Massive U.S. gold ETF purchases ongoing

Gold TodayGold closed in New York at $1,234.00 up from $1,233.00. In Asia on Tuesday, it rose to $1,245 ahead of London’s opening.  It was set by the LBMA at $1,240.00 up from $1,234.15.  COMEX’s pricing is giving way to Asia. The dollar index is unchanged at 98.25.

The dollar is up against the euro at $1.0873 up from $1.0895 on Monday. The gold price in the euro was set at €1,140.44 up from €1,132.77.

Ahead of New York’s opening, the gold price was trading at $1,246.05 and in the euro at €1,145.00.  

Silver Today –The silver price closed in New York at $14.80 up 15 cents.  Ahead of New York’s opening the silver price stood at $15.02.

Price Drivers

China continues to slow, but now with a reported slowdown in the services sector. While a great deal of fuss is made of China’s slowdown the growth it provides to the rest of the world was always set to diminish as it replaces manufactured imports with locally manufactured ones.  So we see no likelihood of China lifting the developed world out of its stagnation/recession. It is a long process that began 20 years ago and will continue for the foreseeable future.

Gold ETFs On Monday, in came another huge purchase of shares/gold into the SPDR gold ETF of 14.869 tonnes and a purchase of 0.90 of a tonne into the Gold Trust. The holdings of the SPDR gold ETF are now at 777.274 tonnes and at 189.42 tonnes in the Gold Trust.   With such buying of physical gold going on the gold price is now steadily building a firm base from which to spring. U.S. investors are coming round firmly to the idea of a bleak future as painted by the most august of institutions in the world. With no effective government action to change this future even in the planning stage, gold can only have a bright future.

The Indian budget was a disappointment for gold investors there. The government has added a third level of taxes, a 1% sales tax to gold purchases now. It must be noted that each tax on gold is handled by a different government department, muddying the waters even more.

But the demand for a tax number from large buyers is far more of a deterrent for Indians do not like disclosing their financial picture. The need for financial privacy there was spawned by the corrupt use of such information by bureaucrats and tax officials in the past and remains a present danger. There is, as a consequence, two financial worlds, one of which is not disclosed.

So what these taxes do is to increase the profitability of smuggling. So any reduction in ‘official’ imports is matched by increases in smuggling, now very well established and immeasurable. Hence Indian demand is now moving up on all fronts.

Pent-up demand that was held back ahead of the budget is now coming back to the market, supporting the gold price even more. With the price holding around the $1,220 - $1,250 area price sensitive Asian buyers are beginning to accept these prices and returning to the market.

Silver – Silver has re-affirmed its relationship with gold having recovered over 3% overnight. It must be understood that dealers will move prices when they feel that a fall is coming to protect themselves from buying silver when it is going to fall. When sales to them [purchases by them] arrive they don’t want to be caught long. So when their expectations are not met and they find they have to sell silver at those low prices, they quickly mark up prices even on small buying [selling by them].

Julian D.W. Phillips | | StockBridge Management Alliance