Julian Phillips’ latest commentary on the gold and silver markets
New York closed yesterday at $1,233.80 up $13.30 as the euro was relatively unchanged. In Asia the gold price rose to $1,238.40 with the euro at $1.1842 ahead of London’s opening. The Fix saw the gold price set at $1,239.00 up $17.00 and in the euro, at €1,049.911 up €14.14 while the euro slightly stronger at $1.1801. Ahead of New York’s opening gold was trading in London at $1,239.30 and in the euro at €1,050.17.
The silver price closed at $16.57 up 11 cents. Ahead of New York’s opening it was trading at $16.98.
There were no purchases or sales of gold into or from the SPDR gold ETF but a purchase of 0.33 tonnes of gold into the Gold Trust yesterday. The holdings of the SPDR gold ETF are at 707.821 and at 162.62 tonnes in the Gold Trust.
The rise in the gold price was not driven by U.S. gold purchases. Physical demand from Asia is the driver. U.S. gold demand or supply is an insignificant factor in the gold price right now. So we were surprised by the strength of the gold price yesterday and this morning as it took out the $1,230 resistance level. However, we still need to see a tiny bit more strength before we are fully convinced resistance is out of the way.
Will we see that today? We could! If we do, we then expect developed world traders and speculators to lift prices by closing short positions and opening long positions. On top of robust Asian demand this could prove impressive. On Thursday, we expect to see Indian demand come back to the markets as it is inauspicious to buy until then.
While we wait for the Shanghai Gold Exchange to mature into a market like London, which sees considerable volumes of two-way trade, while China is seeing one-way trade, we have to ask the question, “Does the People’s Bank of China want a mature market or does it just want to import as much gold as it can?” The answer to this question may well describe events in the Shanghai Gold Exchange this year.
At the moment there is a clash of intentions between China and the world’s gold bullion banks and market makers, who are driven by profits. So large, two-way traffic is the most profitable, but the Chinese government wants to impose control. Can these two objectives be made to work together? Until they do we would expect to see profitable premiums over gold prices persist in China. Perhaps the Chinese government will focus on encouraging arbitrage firms who buy and sell to smooth out prices between markets? If there was sufficient number of transactions in this trade, the overheads and delivery problems would lessen considerably and remove these premiums. Until then the bullion banks will rule the markets
Meanwhile the silver price is running as forecast.