Gold to bounce off support; China launches interbank gold trading

The New York gold price closed Monday at $1,089.60 down from $1,095.00. In Asia it was moved down to $1,081.5 but London held it there and the LBMA price was set at $1,081.80 down from $1,094.85 with the dollar index higher at 99.25 up from 98.94 on Tuesday. The euro was at $1.0817 down from $1.0856 against the dollar. The gold price in the euro was set at €1,000.09 down from €1,008.52. Ahead of New York’s opening, the gold price was trading at $1,082.55 and in the euro at €1,000.51.  

The silver price in New York closed at $13.81 down 7 cents.  Ahead of New York’s opening the silver price stood at $13.83.

Price Drivers

Monday saw no purchases or sales into or from the SPDR gold ETF or the Gold Trust. The holdings of the SPDR gold ETF are now at 651.677 tonnes and at 160.17 tonnes in the Gold Trust.  

We find it extraordinary that the gold price can slip from over $1,100.00 to $1,081.00 with almost no physical gold sales! And this after a few weeks where strong gold purchases pushed the gold price through resistance. The gold price is now sitting on support that was previously resistance. If the market really does work, we expect to see gold bounce off support. Today, more and more attention is being brought to the currency world and exchange rates. The dollar is stronger today, which is why dealers marked the gold price down, but we reiterate that gold is moving in all currencies, both up and down.

There are moves afoot to adjust the malfunctioning of the global gold market structurally. We are waiting for the Chinese bank ICBC to be accepted as a Member of the LBMA price setting group of banks and for them to be accepted as a gold clearing bank. This may well bridge the divide between east and west in the gold market. We are curious to see just how long the LBMA takes to appoint the ICBC as members and clearers. Because of the implications to pricing power, we do expect the process to be dragged out. If it happens quickly, it is all credit to the LBMA. What may well weigh the speed of their appointment is the reality that London wants to remain the hub of Yuan trading in the west and likely keep it influence in the gold market intact.

China has launched interbank gold trading at the beginning of this year, in an effort to open up the country’s bullion market. It is aimed at increasing liquidity in interbank gold trading, and promote market making. Before the new mechanism, banks were not allowed to trade gold with each other and could only buy the precious metal through the Shanghai Gold Exchange, which is the world’s biggest physical trading platform for the metal.

The silver price will continue to be hesitant until gold resumes it rise.         

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

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