Gold price set by US but buying is in Asia and elsewhere

My latest article on Mineweb looks at  the hugely anomalous situation whereby the gold price is effectively set by the U.S. market, but gold demand is virtually all elsewhere – primarily in Asia where, of course, China and India dominate.  The price currently fluctuates around U.S. economic data and whether this is likely to lead to the Fed raising interest rates sooner rather than later, but where the gold is being bought whether U.S. interest rates may rise a quarter of a basis point in June, September or whenever is a total irrelevance.

China in particular is well aware of this and is making moves to have more control over gold price setting itself, and it is interesting also that many of its recent initiatives – the latest being the setting up of the $16 billion Silk Road gold fund – involve gold.  China certainly sees gold as playing an increasing role in global finance and trade, and here it is aligned with Russia which has been adding to its own gold reserves on a regular basis.  It is widely believed that China is doing so too, but without reporting the additions to the IMF until it deems it politically expedient to do so.

China also feels that the U.S. in particular is trying to sideline it economically, as the former is worried about the latter’s potential impact on the U.S.’s hitherto dominant position in world trade through the dollar’s use as the world’s reserve currency.  China want the yuan to have a much greater role – and if it sees this as being blocked by the U.S. it sets up parallel institutions to rival the U.S. dominated ones – the Asian Infrastructure Investment Bank is a prime example which could grow to rival the World bank and the IMF.  There is also a belief that China may be preparing to set up a rival to the IMF’s super currency – the SDR – if it blocked from becoming part of this currency basket again this year.

Interesting times in the global financial sector.#

To read the Mineweb article click on: Gold: The U.S. sets the price but Asia does the buying

Gold to have significant presence in new World monetary order

Julian Phillips’ current take on the gold and silver markets and the geopolitical influences driving them

New York closed at $1,201.30 on Friday and $1,215.70 on Monday in NY close. Asia took it to $1,213 then London pulled it back to $1,211 ahead of the LBMA Gold price setting. The LBMA Gold price was set at $1,208.50 up $7.00 on Friday’s level. The euro equivalent stood at €1,113.67 up €15.75. Ahead of New York’s opening, gold was trading in London at $1,210.10 and in the euro at €1,113.91.

The silver price closed at $16.74 on Friday then $17.00 yesterday. Ahead of New York’s opening it was trading at $16.85.

There was a sale of 1.79 tonnes of gold from the SPDR gold ETF and a sale of 0.04 of a tonnes from the Gold Trust since Friday. The holdings of the SPDR gold ETF are at 735.447 tonnes and at 164.88 tonnes in the Gold Trust.  Short covering of gold positions continued in the U.S. on the back of a very improved Technical picture, which has turned up for gold.

Only now is the significance of the establishment of the Asian Infrastructure Investment Bank being realized in the financial circles in the U.S. It is painful for the developed world to see the global influence of the U.S. waning as China establishes an alternative financial system to that of the developed world, such as the World Bank/I.M.F.

The next step in the well coordinated change in the monetary system is for the convertibility of the Yuan to be taken to a level where it is recognized as a “well-used currency” that qualifies it to become a global player included in global central bank reserves. It has one advantage over the dollar that is incontrovertible and that is, it has no presence now and can only grow. The U.S. dollar and the euro are omnipresent in global central bank reserves, so can only diminish. With 80% of global growth coming from Asia in the future there is a very long way to go in changing the global monetary system.

Gold will have a significant presence in this change and will not be held back as it has been from 1971 in these roles. And it is scheduled to start later this year not in a decade or more!

The dollar continues weaker $1.0905 and the dollar index at 97.24 today. The second quarter of 2015, points to a globe with more uncertainty than we have seen for some years, as fears about growth and deflation are rising.

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

China-driven AIIB sees currency wars heating up – Holmes

By Frank Holmes – CEO and Chief Investment officer for U.S. Global Investors –www.usfunds.com

Tuesday marked the last day that countries could submit their applications to become founding members of the new China-led Asian Infrastructure Investment Bank (AIIB). As of this writing, a little over 40 nations have either already been approved or have applied for membership, including strong U.S. allies such as Britain, Germany and Australia.

Notable absentees, as you can see below, are the U.S. and Japan.

Countries that Have Joined or Applied to Join Asian Infrastructure Investment Bank (AIIB)

Conceived to serve as an alternative to Western-dominated sources of credit such as the World Bank, International Monetary Fund (IMF) and Asian Development Bank, the AIIB will aim to invest in regional infrastructure projects ranging from energy to transportation to telecommunications.

The new development bank, which is expected to launch later this year, will have $100 billion in capital to begin with—a massive mountain of money, to be sure, but it falls far short of the estimated trillions that will be necessary to fund Asia’s astronomical infrastructure demand.

China’s creation of its own global bank highlights the country’s desire to wield more control over funding such projects. It currently commands only 5.17 percent of the vote in the World Bank and 3.81 percent in the IMF.

China is aiming for its currency to become part of the Special Drawing Right (SDR), the International Monetary Fund's composite currency unit.

And so the currency wars continue to heat up. China’s move demonstrates its ongoing efforts to establish the yuan as a global reserve currency on par with the U.S. dollar. It’s no secret that the country wants the yuan to become part of the IMF’s Special Drawing Right (SDR), a composite currency unit that now consists of the dollar, Japanese yen, British pound sterling and euro. The founding of the AIIB might very well bring the country closer to realizing these goals.

A-Shares Headed Higher

Chinese stocks are currently having a moment. Mainland A-shares, as measured by the benchmark Shanghai Composite Index, are up an incredible 92 percent for the 12-month period on the back of strong recent performance in the financial, property and infrastructure industries.

There’s generally a high correlation between the A-share market and China and Hong Kong, but the A-shares have outperformed by a wide margin over the past year.

Shanghai Composite's Breakout Continues

Last Wednesday the index fell a slight 0.8 percent, ending a 10-day rally that contributed 12 percent, its longest winning streak in 23 years.

Chinese policymakers have recently eased quota controls for foreign investors in mainland stocks and bonds, as they promote the yuan to be accepted as an SDR. The potential for greater inflows into the market should help the Shanghai Composite head even higher.

Our China Region Fund (USCOX) has participated in this rally through the Morgan Stanley China A Share Fund and a closed-end fund.

Read more about China:

  • China Consumes More Gold Than the World Produces
    “What’s not so well-known—but just as amazing—is that China’s supply of the precious metal per capita is actually low compared to neighboring Asian countries such as Taiwan and Singapore.”
  • China Just Crossed a Landmark Threshold
    “One of the most headline-worthy developments is China’s $16.3-billion infrastructure initiative intended to revive trading routes along the centuries-old Silk Road. Thousands of miles of railways, roads and pipelines will link Beijing to major markets all over Asia, Africa and Europe.”
  • China Wants to Conduct the World’s High-Speed Rail Market
    “In recent months, Chinese Premier Li Keqiang has emerged as the nation’s top salesman for what he calls the ‘New Silk Road’—miles upon miles of high-speed transportation connecting all corners of the world. His plan might very well become one of China’s most lucrative exports and culturally significant contributions to the world: fast, efficient and reliable railways.”

AIIB Significance for Gold and Silver

Julian Phillips looks at the price drivers currently affecting the precious metals markets

There is nothing new, short-term in the gold and silver markets now as the Saudi incursion into the Yemen has been discounted in the oil and precious metal prices.

Today sees the funding of the Asian Infrastructure Investment Bank (AIIB) with 40 countries now buying into the bank, but with the U.S. and Japan absent from the offering. European and Asian nations make up the majority of the investors. The significance of this for precious metal investors lies in the division of the US/Japan and China as the Chinese presence in the monetary world moves towards centre stage later this year. The division between the US/Japan and Asia augurs volatility in global foreign exchanges, when Capital Controls are lowered in China and the IMF discusses the make-up of the SDR, sometime this year.

Meanwhile, the official volume of gold entering the Chinese economy from outside has to pass through the Shanghai Gold Exchange, which is under the control of the People’s Bank of China (The Chinese Central Bank). The volume for the first quarter of the year has already reached 561 tonnes with perhaps up to another 80 tonnes to come to complete the quarter. (See: China gold flows to hit Q1 record).  This sets a new record for the SGE, higher than the volume seen early in 2013 when the gold price produced the Chinese version of a gold rush on the exchange.

The dollar is grew stronger overnight taking the dollar Index back to 98.46 up from at the end of last week, while the euro is slipping to $1.0741 down from $1.8270 last week. The dollar needs to break up through 100 on the dollar index to show it has higher to go. The gold price remains strong in all currencies except the dollar where it is not tumbling but not rising either. Gold’s strength in other currencies remains convincing.

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

 

USA opposing AIIB and may oppose Yuan participation in SDR basket

These are seen as gold positive long term by julian Phillips in his latest analysis of the gold and silver markets and the geopolitical factors impacting them

New York closed yesterday at $1,193.70 up $3.10. Asia held it at $1,192 before London opened, where it held that level up until the “LBMA Gold price” setting. It was set at $1,192.55 down $0.65 which was the euro equivalent of €1,085.57, down €1.18. Ahead of New York’s opening, gold was trading in London at $1,194.40 and in the euro at €1,087.55.

The silver price closed at $17.00 down 6 cents. Ahead of New York’s opening it was trading again at $17.00.

We continue to expect consolidation below $1,200 but as the trading range narrows we await a strong move either way. Whether gold now breaks through this level or pulls back down is the question uppermost in gold & silver investor’s eyes.

The dollar is stabilizing with the dollar index dropping to 96.74. The euro is currently standing at $1.0989 as the Greek saga weighs on the currency.

One of the hardest realities that creditors face when looking at a bankrupt debtor is the fact that it was unwise to have lent funds to him in the first place. The pragmatic way forward is to accept these realities and find a formula where the debtor can lift his head and start producing again and the bad debt eliminated in a ‘dust yourself off and start all over again’ situation.

Unfortunately, when it comes to Sovereign debt no such formula exists, so the painful way forward must take place until realities are forced upon both creditor and debtor. The clock continues to tick for Greece until the end of April at the latest, but we expect pragmatism to bring that situation to a head before then.

If there is a “Grexit” we see the euro strengthening!

Further to our comment of yesterday, it seems that the U.S. is going to oppose the Asian Infrastructure Investment Bank (AIIB) helping us to see the IMF acceptance of the Chinese Yuan as one of the SDR currencies that make it up may prove divisive.

At the same time the dominance of the U.S. over the voting structure of the IMF where the U.S. has 16.83% of the votes and 85% of votes is needed before a resolution can be passed, will be under discussion. We doubt the U.S. will be happy to lose control of the IMF explaining why the Chinese are prepared to go it alone.  The world cannot afford to have a fragmentation of the monetary system, particularly while the global economy has a deflationary tendency. To gold investors such divisions are price-positive, long-term!  Julian D.W. Phillips for the Gold & Silver Forecasters – www.goldforecaster.com and www.silverforecaster.com

Big gold SPDR ETF sale has no impact on price confirming underlying strength

Julian Phillips’ take on the current gold and silver markets and geopolitical effects impacting on them

There was a large sale of gold from the SPDR gold ETF on Friday of 5.373 tonnes but there were no sales or purchases of gold into or from the Gold Trust on Friday. The holdings of the SPDR gold ETF are at 744.401 tonnes and at 164.71 tonnes in the Gold Trust.  This size sale would ordinarily have hurt the gold price in New York, but it didn’t, as you can see. This confirms underlying strength. The dollar weakened with the dollar index falling to 98.22 after its high of over 100. The euro recovered to $1.08 in Asia, slipped back to $1.0772 ahead of London’s opening then rose to $1.0887.

New York closed Friday at $1,183.20 up $12.90. Asia held it a dollar below that level before London opened. So far the new way of Fixing does not appear to have produced any dramas and the ‘runs’ have gone well. Of course true transparency would mean the participants disclosing details of their in-house deals which were ‘netted’ out before the participants did an overall ‘netting out’. This morning the “LBMA gold price” was set at $1,181.40 up $9.65 with the euro price down nearly €10.   Ahead of New York’s opening, gold was trading in London at $1,181.60 and in the euro at €1,085.73.

The silver price closed at $16.73 up 60 cents. Ahead of New York’s opening it was trading at $16.70 .The silver price showed how quick it can turn up as support held firm.

The widening of support for the AIIB [the Asian equivalent of the I.M.F./World Bank] was not the only piece of Asian news last week. Something considerably more dramatic took place, something we at Gold Forecaster and Silver Forecaster have been pointing to for several years now as a structural change in the world monetary order. So far it has not been reported in the media or gold world. Once it happens, gold and silver prices will see a major change in their fundamentals. We will expound on this once we have first informed subscribers.

As to Greece, another stressful week for the country takes place. The country will run out of money by the end of April. This news alone should empty the banks of deposits. By blocking the exit of capital now, they may be able to salvage a viable banking sector, but will they? While the credit position of Greece may be a great emotional issue, we would have expected the Greek government to have accepted the reality of their situation and the fact that their debt is un-repayable and already exited the E.U. Clearly political face saving is going on as the government did commit to staying in the E.U. An exit must have the element of surprise to stop capital leaving, so could happen any time now.