Julian Phillips sees the clashing of the US and Chinese tectonic plates re currencies ahead. What will be the impact on gold?
New York closed Wednesday at $1,210.20 down $15.10 over Tuesday’s close. Asia took it up a dollar this morning and London held it there. The LBMA Gold price was set at $1,209.60 down $10.05 over Wednesday’s level. The euro equivalent stood at €1,089.12 down €3.70 while the dollar was stronger and the euro weaker at $1.1142 down from $1.1198 against the euro. Ahead of New York’s opening, gold was trading lower in London at $1,209.50 and in the euro at €1,085.92.
The silver price closed at $17.12 down a large 56 cents over Tuesday’s level. Ahead of New York’s opening it was trading at $17.17.
Yesterday saw sales of 2.983 tonnes of gold from the SPDR Gold ETF, after no sales on Tuesday when the gold price fell so hard. No movement has been seen in the Gold Trust for the last two days. The holdings of the SPDR gold ETF are at 715.260 tonnes and at 166.14 tonnes in the Gold Trust. These sales are the same amount as we have seen from time to time in the last month and indicate that it is a trader who is trying to follow the Technical picture.
The gold market continues to move because of currency issues. For instance, yesterday saw speculators once again try to drive gold down as the euro weakened and succeeded. In doing so, they hoped that the fall through the 100 and 200 day moving averages would trigger stop loss selling, but the fall halted yesterday and then turned up slightly. We have been seeing similar pressures on gold today. Asian demand does not like it when prices move higher too fast and stand back until bottoms are tested, so ignoring the Technical picture, they will come in close to $1,200 as usual. In New York, it is becoming clear that the Technical picture is not working as it has in the past when chart patterns dictated future moves.
The dollar index is stronger at 95.35 up from Tuesday’s level of 94.88. The euro is stabilizing today at $1.1135 but has fallen from Tuesday’s $1.1190. ‘Brutal’ falls seen on Tuesday after the ECB said that they will increase QE in months when liquidity is low in holiday months make central banks unhappy, so the path to $1 on the euro will be extended in a smooth manner, but we still expect it to happen as Draghi wants. It is unlikely that the U.S. will condone this as they are visibly suffering on the export front. But what can they do? Will gold walk its own road then?
Often we think that governments and central banks just react to situations including on the financial front. Governments are full of intelligent well educated people who are constantly looking ahead and planning for potential situations. They are rarely caught by surprise. We are sure they have mapped out the future path of the dollar and its role in global finance.
Likewise, so have the Chinese. The two think differently from different viewpoints with different objectives. The Chinese want to quietly move into a strong global position with the Yuan and the dollar wishes to remain all powerful. The question we need answers to, concern the extent of the disturbance that will happen as events unfold. Will these two ‘tectonic plates’ of influence smooth transformation or will there be earthquakes and financial tsunamis. The first answers will come in the next ten days, and gold?
Please note, the Chinese have embraced gold!