Gold and silver on pause – waiting for physical buying!

Gold TodayGold closed in New York at $1,199.60 but stood, in Asia, at over $1,212 this morning but then slipped back to $1,204 before London opened. Then the LBMA set it at $1,202 down from $1,212.00 down $10.00, with the dollar index stronger at 96.85 up from Monday’s 96.54.

The dollar is slightly stronger against the euro at $1.1144 up from $1.1171 on Tuesday. The gold price in the euro was set at €1,078.51 down from €1,084.95.

Ahead of New York’s opening, the gold price was trading at $1,207.40 and in the euro at €1,084.34.  

Silver Today –The silver price stood in Asia at $15.22.  Ahead of New York’s opening the silver price stood at $15.30.

Price Drivers

Tuesday saw no purchases or sales from or to the SPDR gold ETF or the Gold Trust, clearly waiting for gold to hit support. Their intention appears to be to buy at the best prices they can and not chase any price. The holdings of the SPDR gold ETF are now at 710.954 tonnes and at 179.19 tonnes in the Gold Trust. We don’t believe that after such strong buying investors have moved out of the market. We believe that they are readying to start buying the shares of the SPDR gold ETF soon.

China too appears to be waiting for the gold price to settle down, although while they could during the Lunar New Year holiday they piled into the shops to buy gold. Chinese demand remains robust. We also expect the post holiday fall-off in demand to be slight with lower prices and ongoing enrichment of the middle classes.

But yesterday saw the gold price hold lower levels because of the absence of gold ETF buyers in the U.S. Now that the gold price is bouncing off support at $1,200 we expect physical demand to come in again.

The media appears obsessed by growth in China and the Yuan exchange rate as though they are the factors hurting the developed world. We believe nothing could be further from the truth. China will internalize its debt problems and growth problems as they continue to change direction towards consumption and the development of the middle classes. It is a process the developed world has not seen since the Second World War. Such a process limits imports from the west.

Bear in mind the Chinese government rules the entire financial system there with an iron hand, unlike in the west. A 1% or 2% move, both ways this week, of the Yuan, are of no consequence!

The basic problem the developed world is facing is that global cash flow to itself is dropping over time from the 80% it enjoyed in 2000 to the eventual 35% in 2020. As of now its global cash flow is between 40% and 45% going to Asia and 55% to 60% to the developed world. The road forward is to see China and Asia producing all products that the west does, as well and cheaper.

China wants to become the No. 1 economy as independent of the Developed world as possible, to remove its vulnerability to it. This will divide the world and bring intense pressure on the developed world, long term. It is inevitable that this will bring additional financial and currency pressures to the globe.

With this in mind China is, through its citizens and institutions, buying as much gold as it can, as it foresees the day when gold will reinforce a failing global monetary system.  But even there, the government can, at the drop of a hat, confiscate the bulk of their gold. The Chinese are so obedient or fearful of government that they will hand in their gold if told to do so by government. Bear in mind too that Hong Kong is part of China.

Silver – The silver price is holding strongly above $15.00 and we expect will do so while gold is in this Technical pattern.


Julian D.W. Phillips | | StockBridge Management Alliance


Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s