Gold and silver break down below $1,300

Gold TodayNew York closed at $1,313.30 yesterday after the previous close of $1,317.40.  London opened at $1,309.80.

    • The $: € was stronger at $1.1171: €1 from $1.1237: €1 yesterday.
    • The Dollar index was stronger at 96.15 from 95.82 yesterday.
    • The Yen was weaker at 102.34: $1 up from 101.21: $1 yesterday against the dollar.
    • The Yuan was stronger at 6.6745: $1 from 6.6720: $1 yesterday.
  • The Pound Sterling was very weak at $1.2775: £1 from yesterday’s $1.2956: £1.

Yuan Gold Fix- Chinese markets are closed for a week-long holiday

Shanghai remains on holiday. New York prices continue to dominate when China is closed.

The Yuan is now part of the SDR of the IMF, for the Chinese an important step on the way to international acceptability as a global currency. We must wait for the Golden Week to be complete before we see how the People’s Bank of China reacts after this event.

It is unsurprising to see the gold price fall when the largest physical market is closed, despite COMEX dominating prices when it is just a very small physical gold market. The COMEX ‘paper’ market is used to establish the dollar gold price, but it is very important that investors follow the gold price in their own currency as that is the one that affects them. The dollar price is great for U.S. citizens, but where even they want to maximize returns they take a short position in a weak currency matching their gold position [physical gold positions too]. For instance when sterling was $1.44 against the dollar gold was not too far away from current levels. A short position in the pound would see them gain, so far,  [$1.44 – $1.27] another nearly 12% or $158 on the total position. After all gold is a measure of currency’s value so to have a position against the weakest currency gives you the greatest gains.

LBMA price setting:  The LBMA gold price setting was at $1,309.15 against yesterday’s $1,318.65.

The gold price in the euro was set at €1,173.39 against yesterday’s €1,173.49. This shows that the gold price in the euro had barely moved. In dollars the gold price fell in direct proportion to the dollar’s strength against the euro. But now gold has broken down through support.

Ahead of the opening of New York the gold price was trading at $1,291.60 and in the euro at €1,156.78.  At the same time, the silver price was trading again at $18.52.

Price Drivers

The Technical picture shows a breakdown through support and is now looking for the bottom or are we there now? We do know that at these levels there are many buyers just waiting to get in once a bottom is found. With China in its ‘Golden Week’ of holidays there is little drive to take gold prices higher at the moment. Even U.S. based gold ETFs are now seeing no demand [just small sales].

In India we hear reports of very little demand. We have difficulty in accepting that. What we do know is that smugglers have been in the game since the imposition of duties years ago and could well get a further boost if these are increased. Smugglers don’t report turnover even to the WGC, so there is no way of knowing accurately just how much gold is coming in. But we believe it is substantial and would take import figures back to where they were at their peak, particularly after the good monsoons they had this year.

Gold ETFs – There were no sales or purchases from or to the SPDR gold ETF or the Gold Trust yesterday, leaving their respective holdings at 947.952 tonnes and 226.68 tonnes.  

Since January 4th this year, the holdings of these two gold ETFs have risen by 374.33 tonnes.

Silver – Silver prices will fall in the short term and will go the same direction as gold but should turn faster than gold when it does.

Julian D.W. Phillips | | StockBridge Management Alliance


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