China’s gold dilemma

On Tuesday New York closed at $1,095.60 up $1.60. The dollar was almost unchanged at $1.1064, with the dollar Index slightly down at 96.64 down from 96.77. This morning the LBMA gold price was set at $1,096.75 up $1.15. The euro equivalent was €991.23 up €0.63 yesterday. Ahead of New York’s opening, gold was trading in London at $1,096.20 and in the euro at €991.63.

The silver price closed at $14.68 up 12 cents in New York. Ahead of New York’s opening it was trading at $14.63.

The gold market barely moved in the last day with the dollar slightly weaker and the dollar index almost static. The gold market is waiting to see if the sales out of the U.S. have finished or simply pausing to see if there will be a bounce. Our question is, “Are they finished with the ‘bear raid’ or are they waiting to continue after a bounce?” It really does depend on how much physical gold they can sell or are they physically shorting the market?

As to news warranting continuing such a raid, we don’t believe there has been a change since the raids began 12 days ago. We mention, again, the event that caused the selling to stop and that was the two days when around six tonnes of gold were sold from the SPDR gold ETF in two days but saw the gold price lift in China. With so many speculative short positions and so few Commercial short positions there, we are ready for short covering, but a decent move, either way, in the gold price is needed before that happens.

The holdings of the SPDR gold ETF are at 680.154 tonnes and 163.55 tonnes [down 0.30 of a tonne] in the Gold Trust.

China has a dilemma. Not only can it not afford to see an equity meltdown, it cannot afford to see a gold price meltdown. With gold an integral part of its financial system a heavy drop in the value of gold attacks margins and the use of gold as collateral, which is common practice! But is this enough to warrant intervening in the Chinese gold market? We suspect, it is, if done ‘invisibly’. This would only be seen in the failure of the gold price to fall further, in China.

With the Fed in the second day of its two day meeting we expect markets are waiting for a change in language, but not a rate hike. The markets are waiting to see if the hike will happen in September or December.

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

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