Gold Volatility Favoring the Brave

Gold TodayGold closed in New York at $1,243.20 down from $1,256.10 on Wednesday. On Thursday morning in Asia, it fell back to $1,234 but was lifted in London to $1,240 and was set at $1,240.30 at the LBMA price setting down from $1,245.75 on Wednesday.

The dollar index is higher again at 94.95 up from 94.60 on Wednesday. The dollar is stronger against the euro at $1.1256 up from $1.1309 yesterday.

The gold price in the euro was set at €1,101.90 down from €1,102.72 Wednesday.

Ahead of New York’s opening, the gold price was trading at $1,237.80 and in the euro at €1,099.68.  

Silver TodayThe silver price closed in New York at $16.23 up from $16.21 on Wednesday. Ahead of New York’s opening the silver price stood at $16.11.

Price Drivers

Today sees the euro continue to weaken having fallen back to $1.1257 from over $1.14 two days ago. That’s a move of 1.25% and slightly more in the gold price. In the euro the gold price remains above €1,100 as gold is being moved by dealers, contrary to the dollar, once again. The rally in the dollar is a normal market reaction even in a bear market. It does not alter the reality given to us by Janet Yellen that the U.S. Treasury/Fed do not want a strong dollar and would prefer to see it at levels against most currencies last seen over 18 months ago. Its rise to better than $1.07 against the euro, at its peak was and will hurt U.S. global Trade.

Both Japan and the E.C.B. must find other ways to improve their growth levels not at the expense of the U.S. $ and the U.S. economy. So, any rally in the dollar will be short lived.

Today we heard that Singapore has taken measures to lower its exchange rate, the same it took in 2008. Why is this significant? Singapore is an ‘entrepot’ where trade passes through onto other destinations, so reflects the ‘big’ global picture in trade. Figures out of the rest of the world show global growth slowing steadily but surely, moves that are likely to continue for the foreseeable future. Singapore is reflecting that reality. Such a path leads to crises, inevitably.

Cracks are appearing in the global banking sector, the life-blood system of the global economic body. Take this scene longer term and you can see why so many leading institutions are going long of gold and recommending it for their clients.

We note demand for gold rising despite a stronger Yen.  Across the world investors are noting there’s trouble ahead, with the IMF lowering growth prospects once more.

Volatility in currency and precious metal markets continues to favor the brave and will do so in the future. But the underlying moves in gold will reflect the volatility in currencies which translates into the local currency gold price.

We are hearing opinions that the Shanghai gold Fix will not affect global gold prices and will continue to follow New York. How long it takes before pricing power is shifted to Shanghai we cannot say, but in the meantime we would expect volatility to subside in the Yuan gold price. With the Chinese authorities wanting a stable Yuan at the moment that price will see far less volatility than the dollar price. Gold will move to reflect currency moves more precisely than today. Today, it seems to be moved in the euro, whereas last week it moved with the dollar.

Gold ETFs – We saw big sales of 5.053 tonnes of gold from the SPDR gold ETF but nothing in or out of the Gold Trust on Wednesday. This leaves their holdings at 810.085 and 188.04 tonnes in the SPDR & Gold Trust respectively.  An amount this large would certainly have found its way to Asia, which accounts for the fall in the price early this morning, but the price did then recover in London.

Nevertheless, the sale would have joined the dollar’s strength to push gold lower.

Silver – The silver price is holding over $16 robustly. It seems to simply be waiting for gold to resume its rise.

Julian D.W. Phillips | | StockBridge Management Alliance

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