Hedge funds jumping back into gold

Frank Holmes’ SWOT (Strengths, Weaknesses, Opportunities, Threats) Analysis of what’s driving the markets over the past week

Strengths

  • The best performing precious metal for the week was palladium, up 6.17 percent. Consumer demand is rising for gasoline- versus diesel-engine powered vehicles, yet automobile sales have started to relax in recent months.  According to Bloomberg, gold bulls outnumber gold bears this week as Trump probes are boosting safe-haven demand for the yellow metal. In fact, gold advanced to the highest level in nearly a month as Trump’s administration “grapples with revelations of mounting scrutiny into son-in-law Jared Kushner’s outreach to Russian officials,” Bloomberg continues. In related news, Fed’s Brainard says that soft inflation data may warrant a rethink on interest rates. Inflation in the Euro-area slowed more than economists forecast.
  • The Indian rupee posted its first monthly loss since November, reports Bloomberg. The positive side of this is the decline came amid increasing demand for dollars to pay for imports of items such as gold. The Perth Mint reported its gold coin and minted bar sales for the month of May, coming in at 29, 679 ounces. This is compared with April’s sales of 10,490 ounces.
  • Data from the Commodity Futures Trading Commission shows that money managers boosted their long positions in U.S. gold futures by the most in almost a decade in the week ending May 23, reports Bloomberg. As you can see in the chart below, hedge funds are jumping back into the yellow metal.

Weaknesses

  • Platinum bore the brunt of the palladium move this week with a loss of 0.61 percent.  Shares of junior gold miners headed for the longest stretch of monthly losses in more than two years, reports Bloomberg, citing investor concern that “flagging momentum in this year’s bullion rally will dent the outlook for profits.” A Bloomberg gauge of 72 junior miners has lost 15 percent since the end of January and the rebalance of the VanEck Vectors Junior Gold Miner ETF (GDXJ) is also having a depressing effect on many gold names. Despite gold gaining 9 percent this year with a drop in the dollar, junior gold miners have not followed through with those gains as the GDXJ is set to cut in half its exposure to the junior mining space on June 16.
  • “Inflation has been below target for five years and has moved up only slowly toward 2 percent, which argues for continued patience,” said Fed Governor Jerome Powell in a statement this week. Powell is calling for gradual interest rate increases and a start to balance-sheet reductions later this year if the economy stays on track, reports Bloomberg, though he is keeping an eye on a recent slowdown in inflation. Based on prices in federal funds futures contracts, investors see the probability of a rate hike at around 85 percent when the FOMC meets June 13-14, the article continues.
  • Asanko Gold is set to release an expanded Mine Feasibility Report in response to a Muddy Waters short report that detailed negative assertions regarding the company and its operations, reports Bloomberg. Asanko said in a statement that there is no merit to the Muddy Waters report, while detailing that it maintains production guidance of 230,000 to 240,000 ounces for 2017. Asanko also said it sees no impact on production or safety resulting from a partial failure on the western wall of the Nkran pit, nor does it see a need for a $115 million pushback expense (as speculated by Muddy Waters).  The short report was likely timed to force Asanko’s market capitalization below the lower threshold limit for staying in the GDX index, thus triggering an additional 10.6 million shares to be sold.

Opportunities

  • Friday’s jobs report came in lower by 4.3 percent, and although the three-month moving average of 121,000 net new jobs is positive, the pace has slowed dramatically, writes Bloomberg. And if the Fed continues to raise rates, it will slow even further. Economists have three major risks they are worried about, according to the article: 1) slumping U.S. auto sales, 2) weaker Chinese manufacturing and 3) the potential for U.S. fiscal policy disappointment. “Anticipating a rate-hike endgame or more increases in rising inflation, gold is poised to continue to perform well,” explains another Bloomberg article. “In the current tightening cycle, spot gold and the S&P 500 Index are neck and neck, up 19 percent to June 1.”
  • In a research update from Industrial Alliance Securities, the group summarizes production statistics released by Rye Patch Gold from its Florida Canyon heap leach operation for May. Rye Patch reported 3,094 ounces of gold poured during May, up from 485 ounces in April. The mine is well on its way to achieving operating financial breakeven, the report continues. Rye Patch notes that heap leach operations tend to perform better in warmer temperatures (so notable production acceleration during the Nevada summer would not be a surprise) as well as the company’s extra cash in hand to fund further exploration. Similarly, Richmont Mines reported strong results from the Island Gold Mine Expansion Case Preliminary Assessment. It confirmed an increase in underground mine and mill productivity to 1,100 tonnes per day, supporting growth of 22 percent over an eight-year period, reports Bloomberg.
  • More company-specific news comes from Lundin Gold this week, which announced a $400-$450 million project financing package for Fruta Del Norte in Ecuador. The package comes with support from Orion Mine Finance and Blackstone Tactical Opportunities. Another announcement comes from AuRico Metals, noting a positive Preliminary Economic Assessment for the Kemess East Gold-Copper Project. Pre-production capital costs are C$327 million, reports Bloomberg.

Threats

  • As Jared Kushner, Donald Trump’s son-in-law and most trusted adviser, is sucked into an FBI probe, the President’s goals are increasingly at risk, reports Bloomberg. The probe could undermine policy priorities and hinder behind-the-scene communications with business leaders and foreign governments. “Kushner tried to establish a secret back channel between the president-elect and Kremlin after Trump’s election, and is reported to have held multiple undisclosed meetings with Russian officials during the campaign and transition,” the article states.
  • The AOMA Argentine union has threatened to restart a strike at Barrick Gold’s Veladero gold operation in the country next month if talks with management fail to resolve a contractual feud, reports Bloomberg. Barrick and the AOMA union were set for a third round of talks late Monday, with the dispute over contracts for outsourced workers being about three-quarters of the way resolved, said AOMA Secretary General Hector Oscar Laplace.
  • According to Wood Mackenzie, deep-water drilling costs are coming down as producers streamline operations and prioritize drilling in core wells. This means that oil at $50 per barrel could sustain some deep-water projects by 2018, reports Bloomberg. The tumbling costs present a challenge for the Organization of Petroleum Exporting Countries (OPEC), which is currently curbing output to shrink a glut, the article continues. Falling energy prices could dampen inflation expectations and be a headwind to gold prices.

Frank Holmes is CEO and Chief Investment Officer for US Global Investors

Three gold articles just published on Sharps Pixley

Links to three of my articles published on the Sharps Pixley website over the past two days which readers of Lawrieongold may find of interest – particularly given the strong performance of the yellow metal over the past few days:

 Lewitt, Minsky, Williams and gold

06 Jun 2017 – Two very erudite newsletter writers give their uncompromising views on the direction of central bank policies and their conclusions are disturbing.

Lawrence Williams

Gold – Scenarios from $700 to $5,000

05 Jun 2017 – The latest In Gold We Trust magnum opus comes up with pricing scenarios ranging from a low of $700 to a high of $5,000, and levels in between but the report’s authors put the probability at the higher levels.

Lawrence Williams

Could gold hit $1,300 this week?

05 Jun 2017 – Potential Black Swan events are lining up which could drive the gold price through $1,300. None of these are in any way certainties but in combination they could contribute to the kind of unease which could restimulate safe haven investment.

Lawrence Williams

Gold starts the week at over $1,280

Gold Today –New York closed at $1,278.20 Friday after closing at $1,270.10 Thursday. London opened at $1,281.00 today. 

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

         The $: € was weaker at $1.1264 after Friday’s $1.1222: €1.

         The Dollar index was weaker at 96.77 after yesterday’s 97.20

         The Yen was stronger at 110.51 after Friday’s 111.51:$1. 

         The Yuan was stronger at 6.8036 after Friday’s 6.8153: $1. 

         The Pound Sterling was stronger at $1.2905 after yesterday’s $1.2875: £1.

Yuan Gold Fix
Trade Date     Contract Benchmark Price AM 1 gm Benchmark Price PM 1 gm
      2017    6    5

     2017    5    2

     2017    5    1

SHAU

SHAU

SHAU

 

 

278.34

278.93

 

Trading at 281.60

277.96

278.63

 

$ equivalent 1oz at 0.995 fineness

@    $1: 6.8036

       $1: 6.8153

       $1: 6.8062     

 

   

 

$1,265.28

$1,269.67

 

Trading at $1,282.37

$1,263.55

$1,268.30

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 closed $4.17 lower on Friday than the Shanghai Gold Exchange was trading at today ahead of Monday’s opening. London opened at around $1 lower than Shanghai was trading earlier today. These are very small price differences evidencing arbitrage operations at very professional levels [likely banking operations]. We have been watching these markets, as you know, very carefully over the last year. Our conclusion is that we are watching global gold market developments that are much more significant than the 2005 ‘de-hedging’ operations by gold mining companies and the establishment of gold ETFs by the World Gold Council. These changes not only bring structural changes to the global gold market but demonstrate where gold is going in the future. As China has integrated gold into its financial system, the weight of physical gold trading is being brought to bear on global gold prices. As the  emphasis moves to physical dealing in gold, so its importance as an international reserve asset as well as an asset in support of global finances will increase in the months and years to come.

We are now watching a three sides of the global gold market that is just about in sync. Shanghai is the most influential on gold prices as it is the physical, global gold bullion hub now.

Silver Today –Silver closed at $17.52 Friday after $17.28 at New York’s close Thursday.

We expect to see silver outperform gold as it rises solidly. The Technical picture for silver will become dramatic if the gold price rises further.

LBMA price setting:  The LBMA morning gold price was set today at $1,280.70 from Friday’s $1,260.95.  The gold price in the euro was set at €1,137.04 after Friday’s €1,121.09.

Ahead of the opening of New York the gold price was trading at $1,280.80 and in the euro at €1,139.60. At the same time, the silver price was trading at $17.56. 

Price Drivers

The U.S. Friday’s jobs data disappointed markets, which were expecting much higher numbers. The figures imply that the momentum of jobs creation in the U.S. is waning. But the more important figure was the one giving the inflation picture which showed it was decreasing, a factor likely to influence the Fed’s decision to raise rates this month. We ask, “Will they?” Markets are telling us that they will, but the Fed will be considering the impact on financial markets if they go ahead and raise rates. They will be keen to ensure nothing interferes with the moderate growth the U.S. in experiencing right now. As a result the U.S. SPDR gold ETF and other gold ETFs saw an inflow of funds which pushes them into the market to buy physical gold. This return of demand may well continue to push prices higher.

Indian GST on Gold

At last, the Indian government has issued the level of General Services Tax to be levied on gold inside the country. It will be at 3% and was announced on Saturday by the Indian government [and is lower than industry expectations of around 5%] which will come into effect on July 1 and will replace a number of federal and state levies. The net effect is to raise taxes by around 0.5%, a figure that is going to make little difference to demand in the country. They are currently paying 1% excise duty and 1.5% VAT on gold.

But the net figure paid by Indians for gold is to be 13%, when one adds the Customs Duty of 10%. There is talk that the government will reduce Customs duty, but that talk has been around for well over a year already. We cannot see that happening soon.

As a result, India has a thriving gold smuggling industry that is now that little bit more profitable now. Two years ago the WGC guesstimated that that was 250 tonnes then. With its profitability even higher now, this well-established industry will undoubtedly be bringing in greater volumes. But that demand will not be registered in official figures, but analysts should add that sum to official numbers.

Gold ETFs – Friday, saw purchases of 3.551 tonnes of gold into the SPDR gold ETF (GLD). There were purchases of 1.37 tonnes of gold into the Gold Trust (IAU) since their internet page went down. It has now been corrected. Their holdings are now at 851.003 tonnes and we presume, at 204.34 tonnes respectively.

Since January 6th 2017 43.759 tonnes have been added to the SPDR gold ETF and the Gold Trust.

Julian D.W. Phillips  GoldForecaster.com | SilverForecaster.com | StockBridge Management Alliance 

Latest U.S. jobs figure way below expectations. Gold gets sharp boost

Gold Today –New York closed at $1,270.10 yesterday after closing at $1,267.00 yesterday. London opened at $1,262.10 today. 

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

         The $: € was unchanged at $1.1222 after yesterday’s $1.1222: €1.

         The Dollar index was slightly stronger at 97.20 after yesterday’s 97.17

         The Yen was slightly weaker at 111.51 after yesterday’s 111.15:$1. 

         The Yuan was much weaker at 6.8153 after yesterday’s 6.8062: $1. 

         The Pound Sterling was stronger at $1.2875 after yesterday’s $1.2855: £1.

Yuan Gold Fix
Trade Date     Contract Benchmark Price AM 1 gm Benchmark Price PM 1 gm
      2017    6    2

     2017    5    1

     2017    5    31

SHAU

SHAU

SHAU

 

 

278.93

279.65

 

Trading at 278.70

278.63

278.9

 

$ equivalent 1oz at 0.995 fineness

@    $1: 6.8153

       $1: 6.8062

       $1: 6.8180     

 

   

 

$1,269.67

$1,270.75

 

Trading at $1,266.92

$1,268.30

$1,267.33

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.]

 The Yuan is correcting lower, but this does not mean anything as the authorities in Shanghai are continuing their quest to attack speculation and bring stability to the Chinese financial markets.

Shanghai is still drifting lower but the falls are only slight.  We note that Shanghai was trading slightly lower than  New York today.

Silver Today –Silver closed at $17.28 yesterday after $17.32 at New York’s close yesterday.

As the gold price trading range tightens to a breakout point, we look at the silver price which is presenting a different Technical picture. If the gold price falls the silver price will tumble according to the charts. But if gold rises the silver price will follow as usual. But such a rise will change the Technical picture quite dramatically to the upside. Either way the silver price will prove more explosive than the gold price.

LBMA price setting:  The LBMA gold price was set today at $1,260.95 from yesterday’s $1,266.15.  The gold price in the euro was set at €1,121.09 after yesterday’s €1,128.58.

Ahead of the opening of New York the gold price was trading at $1,268.45 and in the euro at €1,125.71. At the same time, the silver price was trading at $17.33. 

Price Drivers

Today, it was London that pulled the gold price back at the price setting. Just ahead of New York’s opening the gold price rose quickly -presumably as news of the latest jobs figures began to surface. We now see Shanghai and New York in line with each other. If Shanghai turns higher with a higher Yuan price of gold tomorrow, we would expect to see prices rise. The gold price itself has already moved above resistance, but needs to hold over $1,275 before resistance is out of the way properly. The longer the gold price continues to consolidate the more significant the subsequent moves will be.

President Trump continues to upset the political world in the U.S.A. and across the globe.  But for gold the inability of the U.S. government to get ‘things done’ is disappointing markets. These remain focused on the June rate hike. Warnings that U.S. equity markets are too high are being ignored and U.S. investment in gold remains absent.  

The Fed – The U.S. jobs numbers out today disappointed to the downside, and the previous two months figures were downgraded sharply too.  These brought the U.S. dollar downwards and added to doubts as to whether the Fed will raise rates at this month’s meeting.  As a result, the gold price moved sharply higher – at least in U.S. dollar terms.  Will this be sustained – we will watch the reaction of investors into the U.S. based gold ETFs to get a clearer picture?

We do not see the U.K elections affecting the gold price. The same is true of the Brexit negotiations until some clear steps are made.  Until U.S. investors return to the gold market, via the US-based gold ETFs we believe the main influence on the gold price will be the steady shifting of gold bullion to China and India, via Swiss refineries. But not until London feels the squeeze on liquidity levels will we see Asian demand driving up the gold price.

Gold ETFs – Yesterday, again, saw no sales or purchases of gold to or from the SPDR gold ETF. Once again the internet page of the Gold Trust was a wrong page, so we cannot report on yesterday’s activity in that ETF. Their holdings are now at 847.452 tonnes and we presume, at 202.97 tonnes respectively.

Julian D.W. Phillips GoldForecaster.com | SilverForecaster.com | StockBridge Management Alliance 

 

BLANCHARD: Gold and silver still outperforming stocks; Price predictions

Metals surprise by exerting strength as equities remain near record highs

Since the U.S. presidential election, the stock market has remained strong, but what has surprised some financial analysts have been that the precious metals complex has been ever stronger, says Blanchard President and CEO David Beahm.

“What is notable through the end of May is that gold and silver continue to outpace the strength in the stock market, leaving both precious metals very well-positioned for strong new rally waves if stocks turn lower in a seasonal correction phase or a bear cycle move,” Beahm says. “Typically, gold and silver perform well during periods of stock market weakness, but the fact that metals are climbing alongside the strength in stocks is notable from a historical perspective. It reveals that there is a strong safe-haven bid for metals and a desire to diversify away from stocks in the current environment.”

The Blanchard Index

Here’s how the market performance stacks up through late May:

  • Gold +9.45%
  • Silver +8.13%
  • S&P 500 +7.91%

Beahm says investors around the world continue to turn to gold and silver as uncertainty over the global order continues to unfold, and numerous factors are creating both economic and political uncertainty that is supporting safe haven flows into the precious metals markets.

From President Trump’s tussles with European allies with NATO to North Korean intercontinental missile tests (nine to date in 2017) to an ongoing investigation into the new administration’s alleged ties to Russia, political tensions at home and abroad continue to cause concern and uncertainty for investors who want stability and protection from volatility, Beahm says.

Strong demand for physical metals are also positive for future price increases, Beahm says, pointing to investor demand from China and India – two of the world’s larger consumers of gold – remaining extremely high. A May 25 report confirmed that China’s imports of gold via Hong Kong rose 7.9 percent year-over-year in April, and more significantly, China’s gold imports from Switzerland surged 188 percent year-over-year.

Additionally, Indian imports of gold revealed a staggering 211 percent year-over-year increase in U.S. dollar terms in April, according to Indian Commerce Ministry data.

At home, the U.S. stock market has entered into a seasonally weak period despite high investor expectations for equities, Beahm notes, adding that a downturn in stocks could be another trigger for an increase in volatility and a new wave of buying in the metals complex.

While the U.S. economy continues to expand, Beahm says the current rate of growth remains below long-term historical averages and is nothing “to write home about.”

“Recent data raises fresh concerns about the health of consumer spending, amid new downward revisions to wage and salary income for the fourth quarter 2016 numbers,” Beahm says. “That means consumers may have less to spend going forward than economists previously estimated, and the 3% economic growth target set by the White House will be a high bar to reach without significant fiscal stimulus, and there are no signs of that on the horizon.”

Beahm also suggests that while a quarter basis point rate increase is likely at the Fed’s June 13-14 meeting, the pace of increases off the zero-bound interest rate policy implemented during the 2008 financial crisis has been slow. The current 0.75-1.00 percent rate remains well below historical norms of $.5 percent or higher.

“A Fed rate hike could act as a short-term headwind for the gold market, but for longer-term investors any price retreat should serve as a buying opportunity,” Beahm says. “With the economic expansion cycle in a mature phase, it appears unlikely the Fed will be able to normalize monetary policy before the next recession hits, meaning any modest Fed rate increases should have limited long-term impact on the gold market.”

Blanchard and Company Price Predictions

Blanchard and Company analysts predict gold will trade in the $1,225-$1,375 range over the next 90 days, with moves to the downside seen as buying opportunities. The same holds true for silver, which Blanchard and Company sees trading in the $16.50-$18.50 range in the same time period.

Gold and the dollar: Plodding along

Gold Today –New York closed at $1,267.00 yesterday after closing at $1,267.00 yesterday. London opened at $1,267.00 today. 

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

         The $: € was weaker at $1.1222 after yesterday’s $1.1179: €1.

         The Dollar index was weaker at 97.17 after yesterday’s 97.40

         The Yen was weaker at 111.15 after yesterday’s 110.84:$1. 

         The Yuan was much stronger at 6.8062 after yesterday’s 6.8180: $1. 

         The Pound Sterling was stronger at $1.2855 after yesterday’s $1.2791: £1.

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

     2017    5    31

     2017    5    30

SHAU

SHAU

SHAU

 

 

279.65

On holiday

 

Trading at 279.0

278.9

On holiday

 

$ equivalent 1oz at 0.995 fineness

@    $1: 6.8062

       $1: 6.8180

       $1: 6.8615     

 

   

 

$1,270.75

On holiday

 

 

Trading at $1,266.76

$1,267.33

On holiday

 

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.]

 While the Yuan price of gold continues to dip a little and the Yuan continues to strengthen, Shanghai is now leading the gold price, in New York and London a little weaker, alongside a weaker dollar.

The pattern usually seen in London and New York is for the gold price to go in the opposite direction to the dollar. Because of Shanghai’s influence this pattern is being broken, at the moment.  But we do not read too much into this as the moves in the gold price are too small to be conclusive.

Shanghai was trading today at slightly less than a $1 below New York’s close and London’s opening.

Global currency and gold markets continue relatively calm, with the exception of the Yuan which continues to go much stronger as the People’s Bank of China intervenes in the market place.

Silver Today –Silver closed at $17.32 yesterday after $17.41 at New York’s close.

LBMA price setting:  The LBMA gold price was set this morning at $1,266.15 from yesterday’s $1,263.80.  The gold price in the euro was set at €1,128.58 after yesterday’s €1,127.08.

Ahead of the opening of New York the gold price was trading at $1,266.45 and in the euro at €1,128.64. At the same time, the silver price was trading at $17.14. 

Price Drivers

The dollar continues to weaken slightly and the gold price in the dollar to rise, as it is doing in all currencies except the Yuan. The Technical picture shows that it is above resistance but has not yet run as it would have done in the past. Instead it is showing a steady plod with higher lows and higher highs. As we have been pointing out in the Shanghai section above, the influence of Shanghai on the gold price is visible. Its slow plod higher, we see, as evidence of Chinese price dominance at the moment.

If this is correct, we expect the steady plodding of the gold price to continue without those steep spikes much higher or lower. Instead, we expect to see the gold price show lower volatility going forward but a solid direction to be confirmed by such price action.

Stronger than expected U.S. jobs figures released today brought gold and silver prices down a few notches.

Gold ETFs – Yesterday, saw no sales or purchases of gold to or from the SPDR gold ETF. The internet page of the Gold Trust was a wrong page, so we cannot report on yesterday’s activity in that ETF. Their holdings are now at 847.452 tonnes and we presume, at 202.97 tonnes respectively.

Julian D.W. Phillips GoldForecaster.com | SilverForecaster.com | StockBridge Management Alliance 

Abitibi Royalties – A gold royalty company with unusual growth possibilities

In a presentation in London, Abitibi Royalties(TSXV:  President and CEO Ian Ball put forward an ambitious slogan – To Build the Best gold company – not the biggest, Abitibi Royalties will never be that, but the Best in terms of stock appreciation, and it has a good track record of so doing since its inception as a spin-off from Golden Valley Mines back in 2011, although has been mostly underperforming its peer, and larger, royalty companies in the current year.  It has a strong core asset in a 3% net smelter return (NSR) royalty on the eastern portion of the Canadian Malartic mine (owned and operated by Agnico Eagle and Yamana Gold), which includes the Barnat Extension and Jeffrey gold deposits. The NSR also includes the exciting new Odyssey North discovery that was announced in 2014 which gives it some good growth potential assuming these extensions to the Canadian Malartic property pan out as anticipated as the mine progresses from a large scale open pit to an equally large scale underground bulk mining operation as the pit section is depleted.

Ball describes the changes ahead as a ‘paradigm shift’ which may just be CEO talk, but with Agnico Eagle (which has some existing  bulk underground mining expertise) the main driving force behind the change could just be an apt description.  The new sections of Canadian Malartic, Canada‘s largest gold mine certainly have potential but whether they offer the paradigm shift Ball talks about is, as yet, unproven.

While the royalties in and around the Canadian Malartic property do underpin Abitibi Royalties’ earnings prospects, it also has an unusual (among royalty companies) policy of buying low cost royalties on ground held adjacent to known high potential deposits – mostly in Canada, but also a royalty in a big ground holding which almost surrounds Eldorado’s Efemcukuru gold mine in Turkey.  The Canadian near-mine royalties include ground close to the Red Lake and Rainy River deposits.  These royalties have been picked up at extremely low cost and even if only one of them comes good then that would be a potentially good investment.

Ball, a former associate of Rob McEwen, who himself is a major shareholder in Abitibi Royalties, says he does not take a salary from the company, but ploughs any earnings into buying additional stock, and also says he has no intention of widening the share base – currently around 11.3 million shares outstanding – indeed currently plans to reduce it by buying back stock with a target of bringing it down to 10 million shares outstanding over a three year buy back programme.  Abitibi Royalties has a strong balance sheet with Can$7.7 million in cash and no debt.  Its market cap is currently around Can$100 million, with a stock price of a little over Can$9 at the time of writing.

Royalty companies tend to be a relatively low risk way of investing in mining and Abitibi Royalties is no exception with its big underlying Canadian Malartic net smelter royalty underpinning earnings.  It does have potential in terms of improving shareholder value, but remains perhaps more speculative than most of its royalty company peers due to unknowns in the tenor of some of the areas for potential royalty growth.  A strong gold price should see it grow regardless, but there remains a downside risk from a weakening gold price – and if none of its prospective royalty growth areas pan out.  But adding an additional risk element to a royalty company with strong baseline earnings could well have an appeal to less risk averse investors.

Forget about Fake News… Let’s Talk about Fake Markets

By Clint Siegner*

The U.S. and other nations with “free market” economies got credit for defeating the communists in Russia. That is ironic, because it is now more clear than ever that western leadership actually shares the Soviet inclination for central planning, and they have been increasingly intervening in our markets since the collapse of the USSR.

Our officials make economic policy as if healthy markets must be planned and coerced, much like the politburo. Some of this policy is created and run in the open; the government bailouts, Quantitative Easing, and zero interest rate policy, for example.

Other programs are more secretive. Investors know the “Plunge Protection Team” exists to be the buyer in markets when all genuine buyers have left. But we can only guess as to what that crew actually does day to day.

What these self-appointed market masters do in complete darkness is likely even more controversial and intrusive. They remain violently opposed to audits and other attempts to impose accountability.

But, recently, some leaked documents have given a sense of what western officials do behind closed doors.

Manipulation

They have actually been micromanaging markets since the 1970s.

Ronan Manly with Bullionstar wrote a terrific piece outlining the coordination among western central bankers pertaining specifically to the gold market after Nixon shut the “gold window” and launched the era of purely fiat currencies.

Wikileaks published a secret memo sent from London to the U.S. Treasury Department regarding the purpose behind the formation of the futures markets for gold.

Officials wanted to create a paper market which dwarfed the physical market and encouraged volatility; all with the aim of discouraging investors from holding bullion. To wit:

TO THE DEALERS’ EXPECTATIONS, WILL BE THE FORMATION OF A SIZABLE GOLD FUTURES MARKET. EACH OF THE DEALERS EXPRESSED THE BELIEF THAT THE FUTURES MARKET WOULD BE OF SIGNIFICANT PROPORTION AND PHYSICAL TRADING WOULD BE MINISCULE BY COMPARISON. ALSO EXPRESSED WAS THE EXPECTATION THAT LARGE VOLUME FUTURES DEALING WOULD CREATE A HIGHLY VOLATILE MARKET. IN TURN, THE VOLATILE PRICE MOVEMENTS WOULD DIMINISH THE INITIAL DEMAND FOR PHYSICAL HOLDING AND MOST LIKELY NEGATE LONG-TERM HOARDING BY U.S. CITIZENS.

The futures markets have served their nefarious purpose very well. Americans today view gold as volatile and risky, and almost no one owns any of the physical metal.

So it is with good reason that many investors look at today’s markets and sense the disconnect from reality. We now know what artificial forces produce record high stock prices relative to earnings.

We understand why precious metals investors have been driven to distraction wondering why prices never seem to reflect fundamentals. We can see why government regulators might intentionally turn a blind eye to clear evidence of bank traders rigging prices and cheating customers.

What are the consequences of all this central planning? It would be impossible to list the full effects. But is easy to identify some of the winners and losers that have been hand-picked by the bankers and bureaucrats who run this show.

Fake Markets

The banking and finance industry has more than doubled as a percent of GDP over the past 40 years. The government sector is also just about double the size it was in the 1950s in proportion to the economy. Meanwhile, the gold and silver markets spend years with prices held at, or below, the cost of production – a playground for crooked bullion bankers.

Western central planners aren’t going to be immune from the consequences of their actions.

People are waking up to just how fake today’s markets are. After all the public interventions never end, the leaked documents are generating new awareness, and many fundamental investors now sense the markets are little more than Potemkin villages – even if they don’t fully understand why.

These factors are eroding confidence, which means the ultimate consequence of all this central planning may not be so different from that which befell the USSR. The facade can be maintained no longer and therefore crumbles.

We may be one big shock in the financial markets away from a collapse of confidence. The jig will be up. And, we can hope, responsibility will be pinned where it belongs. The central planners here in the West should be remembered for being just as inept and destructive as those who once set Soviet quotas for the production of ball bearings.

Is silver leading the way forward for gold?

Gold Today –New York closed at $1,267.00 yesterday after closing at $1,256.10 yesterday. London opened at $1,263.00 today. 

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

         The $: € was weaker at $1.1179 after yesterday’s $1.1157: €1.

         The Dollar index was weaker at 97.40 after yesterday’s 97.50

         The Yen was slightly stronger at 110.84 after yesterday’s 111.07:$1. 

         The Yuan was much stronger at 6.8180 after yesterday’s 6.8546: $1. 

         The Pound Sterling was weaker at $1.2791 after yesterday’s $1.2859: £1.

Yuan Gold Fix
Trade Date Contract Benchmark Price AM 1 gm Benchmark Price PM 1 gm
      2017    5    31

     2017    5    30

     2017    5    26

SHAU

SHAU

SHAU

 

 

On holiday

279.25

279.4

On holiday

279.60

$ equivalent 1oz at 0.995 fineness

@    $1: 6.8180

       $1: 6.8615

       $1: 6.8737     

 

   

 

On holiday

$1,265.85

 

 

$1,274.61

On holiday

$1,267.44

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.]

 While the Yuan price of gold has dipped a little, the rise in the Yuan has lifted the dollar price of gold there. Shanghai was trading today at just $2.61 above New York while London opened at $6.61 below Shanghai.

Global currency and gold markets are relatively calm, with the exception of the Yuan which has gone much stronger [over 1% stronger in the last two days] as the People’s Bank of China intervenes in the market place. We see this as a continued attack on speculation and the  efforts to improve the reputation of all Chinese financial markets.

Silver Today –Silver closed at $17.41yesterday after $17.32 at New York’s close. A glance back over the last couple of weeks shows that the silver price pointed the way for gold. It fell just ahead of the fall in the gold price and is now rising as the gold price consolidates at lower levels. Is it leading the way for gold?

LBMA price setting:  The LBMA gold price was set today at $1,263.80 from yesterday’s $1,262.80.  The gold price in the euro was set at €1,127.08 after yesterday’s €1,131.03.

Ahead of the opening of New York the gold price was trading at $1,264.65 and in the euro at €1,127.89. At the same time, the silver price was trading at $17.33. 

Price Drivers

The gold price is consolidating in a tightening range heading towards that strong move that we have been waiting for, for some time now. We do see the 50-day average above the 200-day average now, but more importantly the Technical picture is indicating that the next strong move will be seen short, medium and long term.

Leading Fund Managers are stating that the 2%+ growth in the U.S. is not evident, placing a large question mark over whether last quarter’s lower growth is temporary. They are also saying that E.U. growth is likely to be stronger than U.S. growth. Alongside this, Fed Officials are stating that a correction in the equity markets would be healthy. Add the two factors together and we see a downturn in markets and likely a fall in the dollar.

If we don’t see a rate hike in June we would expect to see the gold price rise and potentially strongly as U.S. investors switch into the gold market there.  

Please bear in mind that many equity investors hold them as they yield more than fixed interest rate securities. If there is a rate hike that difference will narrow causing many shares to adjust downwards until they, once again, yield more than Treasuries.

Gold ETFs – Yesterday, saw no sales or purchases of gold to or from the SPDR gold ETF (GLD) but a purchase of 0.15 of a tonne into the Gold Trust (IAU). Their holdings are now at 847.452 tonnes and at 202.97 tonnes respectively.

Since January 6th 2017 38.838 tonnes have been added to the SPDR gold ETF and the Gold Trust.

Julian D.W. Phillips  GoldForecaster.com | SilverForecaster.com | StockBridge Management Alliance 

Gold drifting with Shanghai closed for another day

Gold Today –New York closed at $1,267.00 yesterday after closing at $1,256.10 Friday. London opened at $1,264.00 today. 

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

         The $: € was stronger at $1.1157 after Friday’s $1.1227: €1.

         The Dollar index was stronger at 97.50 after Friday’s 97.08

         The Yen was slightly stronger at 111.07 after Friday’s 111.10:$1. 

         The Yuan was much stronger at 6.8546 after Friday’s 6.8615: $1. 

         The Pound Sterling was weaker at $1.2859 after yesterday’s $1.2871: £1.

Yuan Gold Fix
Trade Date Contract Benchmark Price AM 1 gm Benchmark Price PM 1 gm
      2017    5    30

     2017    5    25

     2017    5    24

SHAU

SHAU

SHAU

 

 

280.35

279.54

On holiday still

280.04

278.55

$ equivalent 1oz at 0.995 fineness

@    $1: 6.8615

       $1: 6.8737

       $1: 6.8906     

 

  /

$1,263.58

$1,261.82

On holiday still

$1,262.18

$1,257.35

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.]

 While Shanghai is closed we feel it opportune re-make an important point on what is going on with the authorities in China, with reference to overall markets there. China wants to gain a reputation of being a reliable, reputable source of prices. This, in the first place, means reducing the volatility, on a permanent basis, that characterized its markets. Its people have become deeply untrusting of equity markets due to their past extreme volatility.

This policy has taken priority over the freeing up of Capital Controls despite the desire to be a freely floating currency. Once Chinese markets have the reputation, sufficient to attract foreign investors on a comparable basis to the U.S., the Chinese will be able to open up their borders and, hopefully, be attractive to global investors. Dropping Capital Controls before that would make Chinese markets extremely vulnerable.

In the gold market in Shanghai, since the beginning of this year, we have seen the People’s Bank of China attack speculation. By reducing the size and cost of individual contracts, speculation has become extremely expensive. The result of this is a less volatile market. Because Shanghai’s gold prices are exerting a greater and greater influence on the rest of the world’s gold markets, the entire global gold market is becoming far less volatile than the Technical picture would have forecast.   

Silver Today –Silver closed at $17.32 yesterday after $17.16 at New York’s close Friday.

LBMA price setting:  The LBMA morning gold price was set today at $1,262.80 from Friday’s $1,265.00.  The gold price in the euro was set at €1,131.03 after Friday’s €1,130.37.

Ahead of the opening of New York the gold price was trading at $1,260.50 and in the euro at €1,128.87. At the same time, the silver price was trading at $17.27. 

Price Drivers

With China still closed today, the main influence on the gold price has been the moves of the dollar and euro. The dollar is stronger today after the E.C.B.’s Draghi made it clear that despite the lift in the economic picture, they felt that it could be temporary, so it was too early to contemplate any form of tightening of the easy money picture in the E.U. Certainly, the E.U. economy is not served well by a strong euro.

We do expect the euro to be volatile and vulnerable in the next few months as the Italian elections approach, likely in September.

Once Shanghai is open again [tomorrow] we expect to see stronger moves in the gold prices. It is only then that we will be able to see if demand there is strong enough to make it through what’s left of resistance. Meanwhile, the influence of London and New York will be to make the gold price consolidate with a negative bias.

Gold ETFs – Friday, saw no sales or purchases of gold to or from the SPDR gold ETF and no change in the holdings of the Gold Trust. Their holdings remain at 847.452 tonnes and at 202.82 tonnes respectively.

 

Since January 6th 2017 38.678 tonnes have been added to the SPDR gold ETF and the Gold Trust.

Julian D.W. Phillips 

GoldForecaster.com | SilverForecaster.com | StockBridge Management Alliance 

 

Australian Q1 gold output cut by wet weather

Melbourne-based mining consultants Surbiton Associates Pty Ltd said Australian gold production fell in the March quarter 2017, with the industry affected by wet weather in many parts of the country.  Australia is the world’s second largest producer of new mined gold, after China and onl just ahead of Russia.

Output for the quarter was some 71.5 tonnes of gold, a fall of around six tonnes, or eight percent, compared with the excellent result of some 77.5 tonnes achieved in the December quarter 2016. Nevertheless, gold production for the quarter was similar to output in the March quarter 2016.

“The fall in output for the recent March quarter was not surprising, as wet weather early in the year often disrupts production,” said Dr Sandra Close, a Surbiton Associates’ director. “This year heavy rain in Western Australia, which accounts for about three-quarters of Australia’s gold output, plus the effects of Cyclone Debbie in Queensland in late-March, played havoc with gold production at many operations across the country.”

Dr Close said that while the lower production marks a poor start to the calendar year, typically output is higher in the other three quarters. Additionally, the March quarter is the shortest quarter of the year and this makes a difference, as every day of the year about three quarters of a tonne of gold is produced, worth over A$40 million at current prices.

“Heavy rain affects mining and ore haulage at gold mines in a number of ways, including flooding, access for supplies and materials handling problems,” Dr Close said. “As well, in open cuts and in underground operations where the ore is often hauled from underground to the lower levels of previously mined open pits, problems can arise due to ore and waste having to be trucked up steep, greasy haul roads.”

If the mining operations cannot produce enough ore to keep the processing plant at full capacity, then stockpiled material is sometimes used to supplement the ore feed. This material is usually of lower grade and results in less gold being produced and higher costs of gold production.

“However, in the March quarter 2017 the lower gold production was mainly due to a reduction in the tonnage of ore treated by the primary gold producers, along with fewer days in the quarter,” Dr Close said. “There was only limited use of lower grade stockpiles, as there was not a significant change in the average weighted recovered grade on an industry-wide basis.”

Newcrest’s Telfer mine in the Great Sandy Desert in northern Western Australia experienced significant disruption, with record rainfall in January. This led to a fall in output of around 35,000 ounces of gold for the March quarter 2017 compared with the previous December quarter 2016.

Many other operations also reported lower output for the quarter. These included Newmont’s Tanami operation down 25,000 ounces; AngloGold and Independence’s Tropicana operation, 22,000 ounces lower; and the Super Pit at Kalgoorlie, owned equally by Newmont and Barrick, down 16,000 ounces.

“The Australian gold industry continues to benefit from a relatively stable, relatively attractive, Australian dollar gold price, maintained in part by a favourable US dollar exchange rate, with an Australian dollar worth around US 75 cents,” Dr Close said. “This has encouraged further activity in the sector, including the start-up of several mothballed treatment plants.”

Production continues to ramp up at Blackham Resources’ Wiluna, WA project. Westgold Resources’ Fortnum, WA operation is currently being commissioned and Eastern Goldfields’ Davyhurst, WA treatment plant is nearing production. Maximus Resources, which bought Ramelius Resources’ mothballed Wattle Dam plant near Coolgardie, expects to toll treat ore from other companies soon. Also, Toronto-listed Monument Mining Ltd hopes to bring its Burnakura, WA treatment plant into production later in 2017.

“Some years ago when the Australian dollar was strong and worth more than one US dollar, over half of the mineral exploration expenditure by Australian companies was being spent overseas,” Dr Close said. “It is encouraging that more recently this seems to have turned around, as we note that now there is a greater emphasis on exploration within Australia.”

Dr Close said that Australian control of the local gold mining industry still remains at just over 50 percent, although there has been increased ownership of some Australian operations by Chinese and Canadian companies.

Australia’s largest gold producers for the March quarter, 2017 were:

Operation
Ounces
Owner
Boddington
202,000
Newmont Mining Corp
Super Pit – JV
176,000
Newmont Mining Corp 50%, Barrick Gold Corp 50%
Cadia East*
168,579
Newcrest Mining Ltd
Tropicana – JV
99,884
AngloGold 70%, Independence Group 30%
St Ives
81,600
Gold Fields Ltd

*includes minor output from Ridgeway

 

Shanghai definitely now calling the gold tune

Gold Today –New York closed at $1,256.10 yesterday after closing at $1,257.20 Wednesday. London opened at $1,263.10 today. 

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

         The $: € was slightly stronger at $1.1227 after yesterday’s $1.1234: €1.

         The Dollar index was slightly stronger at 97.08 after yesterday’s 97.01

         The Yen was slightly stronger at 111.10 after yesterday’s 111.80:$1. 

         The Yuan was stronger at 6.8615 after yesterday’s 6.8737: $1. 

         The Pound Sterling was weaker at $1.2871 after yesterday’s $1.2973: £1.

Yuan Gold Fix
Trade Date Contract Benchmark Price AM 1 gm Benchmark Price PM 1 gm
      2017    5    26

     2017    5    25

     2017    5    24

SHAU

SHAU

SHAU

 

 

280.35

279.54

Trading at 280.60

280.04

278.55

$ equivalent 1oz at 0.995 fineness

@    $1: 6.8615

       $1: 6.8737

       $1: 6.8906     

 

  /

$1,263.58

$1,261.82

Trading at $1,266.97

$1,262.18

$1,257.35

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 closed $6.08 lower than Shanghai’s close yesterday. London opened today at a $3.87 discount to Shanghai.

And there you have it. The evidence is clear that Shanghai is pulling both London and New York higher. Shanghai followed New York on the world clocks with London opening after that. While both London and New York are more volatile than Shanghai, Shanghai gold prices in the Yuan have moved steadily higher over the last few days.

This was in the face of the People’s Bank of China trying to control the Yuan and change the formula on which it is permitted to trade.

This year has seen the People’s Bank of China attack speculation. In the gold market rampant speculation has been controlled by putting a ceiling on the amounts traded per contract reducing them in the process. This has made it expensive to speculate in force. We have seen the results of this in a less volatile market there.

Now we have the People’s bank of China not just trying to limit speculative forces but change the orientation of the Yuan exchange rate to a ‘global-centric’ rate from a ‘dollar-centric’ rate. History shows that Chinese markets have lost credibility because of wild speculative forces [particularly the equity markets]. These efforts, while delaying the full lifting of Capital Controls, are stabilizing markets. We foresee that, as a result, we will see Chinese markets reputations improve and gain a stronger foothold in world markets.

In the gold world we foresee more producers and buyers of gold on contract turn to the Shanghai Benchmark prices from the pm London price setting. This is particularly so as the London price setting is different from the ‘spot’ prices at the time of price setting.

We are now convinced that gold’s pricing power has moved to Shanghai.

Silver Today –Silver closed at $17.16 yesterday after $17.19 at New York’s close.

LBMA price setting:  The LBMA morning gold price was set today at $1,265.00 from yesterday’s $1,257.10.  The gold price in the euro was set at €1,130.37 after yesterday’s €1,120.81.

Ahead of the opening of New York the gold price was trading at $1,265.80 and in the euro at €1,130.38. At the same time, the silver price was trading at $17.26 

Price Drivers

Currency markets across the world are relatively steady today as the gold price, once again nudges up against overhead resistance on this, the last and most active day of the week, the last week in May. Will the U.S. be volatile today in the gold market or silver market? We see New York following London higher. With long positions at low levels on COMEX that ‘paper’ market is more likely to go long than short, we feel. Hence we expect a positive day for gold there. Before New York opened gold was already pushing up through resistance, but more is needed before the break is convincing!

Will the present moves bring the long awaited strong move in gold and silver prices? We don’t know for sure, as we are in an important area for both gold & silver from a long term perspective, making any strong move now significant for the long term.

G-20 meeting

The G-20 meeting in Sicily is the center of attention for the media. In the past this has usually turned out to  be a non-event, but with President Trump there already lecturing on NATO allies failure to pay their bills for the protection the U.S. affords them, we expect a far more lively meeting. Of importance is now the huge surplus Germany has on the trade front. This has been apparent from the day the E.U. was formed as it prevented the exchange rate used in global trade by Germany [the euro] from reducing these surpluses, as it rose. If Germany still had the Deutschemark its rate would be so high as to prevent the surplus from happening in the first place. To bleat about it now is a little pointless and non-productive and far too late.

U.S. physical gold investors remain on the sidelines still and will do so until they see a strong rise in the gold price.

Gold ETFs – Yesterday, saw no sales or purchases of gold to or from the SPDR gold ETF and no change in the holdings of the Gold Trust. Their holdings are now at 847.452 tonnes and at 202.82 tonnes respectively.

Julian D.W. Phillips 

 GoldForecaster.com | SilverForecaster.com | StockBridge Management Alliance 

Gold’s Pricing Power Moving East – Part 1

By Julian D.W. Phillips – GoldForecaster.com | SilverForecaster.com | StockBridge Management Alliance 
How is the gold price made?

When we hear commentary on why the gold price has moved, we usually hear of U.S. economic or political factors and a move in the U.S. Dollar. Most times these do not precipitate the buying of physical gold.

What they do do, is to spur the buying or selling of futures or Options on the COMEX gold market. Many commentators attribute moves in the physical gold price to moves on COMEX.

But this link is tenuous, as COMEX does not [except for a maximum of 5% and minimum of 1% of contracts that disclose they will deal in physical gold, upfront] deal in physical gold.

The dollar gold price is the one that most investors look at, even though they may deal in a different currency to the dollar. This is because the dollar is the key global currency against which all others are measured.

Price differential between Shanghai and London/New York

U.S. gold prices today are primarily driven by demand for physical gold in gold ETFs, such as the Gold Trust and the SPDR gold ETF [GLD].

But the bulk of physical gold traded in the world now happens on the Shanghai gold exchange. There are 10 million investors, including 10,000 institutions that are able to deal over their cell phones at any time on the Shanghai Gold Exchange. Such a market dwarfs both London and New York on the physical front, as all transactions have to be backed by physical gold.

With gold exports not permitted from China, there are obstacles to the free flow of gold globally. The International Gold Exchange in Shanghai has not yet attracted sufficient numbers to allow this. But the major banks can and do hold stock both in Shanghai and London and by running a dollar/Yuan currency book can arbitrage gold between the markets to smooth out the bulk of price differences between markets.

While there are frequent fingers pointing to the ‘premium’ of Shanghai prices over those of London and New York of $5 all the time, it is because Shanghai prices 0.9999 quality gold whereas London prices 0.995 quality gold. One has to deduct this before comparing the prices in the two markets.

On top of this we see between $5 – $15 an ounce difference on a daily basis, which can include the cost of moving the gold from London to Shanghai.

Overlying this cost lies the difference in liquidity between the markets and the differences in local demand and supply. In the very liquid Shanghai market, bullion banks do not exert the same influence as in London and New York, so speculation is restricted. It is further restricted by the much higher costs of taking large speculative positions in Shanghai. These costs were increased at the beginning of the year to discourage speculation.

Shanghai, as a result, gives less volatile prices, more indicative of [Chinese] physical demand. While no gold flows out of China [removing its downside pressure on the gold price] Chinese demand draws from the rest of the world.

Gold enters China from the rest of the world’s gold markets primarily via Switzerland where it is refined into metric bars. We see metric measures of gold dominating the global gold market in the future. Imports comes from all over the world in all forms, with a reducing amount coming in via Hong Kong.

Consequently, the Shanghai Gold Exchange gold price, although higher [for reasons given above] is exerting a growing influence on the global gold price in all currencies and better reflects the physical gold price of gold.

London, New York and the Gold Price

With London having been the global center of the physical gold world until recently, one would have thought that the influence over the gold price would have resided in London. But this is no longer so, as history over the last few years, has shown that London has usually followed COMEX prices.

Of course, this would give rise to charges of ‘manipulation’ from U.S. and other sources.  The not uncommon bear-raids by the big U.S. banks and high frequency traders ensured that the gold price bore little resemblance to the real global physical gold demand and supply factors.

But on closer examination of the chart above, one sees that all but a small percentage of “gold” is traded not in gold but in some form of derivatives, such as shares in GLD, futures, options, or even gold shares, where the buyer does not own physical gold but a piece of paper to the gold price.

Take out this ‘paper’ gold and London and New York’s 88% of gold traded, falls to around less than 1% compared to Shanghai’s 5% of physically traded gold. i.e. five times as big.

When there is a real premium in Chinese gold prices over London and New York’s Chinese gold importers [Like the ICBC/Standard bank and HSBC bank] then export gold bullion to China to meet that higher demand and smooth out price differentials. Consequently, we have witnessed a steady very, very large flow of gold pass through the refineries of Switzerland [to be upgraded to 0.999 fineness] and onto the Far East.

This has allowed both Russia and China in particular, to acquire huge tonnages of gold [on top of their own production] at what really are, discount prices over the last decade!

With gold now an integral part of the Chinese financial and banking systems, China cannot afford to be at the mercy of the capricious, non-representative, U.S., physically-small gold market, even though the volumes of paper gold traded are huge as you can see in the pie chart above.

Day to day news items are not the real reasons gold is bought and sold in the west. It is theprofit motive inherent in western financial markets, driving traders and funds to buy and sell gold frequently. Gold holdings are changed even by large funds from day-today positions to monthly or three monthly. There are few that hold a long-term holding.  The demand for short-term performance prevents that.

The Chinese view of gold

The motive east of Greece is to acquire gold holdings as a prime financial asset that, over time, provides secure wealth for the long term. Trading of gold is an ancillary function only. East of Greece it is the sheer volume of gold kilos held that’s important.

China’s gold holdings are far greater than the available statistics tell us. Gold is held as jewelry at retails levels, on the balance sheet of banks, in the Shanghai Gold Exchange, for clients, as well as for the Exchange itself, in government agencies, for the government and by the People’s Bank of China, for the nation.

In summary, as the People’s Bank of China put it, “We own gold through the people of China!”

This is resulting in China moving to take over gold’s global pricing power.

 

The Commodity Cycle: What It Means for Precious Metals Prices

By Stefan Gleason*

The cycle for any commodity follows the same basic pattern…

When prices are low, production falls. As new supplies diminish, the market tightens and prices move higher. The higher prices incentivize producers to invest in production capacity and increase output. Eventually, the market becomes oversupplied, prices fall, and the cycle starts all over again.

Of course, this is a simplified model of what drives commodity cycles. Booms and busts can be amplified and extended by speculators, by unexpected shifts in demand, or even by interventions from central banks and governments.

Regardless of the causes, commodity markets will always be cyclical in nature. Commodities as a group can be pressured upward or downward by extrinsic forces such as monetary inflation or credit contraction.

However, any individual commodity – whether oil, corn, copper, gold, silver, platinum, or palladium – may be in its own particular stage within the commodity cycle at any given time.

As a resource investor, it’s important to have some idea of whether you’re investing in a commodity at a time in the cycle when it’s favorable to do so. Some technical analysts ascribe four-year cycles to some markets, longer duration cycles to others, and shorter-term cycles that operate within longer-term cycles. The reality is that cycles can’t be counted on to run their course within any prescribed time frame.

There are historical patterns and tendencies, to be sure. Gold, for example, tends to be less correlated to swings in the economy than oil and industrial commodities. Gold can remain in a major trend for years or even decades.

Gold prices crashed from $850/oz in 1980 to $300/oz in 1982. It wasn’t until 2002 that gold crossed above the $300 level for the final time. The new gold bull market rose out of a 20-year base and reached a cyclical high of $1,900 in 2011. A four-year downturn followed, and since 2016 a new cyclical upturn appears to be taking shape.

Commodities Are Moving into a Diminishing Supply Phase

Chart reading is always a tenuous undertaking, but when combined with supply and demand fundamentals, it can help investors identify favorable times to be a buyer or seller. Right now it appears that gold, silver, oil, and other commodities are transitioning one by one into a period in the commodity cycle of diminishing supply.

Oil Market

In the case of crude oil, which is the most economically important and most widely followed commodity, the major storyline in recent months has been a supply glut.

North American shale production has swelled inventories in the U.S. But oil prices have been quietly advancing.

What does the market know that isn’t showing up in all the seemingly bearish headlines for oil? The longer-term supply outlook actually augers for shortfalls… and much higher prices. According to the International Energy Agency (IEA), new oil discoveries in 2016 sunk to their lowest number in decades.

The oil industry slashed spending on developing new supplies in response to low prices. ExxonMobil, for one, cut its capital expenditures by 26% ($10 billion) in 2016.

The IEA warns that in order to offset recent declines and meet rising global demand, the oil industry needs to develop 18 billion new barrels every year between 2017 and 2025. Oil’s recent price range in the mid $40s to mid $50s per barrel doesn’t seem to be incentivizing the necessary new production capacity. Higher prices appear to be in store over the next few years.

Mining Is an Energy-Intensive Business

Higher energy costs would mean higher production costs for the gold and silver mining industry. Mines are already having to process more and more tons of earth to extract ounces of valuable metals.

According to metals analyst Steve St. Angelo, “The global silver mining industry will continue to process more ore to produce the same or less silver in the future. While the cost of energy has declined over the past few years, falling ore grades will continue to put pressure on the silver mining industry going forward.”

Mine Operators

Physical precious metals are, in a very real sense, a form of stored energy. Think of all the energy inputs required to move the earth, to separate relatively tiny quantities of precious metals from tons upon tons of rock and dirt, to refine the raw ore into pure gold, silver, platinum, or palladium, and finally to mint the precious metal into bullion products.

All those energy inputs are represented in the value that markets impute to precious metals. Trends in prices will reflect trends in production costs. And production costs will rise as it becomes harder and more energy intensive to mine metals.

A position in physical gold and silver should be viewed as a core long-term holding. However, there are some times in the commodity cycle that are more favorable than others for buying.

There are times when you may even want to sell a portion of your position. Right now, the cycle appears to be in the early stages of turning bullish for commodity prices – making it a favorable time to be taking out long positions in hard assets.

 Stefan Gleason

Weaker Dollar and Fed Doubts Help Steady Gold Price

Gold Today –New York closed at $1,257.20 yesterday after closing at $1,251.80 Tuesday. London opened at $1,257.95 today. 

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

         The $: € was weaker at $1.1234 after yesterday’s $1.1189: €1.

         The Dollar index was weaker at 97.01 after yesterday’s 97.33

         The Yen was slightly weaker at 111.80 after yesterday’s 111.88:$1. 

         The Yuan was stronger at 6.8737 after yesterday’s 6.8905: $1. 

         The Pound Sterling was slightly weak at $1.2973 after yesterday’s $1.2978: £1.

Yuan Gold Fix
Trade Date Contract Benchmark Price AM 1 gm Benchmark Price PM 1 gm
      2017    5    25

     2017    5    24

     2017    5    23

SHAU

SHAU

SHAU

 

 

279.54

281.40

Trading at 280.00

278.55

281.41

$ equivalent 1oz at 0.995 fineness

@    $1: 6.8737

       $1: 6.8906

       $1: 6.8901     

 

  /

$1,261.82

$1,265.30

Trading at $1,267.00

$1,257.35

$1,265.35

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 closed $9.80 lower than Shanghai yesterday. London opened today at a $9.05 discount to Shanghai.

Shanghai prices rose after New York’s close rose too, catching up slightly to Shanghai, as you can see in the reduced discount New York is standing at. London opened at a smaller discount to Shanghai too. If this continues then Shanghai holds the pricing power. The Yuan overnight was quite a bit stronger against the dollar as the People’s Bank of China pressured the banks to take it higher against the dollar, likely to compensate for the weakness in the dollar.

Silver Today –Silver closed at $17.19 yesterday after $17.07 at New York’s close yesterday.

LBMA price setting:  The LBMA gold price was set today at $1,257.10 from yesterday’s $1,251.35.  The gold price in the euro was set at €1,120.81 after yesterday’s €1,118.77.

Ahead of the opening of New York the gold price was trading at $1,257.20 and in the euro at €1,121.30. At the same time, the silver price was trading at $17.18 

Price Drivers

The dollar has again turned weaker against other currencies, particularly against the Yuan which has been weakening with the dollar recently. Yuan strength was necessary to show overall stability against all currencies.

There were no sales or purchases into or from the U.S. based gold ETFs showing U.S. investors sitting on the sidelines and not influencing the gold price.

The gold price remains in a narrowing consolidation phase before a strong move either way.

The Fed

Equity markets have discounted a June rate hike and continue rising. But markets noted the Fed minutes indicated ongoing caution, needing more evidence that the economic slowdown in the first quarter was only temporary. It is a worry that while employment has improved considerably it is not sufficient to cause wages to rise. Service jobs have provided most of the employment, but as much of these are, primarily, temporary there is little wage bargaining power in these.

Swiss Gold Exports to India & China

India was the largest destination for Switzerland’s gold for the fourth straight month, over double 22 metric tonnes, recorded a year earlier, to 48 metric tonnes.

Exports to China totaled 40 metric tonnes in April, up from 19 metric tonnes a year earlier and 68% higher than 24 metric tonnes reported in March.

Ongoing heavy Asian demand continues with Swiss refineries still going flat out re-refining ounces into grams and kilos to meet that demand. Please note such refining is relatively expensive and only done when the change is semi-permanent or permanent. It does represent a permanent shift of gold to the east that has been going on for many years now. The west is seeing seepage of its gold to the Far East which will not return.

Flows west remain low, with exports to the UK falling below 1 metric tonne for the first time since January 2016, from just under 3 metric tonnes in March and 77 metric tonnes a year earlier. The UK was the largest destination for Switzerland’s gold last year due to a surge in investor demand, especially via gold-backed ETFs, but has fallen away significantly this year.

Exports to the US were just under 0.4 metric tonnes, largely unchanged on the month.

London Gold Price Setting [Fix] suffer lower liquidity and greater volatility

Trading volumes in the gold price setting, that replaced the London “Fix”, fell sharply after April 10, when four of the 14 participating banks and brokers stopped taking part after the auction’s administrator, Intercontinental Exchange (ICE), introduced a requirement to clear that meant participants had to modify their own IT systems and procedures.

Lower liquidity, which fuels volatility, led to the benchmark diverging more widely from the underlying spot price, according to the analysis of ICE and trading data, leaving gold buyers and sellers around the world with large unexpected gains or losses.

In the three weeks after clearing was launched, average trading volumes were 25% lower than in the previous three weeks and the average difference from the spot price tripled to 87 cents from 29 cents, the analysis shows. The biggest divergence, on April 11, saw the auction settle $12.20, or 1%, away from the spot price. Even excluding this large swing, the average divergence in the period rose to 42 cents.

ICE was warned by at least two participating banks that the loss of those banks which were not ready to handle clearing would make the benchmark significantly more volatile. This is a bad omen for the London price setters as Shanghai’s benchmark prices reflect spot prices more accurately. Already the Dubai Gold Exchange uses the Shanghai Benchmark prices in its derivatives trading. Producers and manufacturers will be more inclined after this news to turn to Shanghai for their contract pricing in the days ahead.

Gold ETFs – Yesterday, saw no sales or purchases of gold to or from the SPDR gold ETF but no change in the holdings of the Gold Trust. Their holdings are now at 847.452 tonnes and at 202.82 tonnes respectively.

Since January 4th 2016, 248.734 tonnes of gold have been added to the SPDR gold ETF and to the Gold Trust.  Since January 6th 2017 38.678 tonnes have been added to the SPDR gold ETF and the Gold Trust.

 Julian D.W. Phillips 

 GoldForecaster.com | SilverForecaster.com | StockBridge Management Alliance 

Gold pulled back by stronger dollar and big sale out of GLD

 Gold Today –New York closed at $1,251.80 yesterday after closing at $1,260.30 Monday. London opened at $1,250.30 today. 

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

         The $: € was stronger at $1.1189 after yesterday’s $1.1252: €1.

         The Dollar index was stronger at 97.33 after yesterday’s 96.90

         The Yen was weaker at 111.88 after yesterday’s 111.24:$1. 

         The Yuan was barely changed at 6.8905 after yesterday’s 6.8901: $1. 

         The Pound Sterling was barely changed at $1.2978 after yesterday’s $1.2980: £1.

Yuan Gold Fix
Trade Date Contract Benchmark Price AM 1 gm Benchmark Price PM 1 gm
      2017    5    24

     2017    5    23

     2017    5    22

SHAU

SHAU

SHAU

 

 

281.4

279.59

Trading at 281.30

281.41

279.76

$ equivalent 1oz at 0.995 fineness

@    $1: 6.8906

       $1: 6.8901

       $1: 6.8903     

 

  /

$1,265.30

$1,255.27

Trading at $1,264.77

$1,265.35

$1,255.22

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 closed $13.55 lower than Shanghai yesterday. London opened today at a $14.47 discount to Shanghai.

London today and New York yesterday, took gold lower with Shanghai remaining steady at yesterday’s prices. If pricing power lies in Shanghai, gold price will climb this week in London and New York. This is a test of where that power lies [very short-term].

Silver Today –Silver closed at $17.07 yesterday after $17.14 at New York’s close yesterday.

LBMA price setting:  The LBMA morning gold price was set today at $1,251.35 from yesterday’s $1,259.90.  The gold price in the euro was set at €1,118.77 after yesterday’s €1,119.61.

Ahead of the opening of New York the gold price was trading at $1,252.80 and in the euro at €1,111.82. At the same time, the silver price was trading at $17.07 

Price Drivers

Again it was a day for the gold price to change because of the dollar’s influence as it strengthened a little, but remained at low levels. There was a significant sale of gold from the SPDR gold ETF (GLD) which assisted the fall. The discounts of London and New York to China widened quite heavily yesterday, but only to the extent that held the euro price of gold relatively steady. As we said yesterday, “For a convincing breakout in the gold price we need to see it rise strongly in the euro too. With the Chinese Yuan doing its best to stay close to the moves in the dollar, we expect Shanghai to remain stable.” Overall it is a day for gold to mark time waiting for an event to move it strongly either way.

The Fed

It is quite clear that the markets now expect a June rate hike from the Fed and, by the end of the year, a third hike. We don’t see these moves as promoting a fall in the gold price, except maybe for a short time. We do see inflation rates remaining negative, further encouraging gold price rises.

Gold’s seasonality in India

We are entering the quiet time of the year for Indian demand as they plant crops ready for the monsoon. This quiet period should last until the beginning of September, after crops are harvested. A good Monsoon is forecast, so we expect demand to be strong in the fourth quarter of the year.

In the past few years as the path of urbanization remains strong there, gold demand’s seasonality has diminished. The resulting enrichment of urban Indians has helped enhance overall gold demand. With last year’s ‘de-monetization’ of the two highest denomination banknotes in the country causing havoc and postponing gold demand, we expect a better year for Indian demand this year than last. Of course, with the threat of 3% [?] General Sales Tax being added to ‘legitimate’ purchases of gold and to the reporting of them to the authorities, the quest for ‘unofficial’ gold purchases [from smugglers] grows. We are certain that Indian gold buyers will buy, whether they do it legally or illegally. We therefore estimate that Indian demand will reach 1,000 tonnes + this year, but a significant portion of this will not be reported.

Gold ETFs – Yesterday, saw sales of 5.031 of a tonne from the SPDR gold ETF but no change in the holdings of the Gold Trust. Their holdings are now at 847.452 tonnes and at 202.82 tonnes respectively. This relatively heavy sale of gold was sufficient to lower gold prices on the back of a weaker dollar.

Since January 6th 2017 38.678 tonnes have been added to the SPDR gold ETF and the Gold Trust.

 Julian D.W. Phillips 

 GoldForecaster.com | SilverForecaster.com | StockBridge Management Alliance