Gold looking for a new bottom

Julian Phillips has been offline for a couple of weeks (since November 25th).  We now hope he will  back with his regular contributions.

Gold Today –New York closed at $1,175.70 on the 2nd December and at $1,189.30 on the 25th November. London opened at $1,170.00 today.

 Overall the dollar was weaker against global currencies, except sterling.

-         The $: € was stronger on Friday at $1.0663: €1 from $1.0576: €1 25th November.

-         The Dollar index was weaker on Friday at 100.69 from 101.62 on the 25th November. 

-         The Yen was weaker at 113.56: $1 on Friday from 25th November’s 113.15 against the dollar. 

-         The Yuan was stronger at 6.8832: $1 on Friday from 6.9198: $1 on the 25th November. 

-         The Pound Sterling was stronger at $1.2714: £1 on Friday from 25th November’s $1.2454: £1.

 Yuan Gold Fix

Trade Date Contract Benchmark Price AM 1 gm Benchmark Price PM 1 gm
      2016  12    5

      2016  11    25

      2016  11    24










$ equivalent 1oz @  $1: 6.8832

      $1: 6.9198

$1: 6.9278







Please note that the Shanghai Fixes are for 1 gm of gold. From the Middle Eat eastward metric measurements are used against 0.9999 quality gold. [Please note that the 0.5% difference in price can be accounted for by the higher quality of Shanghai’s gold on which their gold price is based over London’s ‘good delivery’ standard of 0.995.]

 Gold prices in Shanghai are $19 higher than New York’s close and $24 higher than London’s opening [allowing for the difference in the quality of gold priced in the different markets]. Many reports blame the restrictions on gold imports for the differential or on the restraints on exporting Yuan. If this is true, then the demand in China is extremely strong. In the main physical gold market in the world such demand tells us that the gold price has tremendous support there. To what extent these restraints are so effective is not clear. To what extent there are restrictions is also not clear.  

Because of the very strong and capable presence of the Chinese bank [ICBC-Standard] and their warehousing facilities we see the Chinese using their arbitrage system to good effect and amassing gold in London, as it is sold. Of course, HSBC has the same capability, restraints or no restraints. It is unthinkable that in the light of the Chinese presence in London it cannot move or hold gold for China in its vaults there.  

Since November 25th we have seen over 26 tonnes of gold sold from the SPDR gold ETF and the Gold Trust. Each day the gold price falls at the open of New York and rises after it closes. This is because New York is a seller and Shanghai a buyer. With the dollar price controlled in New York we are seeing  the movement of physical gold from the west to the east in a continuous process. So we see, not a premium in Shanghai, but a discount in New York that will persist until the U.S. stops selling. China wants ounces not prices!

 LBMA price setting:  The LBMA gold price setting was at $1,164.90 this morning against 25th November’s $1,187.50. 

The gold price in the euro was set higher at €1,088.18 against 25th November’s €1,121.55.

Ahead of the opening of New York the gold price was trading at $1,168.30 and in the euro at €1,091.16.  At the same time, the silver price was trading at $16.68.

 Silver Today –Silver closed at $16.68 at New York’s close Friday from $16.39 on the 25th November. 


Price Drivers

While we were being blighted by computer problems we had a chance to look from a distance at what’s going on in the gold markets of the world. We see silver stronger than when we last reported to you and gold weaker in line with ETF gold sales. It became very clear that Chinese bank activities in the gold market are to say the least opaque. As we said above their objective all along has been to acquire ounces.  We see them using the falling dollar gold prices as an opportunity to acquire physical ounces. In this market there are more ounces available when the price is falling than when it is rising. The Chinese see developed world investors buying on the rise and selling on the fall. By taking gold on offer they maximize their purchasing. Higher prices in Shanghai make this all the more easy as a ready market exists for the gold bought.

Since November 25th the currency markets have settled down with the exception of the Pound Sterling which is climbing back. Today with the Italian referendum producing shockwaves in political circles attention is moving to the Italian banks which are looking wobbly as is the country with debt to GDP at 133%. The euro has looked relatively steady but for sure the prospects for the Eurozone holding together as it is now took a beating.

Add to this the latest tweets from President elect Trump against China and the world took another step towards instability. The fundamentals for gold are very strong with the exception of the U.S. and ETF sales. When these stop downward pressure on the gold price will stop too.

Gold ETFs – Since November the 25th there were sales of 21.347 tonnes from the SPDR gold ETF and sales of 5.95 tonnes from the Gold Trust, leaving their respective holdings at 870.220 tonnes and 199.29 tonnes. 

Since January 4th this year, 268.501 tonnes of gold has been added to the SPDR gold ETF and to the Gold Trust. 

 Silver –Silver is holding its ground while gold continues to slip. We see this pattern continuing, unless there is a precipitous fall in the gold price.  

 Julian D.W. Phillips | | StockBridge Management Alliance 



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