Shanghai walking own physical gold road


Gold Today –New York closed at $1,173.00 yesterday after closing at $1,169.10 on the 6th December. London opened again at $1,175.40 today.

 Overall the dollar is weaker against global currencies today.

         The $: € was slightly weaker at $1.0763: €1 from $1.0728: €1 yesterday.

         The Dollar index was weaker at 100.14 from 100.50 yesterday. 

         The Yen was stronger at 113.65: $1 from yesterday’s 114.15 against the dollar. 

         The Yuan was stronger at 6.8805: $1 from 6.8839: $1 yesterday. 

         The Pound Sterling was stronger at $1.2654: £1 from yesterday’s $1.2614: £1.

 Yuan Gold Fix

Trade Date Contract Benchmark Price AM 1 gm Benchmark Price PM 1 gm
      2016  12    8

      2016  12    7

      2016  12    6










$ equivalent 1oz @  $1: 6.8805

      $1: 6.8839

$1: 6.8802







Please note that the Shanghai Fixes are for 1 gm of gold. From the Middle Eat eastward metric measurements are used against 0.9999 quality gold. [Please note that the 0.5% difference in price can be accounted for by the higher quality of Shanghai’s gold on which their gold price is based over London’s ‘good delivery’ standard of 0.995.]

 Shanghai prices moved higher today despite heavy gold ETF selling in New York. Prices in Shanghai were $27.60 higher than New York and $25 above London’s opening [allowing for the difference in the quality of gold priced in the different markets].

Some reports state that Chinese gold prices were ‘at a premium’ to New York’s prices. It would be more accurate to say that New York prices are at a discount to Shanghai prices in view of the more stable market in Shanghai. Capital restrictions in China have not been confirmed. We doubt that this would be true in view of the government’s encouragement of buying of gold at retail, institutional and government levels. With the Yuan being restrained from any ‘brutal’ moves down from the dollar to prevent charges of manipulation of the currency, we do see it going lower still, but gently.

We must bear in mind that China is attempting, as fast as possible to exit the dollar, both via sales of Treasuries and propping up the Yuan. A weak Yuan serves China well in the future. We expect to see reports of rapidly rising holdings of Yuan in nation’s foreign exchange reserves.

The ‘no increase in gold reserves’ for official PBoC reserves is meaningless to us and should not be read that China is no longer buying gold. Quite the reverse! China is a huge buyer but has not passed it from its buying agencies to the PBoC, yet!  China understands the value of gold as a monetary asset in troubled times. We see ‘troubled’ times rapidly approaching.

Yesterday we said, “Shanghai therefore appears less dependent on the other global gold markets as it walks its own physical gold road. Once U.S. ETF sales halt we should see Shanghai prices take a more dominant role.” Yesterday was another day of heavy gold ETF sales, but the price rose in New York. London may try to go lower as these sales are offloaded in the London market, but if the price does not fall we are certain that these sales are well on their way to China.

With the guilty plea by Deutsche Bank to rigging the silver market and the passing of documents to the authorities implicating other banks in the rigging, it becomes difficult not to believe that they did the same in the gold market!

LBMA price setting:  The LBMA gold price setting was at $1,174.75 this morning against yesterday’s $1,171.25. 

The gold price in the euro was set higher at €1,088.79 after yesterday’s €1,092.63.

Ahead of the opening of New York the gold price was trading at $1,173.75 and in the euro at €1,087.61.  At the same time, the silver price was trading at $17.11.

Silver Today –Silver closed at $17.12 at New York’s close yesterday from $16.71 on the 6th December. 

 Price Drivers

Despite strong sales from the SPDR gold ETF the gold price in New York rose. It appears that sales of more than double digit sales will be needed to hold gold prices back from now on.

The focus of the gold market will now move to next week’s FOMC meeting and the subsequent announcement of the rate hike. We say it that way because a 25 basis point hike is factored in to global financial markets already. The surprise, in this year of surprises, will be if there is no rate hike then.

2017: What is extraordinary is that Trump’s policies are blithely being factored into market prices ignoring some basic realities. His policies will negatively impact bond and equity markets severely.  Yes, rate hikes will be the way forward, but we expect real interest rates to remain negative after discounting inflation. History shows that this background to rising rates has been very positive for gold in the past. With the dollar losing global influence in an increasingly divided world [reversing globalization] it will be vulnerable to global influences. Hence, we forecast an increasingly insular U.S. trying to remove global influences on its economy through Capital controls and heavy Tariffs on imports [probably including foreign oil – to protect Frackers]. A prime target will have to be the ending of the U.S.’ perpetual Trade deficit. It will be a very different world from 2017 onwards!

In the E.U. we expect major changes too. The ECB has extended its Q.E. until the end of 2017, while reducing the monthly pace of purchases to €60 billion ($65 billion) from 80 billion euros starting in April. The Governing Council also said it will step up purchases again or prolong them if needed.

The raising of interest rates in the U.S. will cause problems outside of the U.S. and in particular in Europe.

With Monte dei Paschi bank calling for more time to raise capital we see their problems begin to suppurate, bringing about a major E.U. banking crisis in 2017.  

The above are fundamentals that are positive for gold demand!

Gold ETFs – Yesterday, there were sales of 6.226  tonnes from the SPDR gold ETF (GLD) but no sales from the Gold Trust (IAU) holdings, leaving their respective holdings at 863.671 tonnes and 198.69 tonnes. 

Since January 4th this year, 261.352 tonnes of gold has been added to the SPDR gold ETF and to the Gold Trust. 

 Silver –Silver rose on the small rise in the gold price in dollars. We see silver being sensitive even to an indication that gold may rise.  

 Julian D.W. Phillips | | StockBridge Management Alliance  


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