Several currency crises ahead - each favoring the gold price

Gold Today –New York closed at $1,172.40 yesterday after closing at $1,173.00 on the 7th December. London opened again at $1,170.00 today.

 Overall the dollar is stronger against global currencies today.

-         The $: € was slightly stronger at $1.0615: €1 from $1.0763: €1 yesterday.

-         The Dollar index was slightly weaker at 100.11 from 100.14 yesterday. 

-         The Yen was weaker at 114.41: $1 from yesterday’s 113.65 against the dollar. 

-         The Yuan was weaker at 6.9033: $1 from 6.8805: $1 yesterday. 

-         The Pound Sterling was weaker at $1.2602: £1 from yesterday’s $1.2654: £1.

 Yuan Gold Fix

Trade Date Contract Benchmark Price AM 1 gm Benchmark Price PM 1 gm
      2016  12    9

      2016  12    8

      2016  12    7










$ equivalent 1oz @  $1: 6.9033

      $1: 6.8805

$1: 6.8839







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.]

 Shanghai prices moved lower today along with more gold ETF selling in New York. Even so, prices in Shanghai were $20.00 higher than New York and $22 above London’s opening [allowing for the difference in the quality of gold priced in the different markets].

With lower Shanghai prices and a weaker Yuan the story that government restraints on the import of gold appear to be ‘not credible’. The continuation of the very high discounts levels to Shanghai prices argue for U.S. gold sold to be arriving in China to satisfy demand there.

LBMA price setting:  The LBMA gold price setting was at $1,168.90 this morning against yesterday’s $1,174.75. 

The gold price in the euro was set higher at €1,103.05 after yesterday’s €1,088.79.

Ahead of the opening of New York the gold price was trading at $1,164.25 and in the euro at €1,102.46.  At the same time, the silver price was trading at $16.98.

Silver Today –Silver closed at $17.09 at New York’s close yesterday from $17.12 on the 7th December. 

 Price Drivers

Because the focus of the gold market is now on the FOMC meeting next week and the subsequent announcement of the rate hike, we expect both gold and silver to ‘mark time’ until the Fed’s announcement.

2017 : With China attempting, as fast as possible, sell off Treasuries, we are hearing reports that Saudi Arabia is doing the same. To us, this points to disenchantment with the U.S. policy expectations concerning the two nations and with the dollar’s future role in the global monetary system.

This brings into question future relations on oil pricing by Saudi Arabia. Are we seeing a prelude to the nation accepting other currencies [particularly the Yuan] in payment for oil or has that already happened? Whatever the case, such sales point to a weaker dollar in global foreign exchanges in the future, not just reflecting massive future increases in debt and the impact of rate hikes on the value of Treasuries. Another key question is, “are the proceeds of such sales staying in the dollar or moving to other currencies?”

If such Treasury selling continues for another 2.5 years, Chinese Treasury holdings will be insignificant to Chinese reserves. In that time we expect to see several currency crises, each favouring gold prices!

Shari’ah gold – With the clarification of the rules governing gold in the world of Islam, comes the potential for a huge increase in demand for gold in the Middle East. Before we think that this world of Islam was devoid of gold we should note that physical gold is held by most middle eastern central banks and institutions as well as individuals. So the rush to buy physical gold may well not be nearly as vigorous as some have imagined. But with Islam having around 1.6 billion adherents, we do expect to see a rise in demand from that part of the world. We discuss this more in the latest issue of the Gold Forecaster. The main importance of this added feature to the gold market is that with gold demand and supply close to being in balance, added demand will have to impose upward pressure on the gold price.

India - With the ongoing cash debacle in India bringing the economy to its knees demand for gold has turned to smuggled gold where cash exists. Officially, demand has disappeared, but unofficial demand is stronger than ever, although no statistics will ever be available to quantify this. Once cash has become available again gold demand will recover quickly. Gold is being confiscated by the endemically corrupt bureaucrats working for government, reinforcing the desire for Indians to maintain their ‘black money systems’. We would be surprised if the Modi government can survive the mishandling of the country’s cash. Don’t think for one minute that Indians are leaving gold as their key investment. Attempts to confiscate gold from owners will simply place the government against its middle classes.

Gold ETFs – Yesterday, there were sales of 2.965 tonnes from the SPDR gold ETF and sales 0f 0.63 tonnes from the Gold Trust holdings, leaving their respective holdings at 860.706 tonnes and 198.03 tonnes. 

Since January 4th this year, 257.757 tonnes of gold has been added to the SPDR gold ETF and to the Gold Trust. 

 Silver –Silver is trying to failing to hold its ground above $17.00, so the metal may become volatile today.  

Julian D.W. Phillips | | StockBridge Management Alliance 


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