SGE Becoming Global Gold Hub

Gold Today –New York closed at $1,140.90 28th December after closing at $1,132.00 on the 27th December. London opened again at $1,148.50 today.

 Overall the dollar is weaker against global currencies today. Before London’s opening:

-         The $: € was weaker at $1.0450: €1 from $1.0436: €1 yesterday.

-         The Dollar index was weaker at 102.91 from 103.21 yesterday. 

-         The Yen was stronger at 116.45: $1 from yesterday’s 117.77 against the dollar. 

-         The Yuan was stronger at 6.9366: $1, from 6.9578: $1, yesterday. 

-         The Pound Sterling was stronger at $1.2259: £1 from yesterday’s $1.2226: £1.

 Yuan Gold Fix

Trade Date Contract Benchmark Price AM 1 gm Benchmark Price PM 1 gm
      2016  12    29

     2016  12    28

      2016  12    27










$ equivalent 1oz @  $1: 6.9366

      $1: 6.9578

$1: 6.9488







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.]

 Compare the close in New York at $1,140.90 against Shanghai’s $1,175 yesterday [the SGE only gives the Fix the day after now], then London’s opening of $1,148.50. Allow $5 for the difference in the quality of gold being priced in Shanghai and you can see that Shanghai is leading the way now, significantly! With few sales and no purchases from or into the gold ETFs in the U.S. in the gold price continues to reflect the dollar’s moves but with Chinese demand now having a direct input as gold flows from the sellers of gold ETFs to Shanghai. The price difference between New York and Shanghai is at $30 and between London and Shanghai at $22.

For New York to have the dominant impact on the gold price sales from the gold ETFs have to continue to be substantial on a daily basis.

SGE controls speculation - In a distinct departure from the western style of markets, where institutional or wealthy individuals can drive prices up or down at will, the Chinese authorities are taking steps to curb rampant speculation from happening. In a gold world where COMEX, with its low physical volumes [compared to demand and supply volumes globally] but huge non-physical [sometimes by High Frequency Traders] trading levels [London and New York account for over 90% of ‘gold’ transactions] dominate gold prices.  Shanghai has lowered the dealing size permissible on many commodities including gold. The exchange said in a statement it will halve its limit on transactions to 500 kg on some spot gold contracts starting Jan. 1. 

The move does not affect the amount traders can sell or buy in any one day, but it would likely force traders to carry out big transactions in multiple moves and prevent big investors from carrying out rapid-fire buying or selling to influence prices. It will certainly drive up the transactions costs on such speculative transactions.

We would expect this would increase the stability of the Shanghai gold market and considerably reduce volatility. In turn, we see gold producers and users preferring to base gold contract prices on Shanghai Fixes not London due to less volatility of gold prices.

While this will not reduce speculation in London and New York we see it as reducing the influence of London and New York on global gold prices, eventually.

For example, look back at 2013 when in April of that year the gold price dropped back over four hundred dollars in a few days due to a ‘raid’ by Goldman Sachs and clients. Such operations will prove far more expensive and likely be met with censure by the SGE itself. Bear in mind there are 10,000+ institutions operating on the SGE right now. It is the leading gold exchange in the world in terms of physical volumes.

We foresee it becoming the global gold hub. The Shanghai Gold Exchange is taking direct steps to enable gold investors to trade on the SGE in the same way as they do in London and New York, so promoting easy arbitrage operations, via the Yuan.

LBMA price setting:  The LBMA gold price setting was at $1,146.80 this morning against yesterday’s $1,139.75. 

The gold price in the euro was set higher at €1,087.43 after yesterday’s €1,092.55.

Ahead of the opening of New York the gold price was trading at $1,146.25 and in the euro at €1,096,16.  At the same time, the silver price was trading at $16.09.

 Silver Today –Silver closed at $16.03 at New York’s close yesterday from $15.72 on the 28th December. 

Price Drivers

With the rise in the gold price today the price of gold at $1,130 looks more and more like the bottom. Of course we could be wrong, as these sales from the gold ETFs could re-emerge in the New Year. But with Shanghai showing a greater influence on the gold price today as prices jumped $10 after not being able to break up through $1,140 for some time, is an indication of what lies ahead? Next week should add to this conclusion or dismiss it.

Gold ETFs – Yesterday in New York, there were no sales from the SPDR gold ETF.  Since January 4th this year, 218.485 tonnes of gold has been added to the SPDR gold ETF and to the Gold Trust. 

Julian D.W. Phillips | | StockBridge Management Alliance 

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