Gold and Silver: Is the bottom in yet?

Gold Today –New York closed yesterday at $1,214.10. London opened at $1,210 today. 

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

         The $: € was stronger at $1.1396 after yesterday’s $1.1408: €1.

         The Dollar index was weaker at 96.11 after yesterday’s 96.15

         The Yen was weaker at 114.32 after yesterday’s 114.21:$1. 

         The Yuan was stronger at 6.7995 after yesterday’s 6.8034: $1. 

         The Pound Sterling was stronger at $1.2902 after yesterday’s $1.2873: £1.

Yuan Gold Fix
Trade Date     Contract Benchmark Price AM 1 gm Benchmark Price PM 1 gm
      2017    7    11

     2017    7    10            

     2017    7    7







Trading at 267.70



$ equivalent 1oz at 0.995 fineness

@    $1: 6.7995

       $1: 6.8034

       $1: 6.7990     



Trading at $1,219.30$1,212.89


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.]

 Both New York and London turned higher yesterday. New York rose to Shanghai’s level at the close yesterday and London today is pulling the gold price down leaving the differential with Shanghai at just over $9 lower than yesterday’s differential. All global gold markets are looking for a bottom still. But as we mentioned yesterday there is an almost osmotic pressure in London that is shifting physical gold to the Far East constantly, in line with the price differentials between London and Shanghai.

Arbitrage between London & Hong Kong

Yesterday we saw the announcement that dual-currency gold futures contract is now available in Hong Kong that is physically settled, linked to a gold contract which is traded on the new gold exchange in London as part of LMEprecious on the LME.

This has now taken what was essentially the sole domain of the Bullion banks down to the retail investor trading futures. But this contract is very different from the normal futures contract:

  • It is the first time there is a contract in two currencies [the U.S. $ and the Yuan.
  • This contract is not a cash contract but a physical delivery in Hong Kong of gold contract, and in London at LME Gold
  • It is the first and only on-exchange, spot to five-year ‘loco London’ contract in the world.

Why is it so important? It’s because investors can now arbitrage between Yuan futures, and the synthetic currency prices derived from dual currency gold contracts. Physical settlement is important, too. If these contracts were purely cash-settled, there could be a price discrepancy between the US$ and Yuan tranches.

Silver Today –Silver closed at $15.66 yesterday after $15.56 at New York’s close Friday.

LBMA price setting:  The LBMA gold price was set today at $1,211.90 from yesterday’s $1,207.55.  The gold price in the euro was set at €1,063.26 after yesterday’s €1.069.40.

Ahead of the opening of New York the gold price was trading at $1,210.15 and in the euro at €1,061.63. At the same time, the silver price was trading at $15.53. 

Price Drivers

The gold price is still searching for a bottom but appears to be settling above $1,200 for the time being. The main force driving it down is sales from the SPDR gold ETF. At the moment U.S. institutions are simply looking at the impact of higher interest rates and falling inflation on the returns gold can bring to investors. Such an attitude ignores long term realities in the global monetary system. However, it rules, at present. We expect that the huge amount of work done to date this year on the gold price above $1,200 will temper further falls, but let’s see!

We are the only publication we know of that discusses the Shanghai Gold Exchange in the context of a global gold market. We do this because the global gold market is evolving at a rapid rate. The Shanghai Gold Exchange is the largest physical gold Exchange in the world and trades around 90% of the world’s physically traded gold in the world [New York and London trade ‘paper’ gold contracts and trades over 90% of the world’s gold derivative contracts]. With the advent of the dual currency, physically traded, gold futures, contract traded both in London and in Hong Kong, western investors can now join the global gold market in physical gold. More importantly, this ability to arbitrage, as we have mentioned so often, enables global gold prices to be smoothed out. If successful, we will see another force removing price differentials between global markets.

Gold ETFs

Yesterday saw sales of 2.954 tonnes from the SPDR gold ETF but a purchase into the Gold Trust of 0.65 of a tonne. The SPDR gold ETF and Gold Trust holdings are at 832.391 tonnes and at 211.41 tonnes respectively.

Since January 6th 2017 31.387 tonnes have been added to the SPDR gold ETF and the Gold Trust.

Julian D.W. Phillips | StockBridge Management Alliance 


One thought on “Gold and Silver: Is the bottom in yet?

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s