Gold and silver moving as monetary assets as global markets fall

New York closed Monday with the gold price at $1,131.80 barely changed on the previous close. Asia saw prices slip back to $1,127 yesterday. The dollar was weaker at $1.1224 and the dollar index a little lower at 95.96. In London’s morning the LBMA gold price was set at $1,124.60 sitting at midpoint of its consolidation pattern. In the euro this was €1,000.49 down €13.  Ahead of New York’s opening gold was trading at $1,127.10 and in the euro at €1,004.50.  

The silver price closed at $14.59 down a heavy 49 cents over Monday in New York. Ahead of New York’s opening silver was trading at $14.57.

Price Drivers

With the gold price back in consolidation mode it is forming a pattern of higher lows, showing a few strong hormones today. On Monday, there were no purchases or sales from either the SPDR gold ETF or the Gold Trust. This leaves the holdings of the SPDR gold ETF at 684.141 tonnes and 160.29 tonnes in the Gold Trust.

What we are seeing now is a set of global markets fearful of a breakdown in prices. As prices fall, not just in commodities, but equity markets, we become very aware of the massive levels of debt that is sitting in the hands of individuals, corporates, governments’ et al. Because of this we see occasional collapses of value as this becomes recognized.

For example, Glencore, the mining giant and broker has seen its share prices buckle in Australia today. With debt twice the level of its market capitalization, its situation well expresses the fears sensitizing the markets at all levels. The commodities sector does not look as though it is going to recover for a very long time. This includes U.S. oil companies trying to persuade their regulators that their debt levels are sustainable as oil prices could fall further.

With Asia slowing still, sluggish growth in the U.S and barely visible growth in the E.U., while Japan is back in deflation, the ability to repay debt is now a global concern.  At what point does this buckling become contagious?

In this context it is different for gold and silver. While they continue to consolidate they are moving as a monetary asset [both cash internationally and a global asset].  To us it is reminiscent to 2008 when gold fell back from its high of $1,200 as markets collapsed, before moving up to its peak of $1,921. The big questions remains, “Are we about to see a situation similar to 2008?” Certainly global market moods are pointing that way.  

Silver fell heavily on the disappointment that gold did not stay above $1,140. We see it returning to moving closely with gold today.       

Julian D.W. Phillips for the Gold & Silver Forecasters - and

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