Gold and silver may have found bottoms but likely volatile

Gold Today –New York closed at $1,239.50 yesterday after closing at $1,239.50 Wednesday. London opened at $1,235.05 today. 

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

-         The $: € was weaker at $1.0964 after yesterday’s $1.0932: €1.

-         The Dollar index was weaker at 98.83 after yesterday’s 99.11

-         The Yen was stronger at 112.23 after yesterday’s 112.96:$1. 

-         The Yuan was weaker at 6.8994 after yesterday’s 6.8949: $1. 

-         The Pound Sterling was stronger at $1.2935 after yesterday’s $1.2887: £1.

Yuan Gold Fix
Trade Date Contract Benchmark Price AM 1 gm Benchmark Price PM 1 gm
      2017    5    5

     2017    5    4

     2017    5    3










$ equivalent 1oz @    $1: 6.8994

       $1: 6.8949

       $1: 6.8921








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 277.00 towards the close today. This translates into $1,243.76. New York closed at a $6.67 discount to Shanghai’s close yesterday. London opened at a discount of $8.71 to Shanghai’s close today.

We are learning that narrowing discounts are indicative of stabilizing global gold markets, ahead of the next move which may change the direction of the gold price.

LBMA price setting:  The LBMA gold price was set today at $1,239.40 from yesterday’s $1,235.85.  

The gold price in the euro was set at €1,130.99 after yesterday’s €1,130.18. As you can see this was largely dollar weakness, as the euro price barely changed.

Within the hour of the gold price setting on London the price was marked down $6. We find it difficult to accept that the gold price setting was out of line with the market, rather the market was bracing itself for more selling in the U.S. Ahead of the opening of New York the gold price was trading at $1,232.40 and in the euro at €1,124.66. At the same time, the silver price was trading at $16.36. 

Silver Today –Silver closed at $16.47 yesterday after $16.47 at New York’s close Wednesday. As gold’s fall slows, we expect to see silver find a bottom and likely rise to discount one in the gold price. So today should be more volatile for silver than for gold.

Price Drivers

The gold price globally is showing signs of having found a bottom at around $1,230. A look at this morning’s price setting in London shows a strength not reflected in the market price, after the fix. But we believe that the sheer volume seen at the Fixing should determine the gold price, not the immediate after market. Hence we expect volatility in New York.

Global balance of power shifts

We believe it is important for gold investors to look at the way the globe is developing both on the political front and the monetary fronts. When President Trump came to power many felt a great change was coming that would lead to America being great again. Markets responded but were disappointed as we have seen a retreat on those promises or a change in them. The difficulty and division experienced in the U.S. over the health care bill, which has just passed, is symptomatic of the way the U.S. government will perform in the future. Until some synergy is achieved in the U.S. in government, we have learned to lower expectations for the country.

Against that, in China, we have seen such synergy, albeit imposed on all sectors of the economy and politics by their governmental system. But the result is two decades of a massively growing economy that is certain to overtake the U.S. economy and continue to draw the bulk of global growth to itself. It is therefore inevitable at some point in the future that the U.S. accepts this future reality. But will it? Yesterday saw the Chinese unveil their equivalent of a 737 Boeing. It is inevitable that China will compete, at lower prices, with both Boeing and Airbus. Because it will [by government decree] capture the Chinese airplane market making immediately successful. Its growth will be at the expense of the developed world’s aero industry. This is symptomatic of the future global shape of the main global economic zones and shape of the global economy. The big question is, will the U.S. accept this loss of power quietly? We think not.


Another area where we expect drastic government action is in the oil industry. If non-U.S. oil producers fight U.S. shale producers, to keep market share, by increasing oil production and accepting lower oil prices [$30? Or lower?] to put shale producers out of business, we have no doubt that President Trump will impose duties on imported oil to protect U.S. producers viability. This will impact deeply on the monetary world as well as on oil.

These changes to the global economy and monetary system will benefit the gold price considerably, long term.  Because of such structural changes to the global economy, already on the horizon, we believe long-term fund managers will soon begin to hold a significant proportion of their portfolios in gold bullion.

Gold ETFs – Yesterday saw sales of 0.287 of a tonne from the SPDR gold ETF and the Gold Trust saw sales of 1.20 tonnes. Their holdings are now at 853.075 tonnes and at 203.03 tonnes respectively. While the sale of 1.2 tonnes is large for the Gold Trust, total sales yesterday were not sufficient to hurt the gold price.

 Julian D.W. Phillips | | StockBridge Management Alliance 


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