Gold Today –Gold closed in New York Friday at $1,288.20 up from Thursday’s $1,277.30. On Monday morning in Asia it fell to $1,280.00, as the Yuan continued to weaken against a stronger dollar, before the LBMA price setting in London.

LBMA price setting:  $1,277.75 up from Friday’s $1,2805.25.

Yuan Gold Fix

Trade Date	Contract	Benchmark Price AM	Benchmark Price PM
2016  05  9 2016  04  6	SHAU SHAU	269.25 267.79	268.27 267.52
Dollar equivalent @ $1: 6.5290 $1: 6.5177		$1,282.68 $1,277.94	$1,278.01 $1,276.65

The Shanghai Gold Fixings today were higher than New York’s close in the morning, but slipped in their afternoon back to around the close in New York, with London around the same level [allowing for the morning’s moves in exchange rates].  

Gold prices have moved only by a little amount, through the three centers, in the tight range of $1,277- $1,280. We continue to expect a strong move, once the gold price moves outside this range. We continue to expect the driving forces behind the gold prices to be exchange rates.

The dollar index is at 94.02 up from Friday’s, at 93.60. The dollar is stronger against the euro at $1.1387 up from $1.1426 on Friday.

The gold price in the euro was set at €1,120.47 up from Thursday’s €1,116.04.

Ahead of New York’s opening, the gold price was trading at $1,274.60 and in the euro at €1,119.34, but slipped further as U.S. trading got under way.  

Silver Today –The silver price closed in New York on Friday at $17.45 higher than Friday’s $17.34. Ahead of New York’s opening the silver price stood at $17.24.

Price Drivers

The jobs numbers from the U.S. last Friday were disappointing. In this environment it is most unlikely that we will see rate hikes anytime soon. Our view was that a maximum of two rate hikes would be seen in 2016. We continue to hold that view but if we are wrong it is more likely that there will be only one, or none. The ‘data’ will dictate how many! What is for sure is that if there is no rate hike in June, U.S. demand for gold will rise again.

China’s reserves of gold rise – China increased its gold reserves by 10.89 tonnes last month. We have come to expect around 21 tonnes a month increases over the last few months. We don’t think there has been a change in policy. As these reserves come mainly in the form of 400 oz bars, they would have to have been bought on the London market. We see China’s policy as taking what’s offered to them by dealers, so as to not chase prices. With the heavy U.S. demand ongoing, it may be that there was little on offer.

On top of that it is becoming clearer that not only is New York very low on physical gold, but London is moving that way. It appears that London is becoming more like COMEX every day, dealing in ‘paper gold’ on contracts that are closed out before they mature. That negates the need for physical gold.  

With Shanghai being a physical gold market, the osmotic pressure from China is on London and is slowly draining gold liquidity there. If this continues, there will come a time when London loses its pricing power and passes it to China. And that may be sooner than we think!

Gold ETFs – Friday saw purchases of 4.754 tonnes of gold bought into the SPDR gold ETF and another 1.05 of a tonne bought into the Gold Trust. This leaves their holdings at 834.194 and 196.43 tonnes in the SPDR & Gold Trust, respectively.  

The purchases of the last three business days totaled over 15 tonnes into these two gold ETFs and should continue to have a positive impact on the gold price.  HSBC, the custodian of the SPDR gold ETF has to buy physical gold in London when SPDR shares are bought, but when selling happens, they have a choice of where to sell, London of Shanghai. They cannot buy in Shanghai for U.S. delivery.

Silver – The Silver price continues stable and ready to move. It continues to mark time, waiting for gold to lead the way.

Julian D.W. Phillips

GoldForecaster.com | SilverForecaster.com | StockBridge Management Alliance