Julian Phillips’ latest commentary on gold and silver prices and data from the SPDR gold ETF.
As we said yesterday, “We expect gold price support to be really tested for the next week.” We would emphasize that while this period may see a low point in the gold price this does not reflect a dwindling demand for gold. It only reflects the temporary closure of the Chinese gold market and the holding back of demand in India until the budget is announced there on the 28th February.
At that time we will see if a lowering of Indian gold import duties from 10% to 2% will take place. Expectations are very high that this will happen as the current account of the Balance of Payments is reducing heavily because of the oil price falls. We believe that Indian imports of gold and wholesale stocks within the country are being allowed to run down in anticipation of potentially better margins for the industry and greater demand from the retail sector.
On top of that, though longer term, India’s growth rate is expected to accelerate in the months and years to come. This will increase the wealth of the gold buying Indian middle classes. We therefore expect gold demand to gently accelerate over time from there.
In our opinion, the Technical picture for gold remains to the upside despite the recent heavy falls. Support showed itself in the last day after the Fed minutes indicated that rate rises may well be delayed as international factors alongside a stronger dollar gives cause for a delay. A strong dollar in itself is a tightening factor giving rise to the reverse of the J-curve, which is detrimental to the U.S. trade deficit.
The silver price showed itself keen to rise as an acceleration of purchases was seen as gold started to rise yesterday. Should gold show strength at these levels we expect the silver price to sprint ahead of gold in percentage terms.
Markets and SPDR gold ETF
New York closed yesterday at $1,211.20 up $2.70. In Asia the gold price was lifted to $1,215.60. London Fixed the gold price at $1,217.75 up $11.25 and in the euro, at €1,068.295 up €8.939, while the euro was almost unchanged at $1.1399. Ahead of New York’s opening gold was trading in London at $1,217.4 and in the euro at €1,068.18.
The silver price closed at $16.45 down 6 cents. Ahead of New York’s opening it was trading at $16.65.
There were sales yesterday of 0.299 tonnes of gold from the SPDR gold ETF but none from the Gold Trust on Wednesday as gold prices started to bounce despite the closure of the Shanghai Gold Exchange until 25th February [Thursday next week]. The holdings of the SPDR gold ETF are at 768.263 tonnes and at 167.03 tonnes in the Gold Trust.