Large GLD purchase strengthens gold price

Gold Today –Gold closed in New York at $1,269.30 on Thursday, falling slightly in London at the opening on Friday morning.

The $: € moved from $1.1299 to $1.1346 overnight. The dollar index is standing at 94.20 up from 93.89.

China remains on holiday

LBMA price setting:  $1,266.60 up from Thursday 9th June’s $1,258.35.

While the dollar is not rising significantly, the E.C.B. and many other central bankers want to see it rise. The Fed doesn’t want to see this and behind the scenes continues to discourage any rise. But the forex markets are not seeing any acceptance of this. The central banks keep enacting policies to weaken their currencies to gain trade competitiveness and the U.S. appears constant in its actions to see the dollar keep current levels or weaken it. As such, there is a currency war and it is unlikely to go away. This makes for fragile foreign exchanges.

The Fed expressed concern that the ‘Brexit’ referendum could affect the Fed’s perception of future rate rises. How? If the vote is for an exit, capital will try to flow out [Pounds 65 billion and more has already left the island’s shore and this number should rise ahead of the vote] substantially.

The question is, “Will the ‘Dollar Premium’ be revisited from its 1971 stay? This will disrupt foreign exchanges far more than it did in 1971.

If the vote is to stay, forex volatility will soar as funds flow back to Britain quickly. The Fed is likely to wait for forex markets to settle before it takes any action.

The gold price in the euro was set at €1,120.98 up from yesterday’s €1,108.19

Ahead of New York’s opening, the gold price was trading at $1,268.40 and in the euro at €1,122.33.

Silver Today –The silver price closed in New York at $17.30, up from Thursday’s $17.05 a rise of 25 cents. Ahead of New York’s opening the silver price stood at $17.29.

Price Drivers

As we know China wants to use the Yuan in its international trade and get away from the U.S. dollar as much as it can. The international trade by China is seeing the use of the Yuan climb steadily, rising 5% over the last year. We expect this number to rise at a much accelerated pace in the future.

It makes little sense to invoice in the dollar then convert into Yuan when one can pay and be paid in Yuan immediately. The costs of the transactions drop significantly, as do the dollar exchange rate risks. More than that, as the Yuan exchange rate falls [as appears to be the policy for the foreseeable future] exporters find such trade more profitable. Importers too would prefer to pay in Yuan passing the risks to their suppliers. But the main benefit of using the Yuan in such trade is to move away from any influence the U.S. may have on China’s business.

This undermines the dollar still further, as the global reserve currency. Every increase in the use of the Yuan is a decrease in the use of the dollar and consequently justifies holding the Yuan in nation’s forex reserves and lessening the amount of dollars held by other nations. Over time this will benefit gold and silver prices as gold steps in where disruptions surface in such trade.

Indeed, the prospects of oil prices holding at current levels, O.P.E.C. moving to a point where they accept currencies other than the dollar for their oil and a rising use of the Yuan points to a considerable smaller usage of the dollar in global trade than has been the case until now.

Gold ETFs – On Thursday the holdings of the SPDR & gold Trust rose as 6.238 tonnes was purchased into the gold ETF, leaving its holdings at 887.383. No purchases or sales were made in the Gold Trust leaving its holding at 196.90 tonnes.

This purchase, in one day, was sufficient to move the gold price in the U.S. and this price is holding in London ahead of New York’s opening.

Silver –After the rise in the silver price of the last few days, we expect a pause in the price as it consolidates.

Julian D.W. Phillips | | StockBridge Management Alliance

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