Julian Phillips’ latest viewpoint on what is driving gold and silver prices
New York closed at $1,176.50 up $2.50, again in very thin volumes, with, again, Asia virtually absent. Today sees the dollar weaker at $1.1326 down half a cent against the euro with the dollar index weaker at 94.67 down from 95.41. The LBMA Gold Price was set at $1,186.00 up $5.00 with the equivalent euro price at €1,047.15 down €2.81. Ahead of New York’s opening, gold was trading in London at $1,188.40 and in the euro at €1,051.59.
The silver price rose slightly to $15.98 down 4 cents in New York. Ahead of New York’s opening it was trading at $16.20.
Once again we saw very thin trading in London and New York, yesterday. Asian demand is starting to appear at these levels. With gold rising in the dollar and falling in the euro heavily, these price changes do not reflect normal trading in gold, but dealers marking down prices to reflect changes in currency exchange rates. Should physical demand really appear in New York or London, prices would move disproportionately stronger. Off market transactions [including in Shanghai] continue to be where the physical action in gold lies. Nevertheless all eyes continue to be on London and New York prices.
Yesterday saw sales of 2.982 tonnes of gold from the SPDR gold ETF. These sales occurred as gold prices were rising but were insufficient to pull prices back. The holdings of the SPDR gold ETF are at 705.716 tonnes and at 167.01 tonnes in the Gold Trust.
The behavior of the euro against the dollar is quite remarkable for the world’s second most important global currency. Moves of 2% in a day are extraordinary and worrisome. The Technical picture of the dollar looks impressive, but it is important to note that the dollar will not be dominated by Technical considerations, but by political and economic considerations with the interests of exporters high on that list of priorities. Translated, that means that the Treasury is likely to use whatever it can to restrain rises in the dollar against other currencies, as far as it is able. As it is, rate rises are, initially, likely to see a flood of dollars return to the U.S. as the U.S. bond markets begin to fall heavily. Such sales need not lead to foreign sellers repatriating these dollars into their own currencies, which will keep the dollar rising. But already market action is seeing the $: € being held back, so a major future rise is against the interests of the U.S.
Such issues and those with other currencies point forward to increasing turbulence in foreign exchange markets, of note.
What of gold’s lack of volatility relative to the dollar? We note that with the gold price moving around 4% against the euro and only around 1-2% against the dollar gold is more stable than these two leading currencies. It looks like currencies are moving against gold, not gold against currencies. It points to the rest of the year seeing increasing volatility in all major markets.
Silver is holding above $16 but its grip on that level will not hold if gold falls back again.