Gold and silver market morning: Physical gold shortages ahead?

The New York gold price closed Monday at $1,071.70 down from $1,072.50.  In Asia and London, prices held at $1,071.35 with the dollar index almost unchanged at 98.02 up from 97.99. The euro slipped slightly to $1.0969 down from $1.0983 on Monday against the dollar. Ahead of New York’s opening, the gold price was trading at $1,069.75 and in the euro at €975.38.  

The silver price in New York closed at $14.36. Ahead of New York’s opening the silver price stood at $14.00.

Price Drivers

Monday saw sales from the SPDR gold ETF of 1.19 tonnes again, but no sales from the Gold Trust. The holdings of the SPDR gold ETF are now at 643.558 tonnes and at 153.72 tonnes in the Gold Trust. These small sales during this festive season are trying to chip away at the gold price. The gold price is weakening in thin trade while the euro moves sideways against the dollar.

We do expect to see weaker prices for the rest of this week, giving the potential for volatility next week as prices then find a level determined by the $: € rate as 2016 gets underway.

What we can report before the last week of the year’s numbers are counted up, is that Asian demand has been higher than it was in the record breaking 2013, when the gold price lurched down in April of 2013 drawing record demand from the east.

In India, legally recorded demand is over 1,000 tonnes with smuggled gold guessed at 250 tonnes again. In China retail demand as measured by the withdrawals from the Shanghai Gold Exchange is +2,600 tonnes while imported gold is recorded at 1,440 with locally mined gold reaching around 475 tonnes of gold. This implies scrap gold levels of supply inside China of 685 tonnes, unless recorded imports have missed certain unreported imports. This seems high as gold supplied to the SGE needs to be re-refined, an expensive process.

Nevertheless, Asian demand recorded by just these two countries, excluding scrap, is around 3,165 tonnes with total annual supply (including scrap) at just over 4,000 tonnes.  This leaves around 835 tonnes for the rest of the world. We expect that supplies to the market from mining and scrap had to be supplemented by London and New York’s liquidity. There is a point where such liquidity dries up. This could make 2016 a very different year to the one most institutions are expecting for the year. With the dollar likely to weaken against the euro and other currencies, the developed world may find such shortages happening early in the year.

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

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