Gold falls despite big continuing physical buying in the U.S.

Gold Today Gold closed in New York at $1,232.70 down from $1,234.00. In Asia on Wednesday, it fell to $1,224 ahead of London’s opening. It then rose further to be set by the LBMA at $1,229.35 down from $1,240.00. The dollar index is slightly higher at 98.45.

The dollar is up against the euro at $1.0853 up from $1.0857 on Wednesday. The gold price in the euro was set at €1,132.78 down from €1,140.44.

Ahead of New York’s opening, the gold price was trading at $1,231.00 and in the euro at €1,134.25.  

Silver Today –The silver price closed in New York at $14.84 up 4 cents.  Ahead of New York’s opening the silver price stood at $14.85.

Price Drivers

Equity markets have been rallying this week and may well continue to do so today. Dealers continue to pull gold and silver prices back in expectation of price falls while these equity rallies continue across the world. But this is not warranted in terms of the demand and supply of gold.

Dealers do not respond to physical buying as we explain below [ETFs], the Technical picture continues to describe a tightening of the trading range. We were premature in calling for a big price move either way coming, but the Technical picture continues to support our view that we are getting closer to that move.

Gold ETFs In yet another amazing week for gold demand in the U.S. and after Monday’s huge purchase of gold into the SPDR gold ETF of 14.869 tonnes we see another 8.921 tonnes bought yesterday and a purchase of 0.450 of a tonne into the Gold Trust. The holdings of the SPDR gold ETF are now at 786.195 tonnes and at 189.87 tonnes in the Gold Trust.   And yet because of better data out of the States and an equity market rally, gold fell.

Readers may feel that when there are such purchases the U.S. price of gold should rise automatically. But that’s not the way it works. HSBC is the Custodian of SPDR gold, so when the SPDR asks it to acquire gold for the company, HSBC must go into the physical market to buy it. It goes primarily into the physical market, most likely in London [if not from its own sources] to get it – not into the U.S. to get it. As a result, such demand does not impact the U.S. price of gold, initially. Now you have a situation where the supply and demand picture in gold is not reflected in the U.S. gold price, despite the fact that it is U.S. buyers of physical gold that are buying so much. Yes, it is inevitable that at some point their buying will reflect in the gold price.

This makes the establishment of the Yuan gold price “Fixing” in Shanghai after April 19th so important to the future gold price.

Silver – While the silver price has re-affirmed its relationship with the gold price, it remains more volatile than gold both ways. Clearly, for short term trading silver can be more rewarding or damaging, than gold, but we bear in mind that long-term it continues to be treated as a monetary metal.

Julian D.W. Phillips | | StockBridge Management Alliance

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