Julian Phillips’ latest review of what’s happening in the gold and silver markets
New York closed Friday at $1,275 up $16.50 as the euro continued to slide. In Asia and early London today the gold price held that level with the euro 0.75 cents down at $1.1562. The Fix saw the gold price set at $1,275.50 up $17.25 and in the euro, at €1,099.853 up €17.49, while the euro was 1/4 of a cent weaker at $1.1597. Ahead of New York’s opening gold was trading in London at $1,277.00 and in the euro at €1,101.15.
There were purchases of 13.328 tonnes of gold into the SPDR gold ETF but no change in the Gold Trust on Friday. The holdings of the SPDR gold ETF are at 730.382 and at 163.62 tonnes in the Gold Trust. The purchases of gold into the SPDR gold ETF are substantial signaling a change in attitude in the minds of U.S. investors.
Saudi Arabia has made it clear that oil prices may remain low for years and would like to see oil prices ‘as low as possible. Hence oil prices will continue to fall as long as there is an excess of supply. Because the developed world requires profits whereas national oil producers do not need profits, but simply income from oil, the developed oil producers will reduce supply before others do. This means such oil producers exiting the market, not simply postponing production. So expect lower oil prices for years to come. This is positive for consumers and for non-oil producing nation’s Balance of Payments but not for developed world oil companies. It will cause a postponement of interest rate rises until it translates into robust economic growth, which may take a long time still. But it will not remove the currency crises we are starting to experience now.
As we said last week, the Swiss Franc drama is the start of more monetary structural maladies. We should see a manifestation of the symptoms of these this week when the E.C.B. announces its plans for its own version of QE. But few believe such policies will resuscitate growth in the E.U. This is a job for the governments and the E.U. Commission, whose efforts, so far, are failing, due to a hormone deficiency.
The brutality of the reaction to the removal of the ‘peg’ against the euro may not be as severe when the E.U. Q.E. is announced but we expect the euro to fall further despite the warnings the market has already received of this. As you saw in the last week, gold and silver prices will benefit from all these moves. Indeed, the currency changes we are now watching are part of a long process of metamorphosis of the world’s monetary order, mainly unplanned, but in the case of Asia, foreseen and to a large extent planned. Gold will be an important part of such re-structuring.
The silver price is running ahead of gold, as forecast.