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

Indian smuggled gold volumes may have increased

New York closed Tuesday with the gold price at $1,127.40 down from $1,131.80. Asia saw prices slip back $2 this morning. The dollar was unchanged at $1.1225 this morning in London and the dollar index a little higher at 96.07. In London’s morning the LBMA gold price was set at $1,122.50 down from $1,124.60. In the euro this was €1,001.16 up from €1,000.49.  Ahead of New York’s opening gold was trading at $1,123.50 and in the euro at €1,002.05.  

The silver price closed at $14.64 up 5 cents over Tuesday in New York. Ahead of New York’s opening, silver was trading at $14.65.

Price Drivers

The trading range of the gold price is sitting on support at the lower end of the narrowing price pattern, at $1,123, so within this pattern it should be stronger today, we feel.

The IMF has issued a warning that we could see corporate failures in the emerging world.

With the Shanghai Gold Exchange closed tomorrow and for the next ‘Golden’ week, an opportunity arises for another ‘bear raid’ on the gold price. But Chinese demand will reappear after that week including the demand that could not be met because of the holiday.

The Indian wedding season starts tomorrow, ahead of the festival season that continues from now until the end of November. While there is a discount on gold prices of $7 this does not necessarily mean that demand is falling. Some believe this indicates an oversupply, but there is a situation in the country that is not measurable and will affect prices. With the ongoing 10% duty level on gold, smuggling has flourished. The World Gold Council guestimated two years ago that this is around 250 tonnes. Since then the smuggling has continued, likely getting more professional as the profits continue. Volumes must have increased over that time. It is therefore likely that discounts also persist on smuggled gold, forcing legal imports to be priced lower. Official imports may well decline but be replaced by smuggled gold finding its way onto the shelves. Official imports of gold are around 670 tonnes so far this year pointing to around 1,000 tonnes by year’s end. Despite smuggled gold being impossible to quantify, it cannot be ignored. Factoring in a decline in official imports we would certainly expect real Indian demand to be around 1,100 tonnes or higher for 2015.

Again on Tuesday, there were no purchases or sales from either the SPDR gold ETF or the Gold Trust. This leaves the holdings of the SPDR gold ETF at 684.141 tonnes and 160.29 tonnes in the Gold Trust.

Silver is back in sync with the gold price and should continue to be so today.

Julian D.W. Phillips for the Gold & Silver Forecasters- and