling was weaker at $1.2457: £1 from yesterday’s $1.2529: £1.

Yuan Gold Fix
Trade Date Contract Benchmark Price AM 1 gm Benchmark Price PM 1 gm
      2017    2    15

     2017    2    14

      2017    2    13

SHAU

SHAU

SHAU

/

273.51

274.49

/

274.10

274.26

$ equivalent 1oz @  $1: 6.8694

      $1: 6.8681

$1: 6.8804

  /

$1,238.64

$1,240.86

/

$1,241.31

$1,239.82

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.]

 Shanghai was trading at 273.34 Yuan towards the close today. This equates to $1,238.40, but allowing for the different quality of gold being traded [.9999 fineness]  and on today’s exchange rate, to align it with New York and London prices it equates to $1,233.41.

LBMA price setting:  The LBMA gold price was set today at $1,225.15 down from yesterday’s $1,229.65.  

The gold price in the euro was set higher at €1,161.22 after yesterday’s €1,157.43.

Ahead of the opening of New York the gold price had dipped sharply to below $1,220 on U.S. economic data interpreted as making an earlier interest rate rise more likely. And in the euro gold moved down to at €1,156.00.  At the same time, the silver price was trading at $17.77.  As the day progressed all the lost ground, and more was recovered wth gold back above $1,230 and silver back above $17.90

Silver Today –Silver closed at $17.94 at New York’s close yesterday against $17.82 on the 13th February.   Again, you will note its rise against gold has been holding up with a gold:silver ratio of below 69.

Price Drivers

“At our upcoming meetings, the Fed will evaluate whether employment and inflation are continuing to evolve in line with…expectations, in which case a further adjustment of the federal funds rate would likely be appropriate,” Fed Chairwoman Janet Yellen said yesterday. This somehow has been translated as June by the markets. But this was enough to lift the dollar and prompt gold to move with other exchange rates down. Although with the latest data some are now predicting a March rate rise.

Yellen reiterated there is a risk of the Fed waiting too long to raise rates. She said it would be “unwise” to delay because it might require the central bank to eventually raise rates rapidly. This can also be translated as next month.

But we reiterate what we said before and that is that the Fed needs to see inflation higher – latest figures have jumped though, and just what spending and Tax cuts President Trump is going to unveil.

We are watching the dollar carefully to see if it does jump or be contained at these or lower levels. This will point the way forward in the U.S. to its gold price.

Rising rates, alongside import tariffs, interest rate differentials, growth-boosting policies could lead to a too strong dollar. This would defeat President Trump’s “Make America Great” objective as he would have to raise trade barriers, combined with capital inflow controls, to such a high extent that the U.S. would be moving towards isolation from the rest of the world. He needs a weak dollar to keep the U.S. competitive in the world.

We are soon to enter a world of Capital controls and Trade controls to enable nations to battle exchange rate falls. When this happens, the relationship between the gold price and the dollar will change and cease to be an inverse one.

Gold market investors have realized the dangers that lie ahead as we see by the rapidly growing investments in gold in the U.S., E.U., U.K. and Japan as well as in the rest of the world, particularly Asia. This growth is only slowly impacting the gold price as the western gold markets constantly attempt to pull prices down. This can only last so long before the liquidity of these markets falls too low and they have to acknowledge the demand from the rest of the world in the gold price.

You will note today we see the gold price weaker in the dollar and now in the euro.

Gold ETFs – Yesterday we no purchases or sales into the SPDR gold ETF or the Gold Trust.  Their respective holdings are now at 840.872 tonnes and 201.29 tonnes. 

Since January 4th 2016, 241.552 tonnes of gold have been added to the SPDR gold ETF and to the Gold Trust.  Since January 6th 2017 31.471 tonnes have been added to the SPDR gold ETF and the Gold Trust.

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

GLD investors still buying big but directionless gold market

 Gold Today –New York closed at $1,225.90 on the 13th February after closing at $1,234.00 on the 10th February. London opened at $1,227.50 today.

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

         The $: € was slightly stronger at $1.0623: €1 from $1.0653: €1 on yesterday.

         The Dollar index was slightly stronger at 100.78 from 100.67 on yesterday. 

         The Yen was slightly stronger at 113.48:$1 from yesterday’s 113.61 against the dollar. 

         The Yuan was stronger at 6.8681: $1, from 6.8804: $1, yesterday. 

         The Pound Sterling was slightly stronger at $1.2529: £1 from yesterday’s $1.2520: £1.

Yuan Gold Fix
Trade Date Contract Benchmark Price AM 1 gm Benchmark Price PM 1 gm
      2017    2    14

     2017    2    13

      2017    2    10

SHAU

SHAU

SHAU

/

274.49

273.20

/

274.26

273.14

$ equivalent 1oz @  $1: 6.8681

      $1: 6.8804

$1: 6.8862

  /

$1,240.86

$1,233.99

/

$1,239.82

$1,233.71

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.]

 Shanghai was closed today.

LBMA price setting:  The LBMA gold price was set today at $1,229.65 up from yesterday’s $1,229.40.  

The gold price in the euro was set higher at €1,157.43 after yesterday’s €1,155.55.

Ahead of the opening of New York the gold price was trading at $1,229.40 and in the euro at €1,156.48.  At the same time, the silver price was trading at $17.94. 

Silver Today –Silver closed at $17.82 at New York’s close yesterday against $17.94 on the 10th February.   You will note its rise against gold is holding.

Price Drivers

Today sees Shanghai closed, removing the Shanghai influence on the gold price. In the Chinese vacuum, western gold markets are using the opportunity to pull gold prices lower on a day when the dollar is slightly stronger but not sufficient to make the gold price fall. Hence, we see today as a day when we could see bargain hunters.

Why are we so firm on this? As you can see below there were substantial physical gold purchases into the SPDR gold ETF and smaller ones into the Gold Trust. This should have moved prices higher. But with Shanghai closed, dealers clearly feel that selling may come in.

What seems to be a market driver is that if investors in the SPDR [GLD] gold ETF come in again as they did yesterday, dealers will be caught wrong-footed and be forced to lift gold prices quite a bit higher for when eastern markets return.

The gold market today is directionless. It will change when far eastern demand comes back, but today we expect no dramatic moves, but may well see physical demand appear, but this will only show in prices later today or tomorrow.

Even in the U.S. where the mood is more positive than elsewhere we see inflation needing to pick up more before the Fed contemplates higher interest rates and as we said before, the tax and stimuli policies need to be clearer before the Fed acts.

Gold ETFs – Yesterday we saw purchases of 8.295 into the SPDR gold ETF and of 0.39 into the Gold Trust.  Their respective holdings are now at 840.872 tonnes and 201.29 tonnes. 

Since January 4th 2016, 241.552 tonnes of gold have been added to the SPDR gold ETF and to the Gold Trust.  Since January 6th 2017 31.471 tonnes have been added to the SPDR gold ETF and the Gold Trust.

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

Will gold and silver also be victims of EU war on cash?

By Clint Siegner*

The global war on cash rolls on. The cabal of bankers seeking more transaction fees, busybody political leaders, and central bankers who want to experiment with negative interest rates recently threw India into turmoil by eliminating the two largest denomination bank notes.

Now they are preparing a similar assault on Europeans’ ability to transact privately and without giving bankers a cut. European Union officials just published a “Proposal for an EU Initiative on Restriction on Payments in Cash.”

War on Cash

Predictably, the restrictions are being sold to citizens as a means of fighting terrorism – much like a host of other privacy and liberty-destroying power grabs in recent decades. This despite a telling admission contained in the proposal: “There remains the lack of readily available and solid evidence on legitimate versus illegitimate cash transactions.” Ban the use of cash first, ask questions later.

Officials may, however, come to regret the timing of their proposal. Many European citizens will have trouble reconciling why leaders are willing to clamp down severely on cash, but not on the flood of refugees pouring in from the Middle East. Can they really be serious about terrorism?

Anti-EU movements are surging across the continent, with important elections coming this year in both France and Germany. Anger and frustration is already threatening to tear the EU apart. Now EU officials are floating another measure that promises to be controversial.

In Germany, 79% of transactions are done in cash. Many there aren’t going to take restrictions lying down. Some see the war on cash for what it is – bureaucrats using the lever of fear to once again ratchet up controls and restrict privacy.

The EU bureaucrats may just see the day when citizens stop using paper euros to make payments, but not because of the restrictions they hope to impose. It could instead be the result of the EU and its common currency being dumped.

A European setback for the bankers and politicians behind the move to de-monetize cash would be good news for bullion investors everywhere, including the U.S.   Attempts to regulate the trade of physical gold and silver will not be far behind any restrictions on cash. Precious metals are an obvious target because they are a premier form of private, off-the-grid, and portable wealth.

With these draconian proposals gaining momentum across the globe, you can bet we will continue to follow the war on cash carefully.

 

A Storm of Uncertainty for Gold

By Frank Holmes – CEO and Chief Investment Officer US Global Investors

 

Hedge Fund Managers Sound Off

The U.S. president’s unpredictability and Twitter outbursts have inevitably engendered quite a lot of market uncertainty, which, as you know, investors don’t like. This has prompted several big-name hedge fund managers to weigh in.

One such manager is value investor Seth Klarman, who oversees $30 billion as head of Boston-based Baupost Group. He tends to be media-shy, but Klarman is no slouch. In the last 34 years, he’s lost money in only three. He’s one of the very few money managers to receive open praise from Buffett himself.

Anyway, in his annual letter to investors, Klarman raised concerns that Trump’s protectionist policies and deep tax cuts could seriously hamper economic growth, both domestically and abroad, by isolating the U.S. from global trade and adding significantly to the already-bloated national debt.

“Exuberant investors have focused on the potential benefits of stimulative tax cuts, while mostly ignoring the risks from America-first protectionism and the erection of new trade barriers,” he wrote. You can read more of Klarman’s letter over at Andrew Ross Sorkin’s DealBook.

Managers at hedge fund firm Carlson Capital, which controls over $8 billion, share many of the same concerns, telling investors recently that Trump’s trade policies could “cause a global depression and a major equity market decline.”

Even for some money managers who were initially excited by Trump—Ray Dalio and Jeff Gundlach among them—reality is beginning to set in.

Gold Gains on Uncertainty
Trump, the art of the deal

Last year, central bank policy and negative real interest rates drove the gold rally. This year, it seems to be uncertainty over Trump and other antiestablishment leaders, which is convincing the smart money to make wagers on the yellow metal, often seen as a safe haven during shaky times. So far in 2017, it’s up close to 7 percent, compared to the S&P 500’s 2.6 percent. In fact, if you compare this year’s price action to last year’s, they look remarkably the same, with a dip in December before the Federal Reserve raised rates. Although past performance is no guarantee of future results, gold could gain another $100 an ounce this year if it continues to follow the same trajectory.

Gold Continues to Mirror Price Action from Last Year
click to enlarge

Among those who are bullish on the yellow metal is Stanley Druckenmiller, the legendary hedge fund manager who dumped his gold the same day he learned Trump had been elected. Before that, it was the number one holding in his family office account. Now he’s back, telling Bloomberg he “wanted to own some currency and no country wants its currency to strengthen. Gold was down a lot, so I bought it.”

Higher demand has been good for both junior and senior gold miners, which recently crossed above their 200-day moving averages.

Junior and Senior Gold Miners Above Their 200-Day Moving Averages
click to enlarge

The NYSE Arca Gold Miners Index was up for an incredible seven straight days ended Monday, while the MVIS Global Junior Gold Miners has made positive gains in eight of the nine previous days.

Germany Brings Home More of Its Gold

Hedge fund managers aren’t the only ones whose demand for gold is strong. For the sixth straight year, central banks continued to be net importers of the metal in 2016, with China, Russia and Kazakhstan leading world consumption.

Germany repatriated 216 metric tons of gold in 2016

Although it might not have purchased any gold in 2016, the Deutsche Bundesbank, Germany’s central bank, ramped up its repatriation program, bringing home some 216 metric tons from vaults in New York, according to the Wall Street Journal. In 2011, former Fed Chair Ben Bernanke said central banks held gold simply because it’s tradition. I think the reason goes much deeper than that. Gold is money—it has been ever since the first gold currency appeared in China more than 3,000 years ago—and Germany’s efforts are proof of that.

Gold moving with the Euro

Gold Today –New York closed at $1,234.00 on the 10th February after closing at $1,231.50 on the 9th February. London opened at $1,230.00 today.

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

         The $: € was weaker at $1.0653: €1 from $1.0639: €1 on Friday.

         The Dollar index was weaker at 100.67 from 100.87 on Friday. 

         The Yen was almost unchanged at 113.61:$1 from Friday’s 113.64 against the dollar. 

         The Yuan was stronger at 6.8804: $1, from 6.8862: $1, Friday. 

         The Pound Sterling was stronger at $1.2520: £1 from Friday’s $1.2498: £1.

Yuan Gold Fix
Trade Date Contract Benchmark Price AM 1 gm Benchmark Price PM 1 gm
      2017    2    13

     2017    2    10

      2017    2    09

SHAU

SHAU

SHAU

/

273.20

276.07

/

273.14

276.5

$ equivalent 1oz @  $1: 6.8804

      $1: 6.8862

$1: 6.8713

  /

$1,233.99

$1,249.65

/

$1,233.71

$1,251.60

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.]

 Shanghai was trading in gold at 274.40 Yuan during today’s session before London opened. This equates to $1,240.45. This shows Shanghai is trading in line with New York’s close and $5 higher than London at its opening.

LBMA price setting:  The LBMA gold price was set today at $1,229.40 up from Friday’s $1,225.75.  

The gold price in the euro was set higher at €1,155.55 after Friday’s €1,151.75.

Ahead of the opening of New York the gold price was trading at $1,230.20 and in the euro at €1,155.99.  At the same time, the silver price was trading at $17.96. 

Silver Today –Silver closed at $17.94 at New York’s close yesterday against $17.67 on the 8th February.   You will note its rise against gold has accelerated. We expect it to continue to accelerate but for gold then to move up to catch it in relative terms.

 Price Drivers

After the High Frequency trading attack last week, gold is cautious waiting for a lead.

In Shanghai, after the return of those investors from their Lunar New Year, demand has yet to recover fully as they slip back into their usual routine and gain full momentum. Until then we do expect New York and London to stay in line with Shanghai and for the global gold price to be influenced by exchange rates.  That is so today too, but we do expect the dollar to weaken.

As you know we have been expecting a turn down in the bond market as yields rise and a turning against the equity market as the improved yield in fixed interest markets challenged the yields in equity markets.  But a more sinister feature of rising yields is that they will have a significant impact on the Treasury market. The U.S. Treasury market is 43% owned by foreigners down from 2008’s 56%.  There is a long term trend that will continue to see this number slide.

In the medium term what is important to the U.S. is not to worry about the selling, but to find more buyers of Treasuries to finance the shortfall between President Trump’s infrastructure etc, spending and his major tax reformation. The gap needs to be financed by new borrowing. If the current U.S. creditors are unwilling to buy and remain sellers the U.S. has a major problem coming. But if the U.S. has to finance itself, it will lead to major deficits and a cheaper dollar. A cheaper dollar rapidly eliminates the gains made by interest rate differentials! Those losses began to mount through 2016 and will continue in 2017.

Right now Japan is in the spotlight as a seller. Japanese investors who hedged all their dollar exposure in Treasuries suffered a 4.7% loss, the biggest in at least three decades, in 2016. The same thing happened in Europe, where record currency-hedged losses also hit euro buyers.

A cheaper dollar is gold positive. The above trend is long term and so will impact the gold price long term.

Gold ETFs – Yesterday we saw no purchases or sales into the SPDR gold ETF or the Gold Trust.  Their respective holdings are now at 832.577 tonnes and 200.90 tonnes. 

Since January 4th 2016, 232.867 tonnes of gold have been added to the SPDR gold ETF and to the Gold Trust.  Since January 6th 2017 22.786 tonnes have been added to the SPDR gold ETF and the Gold Trust.

 Julian D.W. Phillips 

 GoldForecaster.com | SilverForecaster.com | StockBridge Management Alliance 

11 tonne paper gold raid and Trump tax plans knock gold back temporarily

Gold Today –New York closed at $1,231.50 on the 9th February after closing at $1,240.50 on the 8th February. London opened at $1,225.00 today.

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

         The $: € was stronger at $1.0639: €1 from $1.0677: €1 on yesterday.

         The Dollar index was stronger at 100.87 from 100.38 on yesterday. 

         The Yen was weaker at 113.64:$1 from yesterday’s 112.24 against the dollar. 

         The Yuan was weaker at 6.8862: $1, from 6.8713: $1, yesterday. 

         The Pound Sterling was weaker at $1.2498: £1 from yesterday’s $1.2504: £1.

Yuan Gold Fix
Trade Date Contract Benchmark Price AM 1 gm Benchmark Price PM 1 gm
      2017    2    10

     2017    2    09

      2017    2    08

SHAU

SHAU

SHAU

/

276.07

275.16

/

276.5

275.01

$ equivalent 1oz @  $1: 6.8862

      $1: 6.8713

$1: 6.8860

  /

$1,249.65

$1,242.87

/

$1,251.60

$1,242.20

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 was trading in gold at 273.10 Yuan during today’s session before London opened. This equates to $1,233.53. Shanghai was trading in line with New York’s close and $3 higher than London at its opening.

LBMA price setting:  The LBMA gold price was set today at $1,225.75 up from yesterday’s $1,241.75.  

The gold price in the euro was set lower at €1,151.75 after yesterday’s €1,161.93.

Ahead of the opening of New York the gold price was trading at $1,226.70 and in the euro at €1,152.75.  At the same time, the silver price was trading at $17.62. Gold did move up a little back over $1,230 once New York opened.

Silver Today –Silver closed at $17.67 at New York’s close yesterday against $17.77 on the 8th February. 

 Price Drivers

We are all getting used to the new Presidential style with difficulty, but yesterday’ statements from the  President that the U.S. is about to see a fantastic new Tax reformation incited markets in the U.S. to reach new record highs and gold took a knock of $5 by the close. He is still amazing the U.S., by the fact that he is sticking to his election promises.

But there it is and our task as responsible commentators is to gauge just how deep and impact this will have on the gold price. Our view is that no physical sales of gold took place but a small physical purchase did in the U.S.  What did happen was a High Frequency Traders raid on the gold price that involved no physical gold. 3,927 April gold futures contracts (paper gold) was dropped on the COMEX. This is 11.1 tonnes of ‘paper’ gold which hit the COMEX trading floor and electronic trading system in a 60 second window. The subsequent fall was not substantial, so this is primarily a response to a stronger dollar.

Will the dollar move higher in the days, weeks and months to come. We know that the Fed and the Treasury as well as the government do not want a strong dollar. That policy is changing as the U.S. wants a globally competitive trade position in the world and a strong dollar goes against that. Hence, we see the rise in U.S. dollar and U.S. markets as being short lived.

Trump’s statement sent the dollar stronger so we see gold in dollar terms weakening as well as in other currencies. We know that dealers will mark down prices in the expectation of sales and not because they have seen them, so we look to see if sales do actually come to solidify prices at lower levels or whether we will see prices rise as no sales but buying is seen.

Gold ETFs – Yesterday we saw no purchases or sales into the SPDR gold ETF but saw a purchase of 0.60 tgonnes into the Gold Trust.  Their respective holdings are now at 832.577 tonnes and 200.90 tonnes. 

Since January 4th 2016, 232.867 tonnes of gold have been added to the SPDR gold ETF and to the Gold Trust.  Since January 6th 2017 22.786 tonnes have been added to the SPDR gold ETF and the Gold Trust.

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