Gold cat out of the bag

Gold TodayThe New York gold price closed Thursday at $1,244.20 up from $1,196.50 up an incredible $47.70. Ahead of London’s opening, prices were being quoted at $1,244. Then the LBMA set it at $1,239.50 up from $1,223.25 up another $16.25 on top of yesterday’s $39.85 with the dollar index slightly stronger at 95.70 down from 95.51 on Thursday.

The dollar is stronger against the euro at $1.1283 down from $1.1322 on Thursday. The gold price in the euro was set at €1,098.56 up from €1,080.42 up another €18.14 on top of yesterday’s €29.44.

Ahead of New York’s opening, the gold price was trading at $1,241.65 and in the euro at €1,100.17.  

Silver Today –The silver price in New York closed at $15.70 up 42 cents at Thursday’s close.  Ahead of New York’s opening, the silver price stood at $15.68.

Price Drivers

The move in the gold price yesterday did more than dumbfound the markets yesterday. It has destroyed most developed world concepts of how markets behave. A rise of this magnitude through such huge resistance, that has proved insurmountable for nearly three years, breaks all the rules. Anybody that thought it had mastered the management of the gold market or any structural isolation of the gold price to the U.S. has been thrown out in one day. We have expected this for a very long time, but the demand to do this was just not there in the U.S. As physical supplies dwindled to remarkably low levels in the U.S. it became clear that just a relatively small burst of demand would break through these concepts. But to see in one day such a breakout stunned even us. What is for sure is, the cat is out of the bag and it is unlikely that it can be put back in.

Wednesday and Thursday saw purchases of 13.98 tonnes into the SPDR gold ETF but none into the Gold Trust. The holdings of the SPDR gold ETF are now at 716.011 tonnes and at 174.78 tonnes in the Gold Trust. This is the largest amount of gold bought in two days for over three years. This institution or these institutions are now committed to the gold price rising. We see their actions alone, as driving the gold price up, at one point $58. COMEX short positions were overwhelmed and forced to close with new long positions opened. For a change, stop loss protections above the price were triggered, forcing gold prices even higher.

Meanwhile global equity markets have officially entered a bear market! What a difference between 2015 and 2016 to date. While the causes of the 2016 falls were being put in place in 2010 to 2015, the markets have only really started to factor them in now. What marks another remarkable change in 2016 is the sight of a leading JP Morgan Chief Investment Officer, Robert Michele, saying, “Today’s precious metals flight shows retail investors have more confidence in gold than paper money…..Gold at $1,200 an ounce, what does that tell you? It tells you that in a flight to quality and a safe haven, people have more confidence in gold than in bank deposits or paper money. I think things have gotten out of control.”

With frantic Friday on us now, we expect more action to finish a remarkable week. Brace yourselves!

Many may continue to say that what we are seeing in the gold market is a short-term aberration, but the evidence is that this has been coming for well over a year.


Julian D.W. Phillips | | StockBridge Management Alliance

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