The COMEX paper gold casino

Speaking yesterday at Mines & Money London among one of the best speaker programmes at any conference I’ve attended recently, perhaps the stand-out presentation was from John Hathaway, Senior Portfolio Manager for Tocqueville Asset Management of the U.S. – and when I say it was the standout that was praise indeed given the remarkable array of top speakers presenting on the day.  Perhaps the only real problem is that with 20 minute speaker slots, kept to remarkably rigorously by the organisers, many of the speakers could have gone on far longer.  But the organisers have to be commended for bringing so many top names to a London conference.

Going through the speaker slate for the day we had Rick Rule, Frank Holmes, David Humphreys, Pierre Lassonde, Evy Hambro, Mark Bristow, Peter Hambro, Oskar Lewnowski, John Kaiser, Graham Tuckwell, Rob McEwen, Grant Williams and many more, as well as some cracking panel discussions featuring most of the above, and others.  Today’s programme is almost equally strong.  Mines & Money’s format seems to be working well and as well as events in Hong Kong and Australia the conference company is planning a North American event next year too, to be held in Toronto in September.

But back to John Hathaway – there’s a more comprehensive article on his presentation written by me on the Sharps Pixley website – click here to read it – but for the record here he climbed into paper gold on COMEX and its undue effects on the gold price, in the light of the huge amount of paper being traded – latest figures suggest that paper gold trades in a single day can reach as much as 300 times daily global physical gold supply.  Overall this has the effect of the gold price being set based on U.S. paper trades, almost totally ignoring supply/demand fundamentals – which are far more positive for gold, particularly now the big liquidations out of the gold ETFs are diminishing drastically, and in view of the record gold demand coming out of China and India, which between them are on their own accounting for around all globally new mined gold.

Hathaway also looked at a number of other aspects on gold supply and demand, and like a number of the other gold oriented speakers is convinced that the fundamentals for gold are so positive that the price must turn positive sooner rather than later, but the actual timescale remains obscure.

Upwards pressure on gold and silver prices despite Chinese holiday

New York closed with the gold price at $$1,135.70 down $1.60 yesterday. China remains closed until Thursday in its ‘Golden Week’ holiday. When London opened the gold price rose to $1,140.00 after which it was set at $1,136.90 up from $1,134.35 at the LBMA gold setting. The dollar Index was up at 95.89 from 95.58 and the dollar trading against the euro at $1.1217 down from $1.1268. In the euro the fixing was €1,013.55 up from €1,006.70.  Ahead of New York’s opening gold was trading at $1,138.45 and in the euro at €1,114.93.  

The silver price closed at $15.62 up from $15.24 or over $1 in two days. Ahead of New York’s opening, silver was trading at $15.70.

Price Drivers

There continues to be upward pressure on the gold and silver prices, despite Shanghai being closed. It is impossible not to draw the conclusion that the physical gold market is separate from the New York COMEX market and London prices. This is because gold and silver prices are made in New York, primarily by dealers and traders reflecting sentiment on COMEX. The perception there reflects expectations for rise in interest rates as well as for the dollar. While the dollar remains in a bull market, we are of the opinion that the Treasury will not permit it to rise to the point the U.S. suffers more on the international competitive front. This is supported by the reality that the peak of $1.07 against the euro and peak on the dollar index, close to 100, have not even been approached since then, surprisingly. After the jobs report the dollar fell a full two cents against the euro and remains close to that level even now.

Record short gold positions continue to be closed and long gold positions opened on COMEX since last Friday.  

But against this positive background we saw a sale of 0.221 of a tonne from the SPDR gold ETF and a sale of 0.03 from the Gold Trust. This leaves the holdings of the SPDR gold ETF at 688.983 tonnes and 160.62 tonnes in the Gold Trust. We see this sale as small relative to the volumes being traded currently, so will not influence the gold price. Additions to the gold ETFs in the U.S. in the last two weeks point to a positive attitude to gold growing in the U.S. slowly but surely now.

The Technical picture is now moving to a critical point which may see a strong move this week.

Silver continues to outperform gold having risen over a dollar in the last two days. If gold does breakout to the upside we may see a sprint higher by the silver price. –

Julian D.W. Phillips for the Gold & Silver Forecasters – www.goldforecaster.com and www.silverforecaster.com

COMEX ‘almost ignores’ gold and silver supply and demand fundamentals

New York closed with the gold price at $$1,137.30 up from $1,114.30 on Friday. China remains closed until Thursday in its ‘Golden Week’ holiday. When London opened the gold price slipped to $1,135.00 after which it was set at $1,134.35 up from Friday’s $1,106.30 at the LBMA gold setting. The dollar Index was down at 95.58 from 96.30 and the dollar trading against the euro at $1.1268 down from $1.1165. In the euro the fixing was €1,006.70 up from €990.86.  Ahead of New York’s opening gold was trading at $1,133.00 and in the euro at €1,107.60.  

The silver price closed at $15.24 up from $14.56 or 68 cents over Friday in New York. Ahead of New York’s opening, silver was trading at $15.31.

Price Drivers

After what has been labeled a’ disastrous’ jobs report on Friday when only 142,000 job increases were reported against a 200,000 expectation the gold price leapt $25 in 15 minutes in New York despite there being no physical gold purchases into the two U.S. based gold ETFs. [This leaves the holdings of the SPDR gold ETF at 689.204 tonnes and 160.65 tonnes in the Gold Trust.]

After the jobs report the dollar immediately fell two cents against the euro although the gold price in the euro also rose €20 at the same time. With little gold actually traded we see just how large the influence of COMEX and dealers in gold is in the market place where demand and supply are almost ignored. The same is true in the silver market. As we have pointed out in our newsletter before, it will take the arrival of the Shanghai gold price setting to change the pricing of gold. With a Chinese physical price and a New York ‘COMEX’ price moving away from each other, arbitrageurs will trade between the two smoothing out price differential. This will cause a structural change in the gold price. The ‘Yuan Gold Fix” is scheduled to begin before the end of the year.

With China still closed, we did expect attempts to crush the gold price through small physical selling, but the jobs report appears to have put paid to that now. The Technical picture is now moving to a critical point which may see a strong move this week.  

The jobs report has made a re-appraisal of the future state of the U.S. and global economies necessary. If such reports continue to disappoint, it is certain financial markets will become even more volatile. While equity markets rose today, it was not on the prospects of a rosy future, but because better yields in equity markets against those in fixed interest markets will continue for the

next two or three months. Deleveraging will slow and the threat of more turmoil remains when interest rates eventually do rise.

Silver is rose a remarkable 68 cents on little trade in the Silver Trust, as dealers whipped prices higher to protect themselves.  

Julian D.W. Phillips for the Gold & Silver Forecasters – www.goldforecaster.com and www.xsilverforecaster.com

What is China’s real gold demand?

There is a huge disparity between what the Chinese Central Bank apparently sees as gold demand and that estimated/calculated by the global analytical community. The figures seem to be continually diverging and here we utilise known official data to draw our own conclusions as to what the real figures might be.

As a base we are assuming that supply to the market is roughly balanced by demand.  There is an element of well substantiated data from Chinese and non-Chinese sources available which may give us a fairly good idea of the minimum supply levels potentially available to Chinese consumers. But given China’s non-reporting of direct gold imports this certainly does not present anything like a full picture.

First we have China’s domestic gold output which this year is estimated to reach perhaps 480 tonnes. Secondly we have net gold imports via Hong Kong. The Hong Kong Statistical office reports these on a monthly basis in a throwback to the Special Administrative Region’s former British-based bureaucracy, and net exports from this source to the Chinese mainland by the end of August totalled 485 tonnes, and given the tail end of the year usually produces some strong figures, a conservative estimate for this year’s total net gold imports from Hong Kong would be around 650 tonnes.

But there’s more. Switzerland exports gold both to Hong Kong and directly to mainland China, as does the UK. Recent changes in China’s permitted import routes for gold also mean that nowadays an important part of the gold exports from these countries does go directly to the Chinese mainland, bypassing Hong Kong altogether. For example, the UK started exporting gold directly to mainland China from April last year and through to the year end sent a little over 110 tonnes by this route. This year, after zero exports in January and February, it has exported around another 110 tonnes in the following four months to end June so it would not be unreasonable to assume that around 250 tonnes, perhaps more, will flow by this route into mainland China over the full year.

Likewise Switzerland has exported a little over 145 tonnes of gold directly to the Chinese mainland in the seven months to end July this year – again suggesting a full year total of around 250 tonnes.

So, if we add together the total of net projected Chinese gold imports for FY 2015 from Hong Kong, Switzerland and the UK and add in China’s own estimated domestic production for the year we are already seeing a total of 1,630 tonnes. Add to this unquantified direct imports from other nations and additional supply from domestic scrap we are probably coming up with a figure of perhaps closer to 2,000 tonnes, which is far nearer the SGE withdrawals figures than the mainstream analysts’ figures might suggest.

The big question is, though, is a significant proportion of the Chinese available new gold supply going into the Central Bank rather than in to retail consumption? Chinese officials tell us that the People’s Bank of China does not source gold from the SGE – but the country is also currently announcing perhaps an intake of around 14 tonnes a month since it began reporting these figures 3 months ago. If this is indicative of likely central bank purchases over the full year then this would total around 170 tonnes, which presumably is coming from somewhere.

And western analysts are dubious about levels of Chinese government purchases of gold anyway, mostly assuming them to be far higher than officially stated with gold being held in other government accounts not reported to the IMF. Additional monetary gold, which is not reported in export statistics from countries like the UK, could also be going to China directly – see Koos Jansen’s latest article on this: The London Float And PBOC Gold Purchases.

If we ignore for the moment possible direct imports by the PBoC, the amount of available ‘new’ gold to the Chinese market would be the 2,000 tonnes estimated above and the analysts’ estimates of Chinese gold consumption currently of around less than half this level leaves ca. 1,000 tonnes plus of supplied gold unaccounted for, some of which may be going into the financial sector, which does not tend to be recorded in analysts’ figures for consumption. But again this is probably a relatively small amount. So the question is where is this excess gold all going? This suggests the analyst figures are substantially under-estimating true Chinese consumption. With the SGE figures indicating an even wider discrepancy there are even more questions about total Chinese gold inflows unanswered. Perhaps there are indeed elements of double counting in the SGE figures, but probably not sufficient to account for the huge differences being seen.

But whatever the real figures are, known gold exports into China plus the country’s own production, account for probably at least 50% more gold than the analysts reckon China is consuming – and these totals almost certainly under-estimate the true picture. And what matters to the gold marketplace in terms of supply/demand fundamentals is the total amount of gold flowing into China from the West – not just whatever the analysts classify as consumption.

The COMEX Warehouse situation: While there may indeed be no shortage of physical metal in the overall COMEX gold warehousing system, the registered stocks (i.e. immediately available amount of physical metal) have indeed diminished and are currently down to around 5 tonnes only. As Jeff Christian has pointed out recently, though, this low number is not an immediate cause for concern as COMEX is primarily a futures market and little actual physical gold passes through it, while there are still big ‘eligible’ stocks held by the bullion banks some of which could be transferred to meet commitments if necessary. But the low registered stock level is yet another probable indicator of continuing gold flows from West to East. It should also perhaps be pointed out that the numbers here are actually quite small compared with overall gold trade with the total fall in eligible plus registered stocks only down around a little over 30 tonnes year to date. Given continuing gold inflows into the COMEX warehousing system, of course, the total gross outflow will have been considerably higher, but reports of a pending supply squeeze should perhaps be disregarded given the overall total holdings of eligible plus registered stocks in the COMEX warehouses.

Gold seeing heightened volatility in a shrinking market

Julian Phillips’ latest commentary on early day movements in the gold and silver markets and some of the forces he sees as currently driving prices.

New York closed at $1,189.70 on Monday, up $1.20 on the Friday close as the trading range remains tight. Today sees the dollar stronger at $1.0898 against Friday’s $1.0949 against the euro with the dollar index at 97.48. The LBMA Gold Price was set at $1,188.75 up $1.45 and the equivalent euro price was €1,082.75. Once again this was a currency play against a weaker dollar and stronger euro. Ahead of New York’s opening, gold was trading in London at $1,188.60 and in the euro at €1,078.10 with the euro recovering.

The silver price rose slightly to $16.73 up 3 cents in New York. Ahead of New York’s opening it was trading at $16.68.

Yesterday saw sales from the SPDR Gold ETF of 1.79 tonnes and nothing from or into the Gold Trust. The holdings of the SPDR gold ETF are at 714.067 tonnes and at 166.60 tonnes in the Gold Trust.  We do not believe these sales had an impact on the gold price.

What was notable yesterday was that the price of gold leapt through $1,200 at the start of business in New York on heavy volume. The buying out of Asia was heavy. While the gold price sank back to $1,189 thereafter, we are of the opinion that such bursts of buying remove large chunks of liquidity from the developed world’s gold markets. Such a process brings heightened volatility in a shrinking market. Having said that, it will take some time before we see COMEX losing its pricing power but it is on the path to losing it, we believe. With gold prices pulling back again, we see Asian demand coming in again as it will continue to do below $1,200, again, fading when prices go through that level.

In the U.S., data released yesterday was lacklustre at best. Inflation, consumer spending disappointed coming in well below expectations and well below what the Fed wants. The numbers for the second quarter of the year have become critical in deciding the direction of the U.S. economy and, by extension the Eurozone and Japanese economy. China is also weakening more than the Chinese government wishes, but they still have a lot of tools and far greater control over the Chinese economy that the developed world has over theirs. With such weakness around, an interest rate rise could have a disproportionate impact on the recovery.  If the numbers for the second quarter are poor, at a time when the recovery should show itself at its best in the year, a major reappraisal of all markets will take place.

The dollar is no longer giving signs that it is headed much higher. It is stalling at current levels. If it were to continue rising much more, it would hammer the U.S. export market and the recovery, as well as disrupt the global monetary system.

Julian D.W. Phillips for the Gold & Silver Forecasters www.goldforecaster.com and www.silverforecaster.com

New York still setting gold price although bulk of trade is through London

New York still setting gold price although bulk of trade is through London

Julian Phillips’ latest analysis of what is happening in the immediate gold and silver markets and of what is really driving the price movements.

New York closed Monday at $1,225.30 up 40 cents over Friday’s close. Asia and London let it slip. The LBMA Gold price was set at $1,219.65 down $8.50 over Monday’s level. The euro equivalent stood at €1,089.12 up €11.89 while the dollar was stronger and the euro weaker at $1.1198 down from $1.1401 against the euro. Ahead of New York’s opening, gold was trading in London back over $1,220 and in the euro at around €1,090.

The silver price closed at $17.68 up 15 cents on Friday’s level. Ahead of New York’s opening it was trading at $17.40.

Yesterday saw sales of 5.668 tonnes of gold from the SPDR Gold ETF but nothing from the Gold Trust. The holdings of the SPDR gold ETF are at 718.243 tonnes and at 166.14 tonnes in the Gold Trust.  These were heavy sales and, we suspect from the same sellers that sold the heaviest tonnage since early 2015 in the last week and more. The sales were large enough to restrain the gold price but not to pull it down.  This is what the consolidation of the gold price is all about.

The dollar index is stronger at 94.88 up from yesterday’s 93.60.  The euro is much weaker today at $1.1090 after yesterday’s $1.14o1 and remarks from the ECB that they will increase QE in months when liquidity is low in holiday months. Is the correction over? Perhaps it is and as we said yesterday the market expectation and ours is that we will see the euro eventually at $1.

The gold market is moving because of currency issues now. But in time the gold price, as it has done of late, walks its own road and rises in the euro too and often in the dollar, at the same time. Gold will move against all currencies and is not linked to a specific currency. But when the market allows it will follow a currency.

This brings us to the concept of pricing power, once more. It is apparent over the years of this century that New York, where a small amount of physical gold is traded, the gold price is ‘made’. London where around 80% of the globe’s market traded physical gold is traded, has a smaller say in the matter. The bulk of gold traded outside the market usually on contracts or with central banks, has no say in the gold price. Instead it is convenient to refer to the New York or London price [currently the twice daily LBMA Gold Price] as a price on which the contract price will be based. The question is, “Do New York’s prices or even London’s prices represent true demand and supply?” No is the answer! Markets that genuinely do this may be called perfect because academically we would like to see this, but in the bulk of markets it is only the marginal supply and demand that prices the product along with speculators, day traders and dealers. Gold and silver are no exception. Until a credible alternative pricing mechanism is established that contractors and dealers accept, the markets in silver and gold will remain imperfect. With the Yuan contract “Fixing” in Shanghai coming this year, will that price become the alternative? Let’s see?

Julian D.W. Phillips for the Gold & Silver Forecasters – www.goldforecaster.com  and www.silverforecaster.com

Gold’s notable strength in the Euro

Julian Phillips’ latest gold and silver market commentary.

New York closed yesterday at $1,198.80 up $15 with Asia lifting it just over $1,200. The Fix saw the gold price set at $1,199.25 up $12.75 and in the euro, at €986.550 up €10.007 while the euro was barely changed at $1.2156. Ahead of New York’s opening today gold was trading in London at $1,197.80 and in the euro at €985.56.

New York saw short positions closed yesterday with the gold price rising to $1,206 at one point, before settling back to consolidate at $1,200 once more.

There were sales of 1.494 tonnes from the SPDR gold ETF but no change in the Gold Trust yesterday, but this did nothing to slow the recovery of the gold price over $1,200.  The holdings of the SPDR gold ETF are at 710.808 and at 161.73 tonnes in the Gold Trust.

We expect trading ranges to narrow today, the last day of 2014, as we move forward to the point where the gold and silver prices make strong moves into the New Year. What is of note is the strength of gold in the euro at €985.

We expect 2015 to be the first of the next few years of consequences.   We may well see a Fixing or similar established in Shanghai as that market matures and becomes the center of gold trading, overtaking but partnering with London in a 24-hour gold market. It will likely, also be a year when arbitrageurs between the two centers will smooth out the premiums between east and west giving us  a global price all the time.

Just a word on yesterday’s commentary, where we said that, “New York is losing its influence over the gold price.” While New York and London have highly developed markets where traders can move prices around very quickly and make them react in the short-term to most pieces of news, the physical demand for gold has risen to the point where marginal supplies of gold are also being absorbed by the east. This is making it difficult for traders to move physical gold in sufficient amounts to move prices. The physical amounts of gold available for trading the gold price have dropped dramatically in the last two years leaving physical demand from the east reaching in to take most of that stock as well. Consequently, just as oversupply in the oil market has crushed the influence of marginal supplies to dominate prices, so ‘over-demand’ is doing the same in the gold market.

Some will retort that COMEX dominates gold prices due the huge volumes traded there. We again point out that COMEX trades paper and is essentially a financial market and only trades around 5% of its contracts in physical gold that will be delivered.  COMEX traders need to trigger real physical sales or purchases to back up their ‘paper’ transactions to move gold prices. If there are no deliveries of gold on COMEX there can be no impact of COMEX on the gold price. 95%+ of gold contracts on COMEX are closed out before a physical delivery of gold happens.

The silver price is as quick to recover as it is to fall.

 

Julian Phillips is founder and editor of www.goldforecaster.com and www.silverforecaster.com

 

Gold out of the picture in U.S. investor view, but perhaps not for long.

Yesterday’s action in the gold and silver markets

By Julian Phillips

Yesterday saw New York dominate the gold price, again in thin holiday trading, as we wait for the New Year to come in. The price was pulled down quickly to $1,180 as traders acted on the Technicals. There were barely any sales or purchases from or to the gold ETFs. The holdings of the SPDR gold ETF are at 712.302 and at 161.73 tonnes in the Gold Trust.

The euro has resumed its fall and is now tackling the lower $1.21 area and looking weak. With 10-yr Treasuries offering 2.2% and leading nations in the Eurozone offering substantially less than 1%, yield seeking money is flowing stateside. The U.S. balance of payments is looking good supporting a stronger dollar. The only factor against a stronger dollar is that the Treasury does not want to see it. Can the U.S. resist pressure from outside?

We also expect the Chinese monetary authorities to weaken the Yuan if the dollar strengthens more. At 6.22 Yuan to the dollar it is off its high by 2%. They too do not want a stronger Yuan!

As we end 2014 the U.S. market mood is that equities will go higher, bonds will remain on low yields and gold is out of their picture. Outside of the U.S. where the vast bulk of gold demand exists, gold is in persistent strong demand, the U.S. influence over the gold price is at a long-term low level and expectations of huge volatility in all global financial markets are widespread.

We expect the current U.S. financial euphoria will not last as long as they think and gold will do far better than most think too!

The silver price remains very volatile while following the gold price’s direction all the way.  For the silver price to lessen its volatility, it needs to see the gold price give a clear direction. We see this happening somewhere north of $1,200 an ounce. At that point, we expect to see more professional investors come in and less two-way trading in silver.

Julian Phillips is the founder and editor of goldforecaster.com and silverforecaster.com