Julian Phillips’ analysis of what’s happening in the New York and London gold markets and on geopolitical events affecting the precious metals markets.
New York closed yesterday at $1,199.40 down $3.80 in a market dominated by currency issues. Asia took the gold price up to $1,204 before London pulled it down to $1,199. London then Fixed the gold price at $1,199.75 down $4.50 and in the euro, at €1,086.041, up €3.374, while the euro was at $1.1047 down nearly three quarters of a cent. Ahead of New York’s opening, gold was trading in London at $1,200.00 and in the euro at €1,086.17.
The silver price closed at $16.18 down 8 cents. Ahead of New York’s opening it was trading at $16.20. The silver price may well drop much faster than gold if the gold price falls further, but as Asian demand comes in we expect the silver price to recover quickly once more.
There were no sales from the SPDR gold ETF yesterday, but there was a sale of 0.48 of a tonne from the Gold Trust, on Wednesday. The holdings of the SPDR gold ETF are at 760.799 tonnes and at 165.46 tonnes in the Gold Trust. The gold price is being influenced by arbitrageurs working the gold price, the euro and the dollar exchange rates. Such a fall to just below $1,200 will, we expect, bring Asian buyers into the market, as the prices are not being moved on significant physical sales.
Today, we wait to hear the details of the E.C.B.’ quantitative easing program that will last, at least, until September 2016. We expect it will have to last much longer because the vigor and drive in U.S. business is far more than that of the Eurozone, as a whole. In Socialist Europe, where regulations and national interests have produced a snail’s pace of reform, lending has not been encouraged by low interest rates. From the Greek efforts to halt the bailout program to the slow progress on cutting French debt the political masters of the Eurozone are unwilling to take the steps the E.C.B. says are essential for sustainable growth. This leaves the Q.E. program the only real driver of growth in the area. We do see the situation as bringing dangers to the credibility of the euro in the future.
Though the Eurozone is showing initial signs of a recovery, inflation is still unacceptably low and may well remain so for some time to come. While the markets are still discounting the impact of Eurozone Q.E. it is the exchange rate that is discounting it the most. This must delight the E.C.B. as they know that a low euro does promote global business as prices for its goods fall. We wonder just how long the U.S. will tolerate the falling euro.
We cannot emphasize enough the damage that is being done to confidence not just in the euro but in the world of currencies. The concept of currencies measuring value went out of the door long ago. In time, this will benefit the gold price, as it has always done in the past.