Physical gold liquidity stretched.  Are central banks meeting the supply shortfall?

Gold TodayGold closed in New York at $1,367.20 on Friday after Thursday’s close at $1,359.10.  In Asia the gold price also fell slightly further as you can see below  

  • The $: € rose to $1.1048 down from $1.1075.
  • The dollar index was rose to 96.60 from 96.17 Friday.
  • The Yen was weaker at 102.48 from Friday’s 100.55 against the dollar.
  • The Yuan was slightly weaker at 6.6902 from 6.6830 Friday.
  • The Pound Sterling stayed almost the same at $1.2942 as Friday with more falls expected this week as the B. of E. adds further easing of interest rates! Or has this been discounted.

Yuan Gold Fix

Trade Date Contract Benchmark Price AM Benchmark Price PM
2016  07  11

2016  07  8







Dollar equivalent @ $1: 6.6902

$1: 6.6883





The fall in the Yuan continues. Other exchange rates are relatively stable, ignoring the U.S.  jobs report last Friday. The big event of the week is expected to come from the Bank of England on interest rates, later in the week.

LBMA price setting:  $1,358.25 up from Friday 8th July’s $1,356.10.

The gold price in the euro was set at €1,229.41 up €4.16 from Friday’s €1,225.25.

Ahead of the opening in New York the gold price stood at $1,355.75 and in the euro at €1,227.65.  London is trying to establish a pattern of lower prices ahead of New York when it feels physical buying may not appear in New York and in particular the gold ETFs. The moment physical interest is shown in the ETFs the gold price is lifted.

Silver Today –The silver price closed in New York at $20.19 on Friday up from $19.67 Thursday.  Ahead of New York’s opening the price was trading at $20.27.

Price Drivers

This week starts with a warning from China to the G20 calling for them to lead the global economy back to growth. But a look at the last 8 years of the G20’s failure to supply such leadership and the inactivity on that front and absence of any plans to promote such growth in the future makes such warnings rather pointless.

The Technical picture shows us that the latest period of consolidation appears to be ending ahead of the next strong move. With Friday seeing more physical gold being purchased after a sale, the time is right for another purchase. The question is, will it wait for the Bank of England’s announcement or hit the market on any ‘dip’ in prices before then?

The U.S. Jobs report on Friday was very good [but subject to re-adjustment in the days to come]. The effect on global markets was negligible and dissipated today. The feel of the market remains positive for gold and silver prices.

In India the monsoon is now 1% higher than the ‘normal’ level seen on average. If this continues demand for gold in India from the agricultural community will be as high as it has ever been.

As we said last week, the only restraint we see on the gold price is an Indian propensity to hold back when prices are rising strongly.

Gold ETFs – In New York, Friday, there was a purchase of 2.97 tonnes into the SPDR gold ETF (GLD) leaving its holdings at 981.256 tonnes. In the iShares Gold Trust (IAU) a purchase of 0.9 of a tonne was seen on Friday leaving its holdings at 214.09 tonnes. Perhaps it was the lower price that prompted the purchase? If so we are likely to see more buying this week.

It was reported to the SEC that older bars are now being put into the Custodian of the SPDR gold ETF. It may simply be a market coincidence, but older bars are usually synonymous with central bank holdings. Is it possible that London’s liquidity levels are dropping to the point where central banks are propping up its liquidity level?

We must point out that when the U.S. SPDR gold ETF and others together with the U.S. banks sold gold from 2012 peaks to the heavy falls in April 2013 the gold sold did not sit in the developed world’s gold markets but made its way primarily through Switzerland [where it was refined into metric sizes] to the Far East [China in the main].

This meant it was not going to come back when demand was resuscitated again. The tonnages of gold bought back into U.S. gold ETFs is over 500 tonnes, in total, so far this year. With most previously sold gold not available and the bulk of gold supplied into the market continuing to be absorbed by the Far East, the additional amounts needed for this new U.S. gold ETF demand has to come out of a new source.

We have watched liquidity levels of gold in the markets drying up, assisted no doubt by the Chinese Bank [ICBC-Standard] which has taken over from Barclays as a sub-Custodian for HSBC [Custodian of the SPDR gold ETF]. So where is this gold coming from? Older gold bars are likely to come from older stocks thus increasing the strain on London’s gold liquidity levels.

Since January 4th this year, the holdings of these two gold ETFs have risen by 397.75 tonnes.

Silver –Silver prices are still pausing, but we expect for only a short while before moving higher, again.

Julian D.W. Phillips | | StockBridge Management Alliance [Gold Storage geared to avoid its confiscation]

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