Huge gold purchase into GLD fails to boost price


 Gold Today –New York closed at $1,279.20 yesterday after closing at $1,290.10 Tuesday. London opened at $1,279.15 today. 

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

-         The $: € was weaker at $1.0766 after yesterday’s $1.0724: €1.

-         The Dollar index was weaker at 99.46 after yesterday’s 99.66

-         The Yen was weaker at 109.03 after yesterday’s 108.99:$1. 

-         The Yuan was slightly stronger at 6.8837 after yesterday’s 6.8854: $1. 

-         The Pound Sterling was weaker at $1.2833 after yesterday’s $1.2857: £1.

Yuan Gold Fix
Trade Date Contract Benchmark Price AM 1 gm Benchmark Price PM 1 gm
      2017    4    20

     2017    4    19

     2017    4    18    










$ equivalent 1oz @    $1: 6.8837

       $1: 6.8854

       $1: 6.8847








Please note that the Shanghai Fixes are for 1 gm of gold. From the Middle East 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.]

 The Shanghai Gold Exchange was trading at 285.90 towards the close today. This translates into $1,286.82. While New York and London were pulled lower by Shanghai yesterday and today you will note that Shanghai has barely changed in the last two days.

New York closed $7.62 below Shanghai’s closing yesterday and today. London opened at a $7.67 discount to Shanghai in line with New York.

Shanghai continues to lead the way in the gold markets, barely changing its prices over the last two days, despite very heavy buying in New York into the U.S. based gold ETFs and the dollar weakening. We feel it is important to factor the current dominance of Shanghai’s pricing of gold over that of London and New York.  In line with this, we expect Shanghai to exert an upward pull on New York and London’s prices for the rest of this week.

This pull of Shanghai’s gold prices may grow in the coming months as the Chinese government has now committed itself to a stable Yuan [primarily against the U.S. Dollar.] It has separated broad Capital Controls from individual investment requests to invest overseas. Investments that directly benefit the Chinese economy will continue and remain unaffected by Controls, as permission for non-China benefitting investments which will continue to be refused. Already this is stabilizing the Yuan and will continue to do so as the Chinese economy is now growing on a stable footing, once more. Hence we expect the Yuan to remain at less than 7.00 to the U.S. dollar for the foreseeable future.

LBMA price setting:  The LBMA gold price was set today at $1,279.90 from yesterday’s $1,282.05.  

The gold price in the euro was set at €1,191.05 after yesterday’s €1,195.72.

Ahead of the opening of New York the gold price was trading at $1,278.60 and in the euro at €1,189.73. At the same time, the silver price was trading at $18.20. 

Silver Today –Silver closed at $18.14 yesterday after $18.32 at New York’s close Tuesday.

 Price Drivers

The dollar continues to weaken and U.S. buyers are now piling into the SPDR gold ETF and the Gold Trust and yet the gold price fell in New York. If Shanghai continues to exert pricing power over the gold price as we see now, U.S. physical buying and selling will have a decreasing effect on the gold price. We expect less volatility in gold prices if this comes to be. This is a significant change in the structure of the gold price. We are watching to see if this change becomes permanent or is simply a short term factor.

If we are right, then we expect the gold price to recover in New York and London soon, as the factors that have caused gold prices to rise in the past [a weak dollar and U.S. physical demand] are in place right now.

With the French elections coming up this weekend some believe that the euro is soon to fall. If Marine le Pen is elected to the Presidency in the second round of the elections, the future of the Eurozone will be in doubt. With the Polls indicating that Macron is more likely to pick up the votes of the other two defeated candidates, the prospects of a Le Pen Presidency looks unlikely.

Gold ETFs – Yesterday saw purchases of a huge 11.842 tonnes into the SPDR gold ETF (GLD) and a purchase of 0.9 of a tonne into the Gold Trust (IAU). Their holdings are now at 860.763 tonnes and at 204.36 tonnes respectively.

Since January 6th 2017 53.713 tonnes have been added to the SPDR gold ETF and the Gold Trust.

Julian D.W. Phillips | | StockBridge Management Alliance 


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