Gold consolidating, silver rising!

Gold TodayGold closed in New York at $1,256.00 on Friday not far different from a week ago. On Monday morning in Asia, ahead of London’s opening it was pushed down to $1,244.00. London then held it there until the LBMA price setting was set at $1,244.25 down from a week ago where it was set at $1,262.25.

The dollar index continues to see new low levels and this morning stood at 95.12 down from a week ago at 96.56. We continue to hold the view that the Dollar Index goes whichever way the Treasury wants and that’s not higher!

The dollar is down against the euro at $1.1277 from last week’s$1.1106.

The gold price in the euro was set at €1,103.30 down from €1,136.50 last week. Please note that the dollar is falling at the same time as gold is, contrary to ‘normal’ behavior.

Ahead of New York’s opening, the gold price was trading at $1,247.30 and in the euro at €1,106.06.  

Silver Today –The silver price closed in New York at $15.82 up over 26 cents on the week before. Ahead of New York’s opening the silver price stood at $15.85.

Price Drivers

We had a week away on holiday near the Mozambique islands, an ideal place to be cut off from the world and re-tune our perspectives. It allowed us to see just how diverse and inefficient the gold market is when assessing the validity of the gold and silver prices.

In the U.S. we see institutions and their clients, such as Goldman Sachs holding hard to their bearish view of the gold price, based entirely on the state of the U.S. economy and the number [3] rate hikes they expect from the Fed this year. They themselves are short as are their clients, so they are ‘talking their book’.

This view is entirely U.S. oriented and places its main emphasis on a stronger dollar and its past relationship with the euro. Of course the gold market is bigger than the U.S. demand levels, but due to market structure, U.S. gold markets continue to dominate the gold price, for now! On the other hand there are major developed world institutions [e.g. JP Morgan Chase that  favor gold’s rise, that have taken a bullish stance on the gold price for similar reasons, believing there will be only one or two rate hikes and a neutral to weaker dollar. Both these views expect the U.S. gold price to continue to dominate the global gold price and for the fundamentals on gold and silver to be sidelined and almost irrelevant to their prices.

We on the other hand do see the power of gold’s fundamentals coming through to the gold price once Chinese gold market moves come to fruition, post April 19thover time. We appear to be virtually the only commentators to add impact to their moves [we discuss these in depth in our newsletters [see below for addresses].

Gold ETFs There were purchases of 20.218 tonnes of gold into the SPDR gold ETF over the last week and purchases of 1.2 tonnes into the Gold Trust over the last week. The holdings of the SPDR gold ETF are now at 818.985 tonnes and at 192.72 in the Gold Trust. These now total over 1,000 tonnes between the two. This remains well below past peaks.

We are seeing large purchases spread over time, so as not to let the gold price run ahead of itself! This leaves dealers uncertain as to whether they are going to be caught wrong-footed when prices are marked up and they attract sellers or short-sellers. This continues to allow buyers to buy the tonnages they want at lower prices. We expect this policy to continue until another source of demand in the U.S. is found. We believe that it is these purchases that are keeping prices at these levels in the U.S. We remind readers that prices are made in the U.S. for gold and silver and do not reflect the global market’s demand and supply levels.

Hence we see prices low before the U.S. opens and high in the U.S. day.

Silver – The silver price is running ahead of gold as it rises then holds its gains while gold pulls back then runs when gold rises slightly. If this trend continues, silver will continue to outperform gold, for sure.

It is clearly visible that the usual source of silver [as a by-product of base metals] is falling, so supplies are dropping. But it the silver-gold ratio that is attracting market attention as it makes silver historically ‘cheap’.

Julian D.W. Phillips | | StockBridge Management Alliance


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