Could rising silver price be leading the way for gold?

Gold Today –New York closed at $1,249.10 yesterday after closing at $1,249.10 Tuesday. London opened at $1,247.20 today. 

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

         The $: € was much weaker at $1.1426 after yesterday’s $1.1358: €1.

         The Dollar index was weaker at 95.76 after yesterday’s 96.36

         The Yen was weaker at 112.55 after yesterday’s 112.36:$1. 

         The Yuan was much stronger at 6.7800 after yesterday’s 6.8036: $1. 

         The Pound Sterling was much stronger at $1.2979 after yesterday’s $1.2810: £1.

Yuan Gold Fix
Trade Date     Contract Benchmark Price AM 1 gm Benchmark Price PM 1 gm
      2017    6    29

     2017    6    28              

     2017    6    27







Trading at 276.80



$ equivalent 1oz at 0.995 fineness

@    $1: 6.7800

       $1: 6.8036

       $1: 6.8145     




Trading at $1,264.83



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.]

 New York and London failed to rise in the face of a rising Shanghai gold price. As you can see Shanghai’s gold price has been rising steadily for the last three days in the Yuan, while the Yuan, itself, has strengthened remarkably, as the P.B. of C. ensures it rises and stabilizes.

Against yesterday’s Shanghai prices New York is now at a $8 discount to Shanghai and London opened at a $17.60 discount. Once again we will see where pricing power resides. We expect Shanghai will show itself as the price leader by lifting London and New York higher. But this sort of day clearly shows where the dominance lies.

We keep referring to ‘pricing power’ as this shows us:

  1. How prices will behave in the future regarding the levels of volatility.
  2. How prices will behave in the future regarding the direction of the gold price.
  3. How the shift of physical gold into China is progressing as the larger the discount London and New York the more room arbitrageurs have to buy London, deliver Shanghai. Right now this is being assisted by a strengthening Yuan. Chinese demand was seen coming in strongly on Wednesday morning and will continue as the margins are favourable to Chinese buying.

Silver Today –Silver closed at $16.72 yesterday after $16.68 at New York’s close Tuesday. Once again it appears that silver is telling us it wants to rise. Is it leading the way for gold? If so we expect the gold price to recover shortly and rise.

LBMA price setting:  The LBMA gold price was set today at $1,246.60 from yesterday’s $1,251.60.  The gold price in the euro was set at €1,092.93 after yesterday’s €913.58.

Ahead of the opening of New York the gold price was trading at $1,244.70 and in the euro at €1,090.69. At the same time, the silver price was trading at $16.78. 

Price Drivers

In the west the gold price is still trying to slip, but not on physical sales of gold. It is still consolidating at critical levels around $1,250. It remains facing upwards as the pattern it has formed does indicate a move higher.

There continues to be speculation on the 56 tonne sale of gold first thing on Monday morning. Another theory is that the sale of 56 tonnes was made in the London market at the time of an options expiry on COMEX. This “put the Option on COMEX right”. Certainly the trader’s position was squared leaving him net zero, but it confirms that the deal did not involve physical gold.  Hence, the bounce back in the gold price. The London market remains inclined to slip in fear of more sales but the physical gold market remains bid, from China.

These speculative ‘games’ in the Futures and Options markets do move New York and London prices around among traders but are not gold transactions but financial transactions with the gold price as a reference.  Usually they are associated with physical positions [hedging or to reinforce or compensate for opposite F & O positions] but could simply be a compensating arbitrage Futures and Options trade.

What such downward pressures on the gold price do is to invite Far Eastern demand for physical. This forces dealers to lift prices as the physical market overrides the ‘paper’ market. If it doesn’t then the seepage of physical gold into China takes place.  So the Chinese don’t have to manipulate gold prices, because New York and London traders are doing it for them.

With the E.C.B. ‘less dovish’ in its statement yesterday the euro has risen very strongly. We see this as partly due to the covering of negative euro positions as direction could change. But the Yen continues to fall against the dollar.

What we are alert to now is the Dollar Index. It is getting very close to the time we said it would enter a ‘bear’ market. We called the top earlier this year when it was well over 100 on the index, but now with it falling so far so fast, Technically, it is breaking down into the bear market.   

Gold ETFs – Yesterday saw no purchases or sales of gold from or into the SPDR gold ETF but we saw purchases into the Gold Trust of 1.34 tonnes over the last two days. Their holdings are now at 853.684 tonnes and, at 209.75 tonnes respectively. While relatively small amounts have been added to the ETFs they do indicate the way that U.S. physical gold investors think.

Since January 6th 2017 50.98 tonnes have been added to the SPDR gold ETF and the Gold Trust.

 Julian D.W. Phillips | StockBridge Management Alliance 


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