Gold and Silver Markets: Real and Present Dangers

Gold Today –The New York gold price closed Tuesday at $1,187.80 down from $1,190.20 down $2.40. Ahead of London’s opening, prices were quoted at $1,185. As London opened the gold price hovered around $1,183. Then the LBMA set it at $1,183.40 down from $1,188.90 down $5.50 with the dollar index almost the same at 96.12 down from 96.04 on Tuesday. The dollar continues weak against the euro at $1.1260 up from $1.1285 against the euro on Tuesday. The gold price in the euro was set at €1,050.98 down from €1,053.20. Ahead of New York’s opening, the gold price was trading at $1,183.65 and in the euro at €1,051.15.  

Silver Today –The silver price in New York closed at $15.23 down 8 cents at Tuesday’s close.  Ahead of New York’s opening, the silver price stood at $15.16.

Price Drivers

Today, we are seeing gold trying to retreat at London’s opening. With gold putting in a sterling performance of late a consolidation period is to be expected as resistance approaches. There are quite a few ‘stale bulls’ above $1,200. Just how fast gold manages to break through overhead resistance will tell us what lies ahead. Softening this view is the reality that the amount of gold at this level, even in the hands of these stale bulls appears limited and China continues to draw in as much as it can.

This morning, with the exception of China, which is closed for the week, equity markets continue to fall with Japan now fully in a ‘bear’ market. The dollar continues to fall against major currencies, particularly the Yen which is now at 114 to the dollar.  All the gains made through weakening their currency are beginning to evaporate. While it doesn’t signal a return to a yen below 100 to the dollar it does signal an end to ongoing competitive devaluations against the dollar. It also signals considerable uncertainty in currency markets looking ahead. We see this in the big tsunami of unwinding by the “carry” trade and sending money from whence it was borrowed.

In the absence of a ‘dollar bull’ market economic fundamentals have to kick in. That’s why financial storms are threatening in 2016. Today’s selling of banking stocks is part of this uncertainty. Can they pay their debts is the question uppermost in market minds. To be fair to the banks, global equities are falling because of a darkening financial future across the world. That’s why the mood is moving towards gold and silver and we are only just at the start!

On Bloomberg today you will not an article reporting that ‘big’ banknotes [€500] are to be banned to prevent crime. While a noble intention, what are the other effects? The biggest is that more transactions will be pushed through the banking system under government’s control. It will reduce the cash market for individuals. With the drug world as successful as ever in moving money around such security actions to date have been ineffective so this restraint on cash has the greatest impact on the public. ‘Big Brother’ is closer! Of course, gold nationally, is open to such controls, but internationally no local controls are ever fully effective. The world is too divided to exert a unified control over gold, but it is vulnerable locally.  

Tuesday saw a sale of 1.487 tonnes from a trader who, in the past buys and sells similar amounts each time. To do so now is to be expected for the gold price has roared up $150 almost without a break, reaching overhead resistance at $1,200.  There were no sales or purchases into or from the Gold Trust. The holdings of the SPDR gold ETF are now at 702.031 tonnes and at 173.78 tonnes in the Gold Trust.

Silver will mark time waiting for gold’s lead.

Julian D.W. Phillips | | StockBridge Management Alliance

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