Gold drops on U.S. economic data. Earlier rate rise possible?

 Gold Today –New York closed at $1,227.40 on the 14th February after closing at $1,225.90 on the 13th February. London opened at $1,226.45 today.

 Overall the dollar was stronger against global currencies early today. Before London’s opening:

         The $: € was stronger at $1.0572: €1 from $1.0623: €1 on yesterday.

         The Dollar index was stronger at 101.29 from 100.78 on yesterday. 

         The Yen was weaker at 114.47:$1 from yesterday’s 113.48 against the dollar. 

         The Yuan was weaker at 6.8694: $1, from 6.8681: $1, yesterday. 

         The Pound Sterling was weaker at $1.2457: £1 from yesterday’s $1.2529: £1.

Yuan Gold Fix
Trade Date Contract Benchmark Price AM 1 gm Benchmark Price PM 1 gm
      2017    2    15

     2017    2    14

      2017    2    13










$ equivalent 1oz @  $1: 6.8694

      $1: 6.8681

$1: 6.8804







Please note that the Shanghai Fixes are for 1 gm of gold. From the Middle East 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 was trading at 273.34 Yuan towards the close today. This equates to $1,238.40, but allowing for the different quality of gold being traded [.9999 fineness]  and on today’s exchange rate, to align it with New York and London prices it equates to $1,233.41.

LBMA price setting:  The LBMA gold price was set today at $1,225.15 down from yesterday’s $1,229.65.  

The gold price in the euro was set higher at €1,161.22 after yesterday’s €1,157.43.

Ahead of the opening of New York the gold price had dipped sharply to below $1,220 on U.S. economic data interpreted as making an earlier interest rate rise more likely. And in the euro gold moved down to at €1,156.00.  At the same time, the silver price was trading at $17.77.  As the day progressed all the lost ground, and more was recovered wth gold back above $1,230 and silver back above $17.90

Silver Today –Silver closed at $17.94 at New York’s close yesterday against $17.82 on the 13th February.   Again, you will note its rise against gold has been holding up with a gold:silver ratio of below 69.

Price Drivers

“At our upcoming meetings, the Fed will evaluate whether employment and inflation are continuing to evolve in line with…expectations, in which case a further adjustment of the federal funds rate would likely be appropriate,” Fed Chairwoman Janet Yellen said yesterday. This somehow has been translated as June by the markets. But this was enough to lift the dollar and prompt gold to move with other exchange rates down. Although with the latest data some are now predicting a March rate rise.

Yellen reiterated there is a risk of the Fed waiting too long to raise rates. She said it would be “unwise” to delay because it might require the central bank to eventually raise rates rapidly. This can also be translated as next month.

But we reiterate what we said before and that is that the Fed needs to see inflation higher – latest figures have jumped though, and just what spending and Tax cuts President Trump is going to unveil.

We are watching the dollar carefully to see if it does jump or be contained at these or lower levels. This will point the way forward in the U.S. to its gold price.

Rising rates, alongside import tariffs, interest rate differentials, growth-boosting policies could lead to a too strong dollar. This would defeat President Trump’s “Make America Great” objective as he would have to raise trade barriers, combined with capital inflow controls, to such a high extent that the U.S. would be moving towards isolation from the rest of the world. He needs a weak dollar to keep the U.S. competitive in the world.

We are soon to enter a world of Capital controls and Trade controls to enable nations to battle exchange rate falls. When this happens, the relationship between the gold price and the dollar will change and cease to be an inverse one.

Gold market investors have realized the dangers that lie ahead as we see by the rapidly growing investments in gold in the U.S., E.U., U.K. and Japan as well as in the rest of the world, particularly Asia. This growth is only slowly impacting the gold price as the western gold markets constantly attempt to pull prices down. This can only last so long before the liquidity of these markets falls too low and they have to acknowledge the demand from the rest of the world in the gold price.

You will note today we see the gold price weaker in the dollar and now in the euro.

Gold ETFs – Yesterday we no purchases or sales into the SPDR gold ETF or the Gold Trust.  Their respective holdings are now at 840.872 tonnes and 201.29 tonnes. 

Since January 4th 2016, 241.552 tonnes of gold have been added to the SPDR gold ETF and to the Gold Trust.  Since January 6th 2017 31.471 tonnes have been added to the SPDR gold ETF and the Gold Trust.

Julian D.W. Phillips | | StockBridge Management Alliance 

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