Gold is far more than just a precious metal
Julian Phillips’ looks at today’s early market action and looks for further falls in the Euro against the dollar. Will the Swiss National Bank intervene to follow the euro down?
New York closed Friday at $1,187.50 up $4.90 as the world goes back to business as usual and volumes rise on Chinese demand. Gold rose in Asia to $1,196.00 ahead of London’s opening. The AM Fix saw the gold price set at $1,192 up $7.50 and in the euro, at €998.81 up €15.46 while the euro was another cent weaker at $1.1934. Ahead of New York’s opening gold was trading in London at $1,188.60 and in the euro at €998.53.
The silver price was at $15.79 up 10 cents. Ahead of New York’s opening it was trading at $15.90.
There were no sales or purchases from or to the SPDR gold ETF or Gold Trust on Friday. The quiet holiday period appears to be out of the way now and Asia came in solidly.
Will further falls in the oil price affect gold and silver? Will Russia bring in Capital Controls as it watches the Ruble fall or are we looking at a different world than in the past? Are the rules governing exchange rates changing for good? Will the slowdown in China hurt the gold price? These are questions that will be answered in 2015 by the realities that will confront us. We continue to believe that gold is far more than just a precious metal, it is a metal that reflects so much of the perceptions of the financial world. 2015/16 will demonstrate this well. We will cover these in our work.
Early in 2014 we forecast the euro would fall to between $1.10 and $1.20. We are there now and the market tone tells us that it will fall further as the battle over Q.E. in the Eurozone continues. The euro price of gold is trying to make a solid break through €1,000 a signal that it is breaking out upwards. We see this as bringing in traders and speculators even in the U.S. The dollar price of gold has more work to do before it reflects the same prospects, but this week may see that work done. We expect to see the Swiss National Bank step into the market to weaken the Swiss Franc as it moves over 1.2 to the euro.
What QE really does is to protect the balance sheets of the banking system, but if, as we saw in the U.S. and now in the Eurozone, lending does not pick up as a result, we have to conclude that it is the entrepreneurial drive that brings growth back to an economy, as we are now seeing in the U.S., and not ‘cheap depreciating money’. But the recovery we are seeing in the U.S. is not nearly as robust as we saw in the nineties and is barely discernible in the Eurozone continuing so for the next few years, because of its Socialist nature. The main drivers to growth, right now, are a cheap euro and oil. These directly impact that economy. The euro has already dropped 20% from its peak and yet deflation threatens at the door still. Europeans will turn to gold in 2015.
The silver price appears reticent to rise with gold at the moment, again waiting for direction from gold.