Huge US Gold ETF Purchases. Dual global gold market developing?

Is a dual global gold market developing?

Gold Today –Gold closed in New York at $1,229.30 on Friday down from $1,236.80 on Thursday. In Asia, quite unbelievably, it slipped back to $1,210 ahead of London’s opening. It kept falling in London and at the LBMA price setting it was set at $1,203.65 down from Friday’s $1,221.50. The dollar index is stronger at 97.52 up from Friday’s 96.88.

The dollar is stronger against the euro at $1.1024 up from $1.1102 on Friday. The gold price in the euro was set at €1,091.80 up from €1,100.25.

Ahead of New York’s opening, the gold price was trading at $1,210.35 and in the euro at €1,097.87.

Silver Today –The silver price closed in New York at $15.36 then in Asia it was pulled back to $15.02 down 34 cents.  Ahead of New York’s opening the silver price stood at $15.07.

Price Drivers

Friday saw purchases of 19.332 tonnes into the SPDR gold ETF and a purchase of 4.00 tonnes into the iShares Gold Trust. When we saw this number we thought we had made a mistake so we double checked. The numbers are correct. What is strange is that we can’t find anybody who noted this huge number. Physical gold purchases are rising in volume into these two, U.S.-based gold ETFs as gold continues to consolidate in a pattern promising a strong move shortly. The holdings of the SPDR gold ETF are now at 732.963 tonnes and at 184.50 tonnes in the Gold Trust.

We find it somewhat unbelievable that US. Investors should buy 23.332 tonnes of gold into their two main gold ETFs on Friday and then in Asia the price falls back $19.  The U.S. gold market is readying for a strong move shortly, still.

So we have to ask, “How can the prices in Asia fall so much, while New York and London are closed?” It is evident that there is little to no effective arbitrage capacity in the global gold market. China forbids the export of gold, so there is no chance that a smoothing of the gold price can come from Chinese sellers in New York or London. But liquidity levels in Shanghai are sufficient to see gold sales there with no price-chasing. Altogether Shanghai appears a more stable gold market now with less volatility.

With Chinese and Indian wholesalers buying as much gold as they can, confident that the retail and institutional buyers will be there soon thereafter, on an ongoing basis, supplies for the open market in the developed world are under strain. The volatility on the gold price in New York bears clear testament to this. As you can see even now prices fall in Asia and rise in New York substantially! If we are correct on this, then we have to expect continued and rising volatility in the weeks ahead, in daily prices.

So will there be two separate and very different gold prices across the world in the future?  We discussed, in our newsletters, the developments both in and outside China in terms of the structure of the global gold markets being undertaken by the Chinese institutions. We see these as developing effective arbitrage operations, under their control. That means that the absorption of London’s liquidity in the gold market will accelerate.

Asians do not chase prices, they always want to know it won’t go lower and then they buy. With the huge growth in Chinese Middle classes, ongoing demand for gold in China will grow too. So price dips will become increasingly rare and a steadier, less volatile market will evolve in Shanghai if this market evolution continues.

But until then, we will see daily prices between morning and evening, remaining volatile.

Silver – With the fall in the silver price in Asia being so heavy this morning, we expect to see a similar but upward volatility in New York.

Julian D.W. Phillips | | StockBridge Management Alliance

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