Commentary by Julian Phillips yesterday which speculates that the vast volume of Asian gold demand is close to overwhelming the speculative activity in the paper futures markets which has been keeping prices weak. Of course ‘close’ is an indeterminate length of time!
The gold price has pulled back to above support once again as gold continues to consolidate but on low U.S. turnover.
With China taking more than is being supplied to the market from newly mined gold and scrap, a question has arisen as to how the price can fall in such an environment. It can happen when there is sufficient liquidity in the London market which continues to be the main hub for gold pricing. Over time as this liquidity is drained the upside pressure would be built to the point where such speculators and traders do not have the power to push prices down in such a market. The difference between short-term market moves and long-term moves is then described by such action.
We saw the same in 2005 when after two decades of falling and low prices the gold price brushed aside such downward pressures and surged to more than double the previous peak. Can such pressures exert themselves again? We believe they can as supply has now peaked from newly mined gold and scrap [until much higher prices are seen] and yet Asian demand is continuing to grow.
Bearing in mind that Asian demand is to find financial security by new buyers who are middle classes getting richer or from new entrants into the middle classes. Such demand is unlikely to fade or lessen for the foreseeable future. What we don’t know is when the upward pressure on the gold price will overwhelm speculative liquidity, but we know it is close.
The euro is recovering strongly at the moment while gold is slipping against the dollar. The move of the dollar and the gold price together is still happening. With the euro rising to $1.1482 before London opened the 1% rise equates to a 1% fall in gold.
In his meeting with Germany’s Finance Minister, the Greek finance minister Yanis Varoufakis’ will propose the exchange of outstanding debt for new growth-linked bonds, running a permanent budget surplus and targeting tax dodgers. Furthermore, Mr. Varoufakis said Syriza would not seek a write-off of Greece’s €315 billion sovereign debt.