Will gold and silver be calm in the forthcoming toxic financial storm?

On Wednesday New York closed at $1,133.60 down $6.20. The dollar was stronger at $1.1335 at the close up from $1.1496, against the euro, with the dollar Index stronger at 95.91 down from 95.39 yesterday. The LBMA gold price was set at $1,130.05 down $9.95 today. The euro equivalent was €1,006.86 down €5.35. Ahead of New York’s opening, gold was trading at $1,129.15 and in the euro at €1,006.15.  

The silver price closed at $14.69 up 9 cents over yesterday’s close in New York. Ahead of New York’s opening today it was trading at $14.70.

Price Drivers

With Asian demand absent from the gold arbitrage market with Chinese markestsclosed for a holiday, the full pricing power over gold lay in the hands of London and New York. This gives speculators far greater pricing power than usual. They are starting to use this power to push gold prices down but not silver prices. But so far the gold price is still in narrow consolidation pattern. Speculators have two more days of this power, so let’s see what today brings!

Currency markets are relatively calm for now but give us the impression that this may change suddenly soon. There are several reasons why. There is now an expectation that the E.U. may increase the amount of quantitative easing to increase lending because, so far it has simply stemmed deflation and given only small growth. Secondly, global growth is proving disappointing with little evidence of improving. Thirdly, financial market sensitivity is very high. Fourthly, expectations of a rate hike could be fulfilled either this month or next with evidence that when it comes, currency, equity and bond markets will be volatile. This mix could prove toxic.

For gold and silver the question remains, will they be a quiet place in the storm?

There were no purchases or sales from or to the SPDR gold ETF but a sale of o.03 of a tonne from the Gold Trust yesterday. This leaves the holdings of the SPDR gold ETF at 682.595 tonnes and 161.14 tonnes in the Gold Trust. We don’t expect the small investor to move his position in the gold ETFs in the days to come but do expect large investors to move into or out of these funds. It is more likely that they will increase their holdings as at the moment the typical U.S. institution is out of the gold market.  

While it is perceived that there exists a bull market in the dollar, this will not change. But of note was the way the dollar fell in the early part of the turmoil, due to ‘carry trade’ adjustments. We would not bank on a dollar bull market taking it higher in the current climate!

Silver is looking stronger than gold today.

Julian D.W. Phillips for the Gold & Silver Forecasters - www.goldforecaster.com and www.silverforecaster.com

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