Gold price falls should bring in Asian buyers

Julian Phillips’ analysis of what’s happening in the New York and London gold markets and on geopolitical events affecting the precious metals markets.

New York closed yesterday at $1,199.40 down $3.80 in a market dominated by currency issues. Asia took the gold price up to $1,204 before London pulled it down to $1,199. London then Fixed the gold price at $1,199.75 down $4.50 and in the euro, at €1,086.041, up €3.374, while the euro was at $1.1047 down nearly three quarters of a cent. Ahead of New York’s opening, gold was trading in London at $1,200.00 and in the euro at €1,086.17.

The silver price closed at $16.18 down 8 cents. Ahead of New York’s opening it was trading at $16.20.  The silver price may well drop much faster than gold if the gold price falls further, but as Asian demand comes in we expect the silver price to recover quickly once more.

There were no sales from the SPDR gold ETF yesterday, but there was a sale of 0.48 of a tonne from the Gold Trust, on Wednesday. The holdings of the SPDR gold ETF are at 760.799 tonnes and at 165.46 tonnes in the Gold Trust.  The gold price is being influenced by arbitrageurs working the gold price, the euro and the dollar exchange rates.  Such a fall to just below $1,200 will, we expect, bring Asian buyers into the market, as the prices are not being moved on significant physical sales.

Today, we wait to hear the details of the E.C.B.’ quantitative easing program that will last, at least, until September 2016. We expect it will have to last much longer because the vigor and drive in U.S. business is far more than that of the Eurozone, as a whole. In Socialist Europe, where regulations and national interests have produced a snail’s pace of reform, lending has not been encouraged by low interest rates. From the Greek efforts to halt the bailout program to the slow progress on cutting French debt the political masters of the Eurozone are unwilling to take the steps the E.C.B. says are essential for sustainable growth. This leaves the Q.E. program the only real driver of growth in the area. We do see the situation as bringing dangers to the credibility of the euro in the future.

Though the Eurozone is showing initial signs of a recovery, inflation is still unacceptably low and may well remain so for some time to come. While the markets are still discounting the impact of Eurozone Q.E. it is the exchange rate that is discounting it the most. This must delight the E.C.B. as they know that a low euro does promote global business as prices for its goods fall. We wonder just how long the U.S. will tolerate the falling euro.

We cannot emphasize enough the damage that is being done to confidence not just in the euro but in the world of currencies. The concept of currencies measuring value went out of the door long ago. In time, this will benefit the gold price, as it has always done in the past.

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

 

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Upward pressure on gold close to overwhelming speculative liquidity

Commentary by Julian Phillips yesterday which speculates that the vast volume of Asian gold demand is close to overwhelming the speculative activity in the paper futures markets which has been keeping prices weak.  Of course ‘close’ is an indeterminate length of time!

The gold price has pulled back to above support once again as gold continues to consolidate  but on low U.S. turnover.

With China taking more than is being supplied to the market from newly mined gold and scrap, a question has arisen as to how the price can fall in such an environment. It can happen when there is sufficient liquidity in the London market which continues to be the main hub for gold pricing. Over time as this liquidity is drained the upside pressure would be built to the point where such speculators and traders do not have the power to push prices down in such a market. The difference between short-term market moves and long-term moves is then described by such action.

We saw the same in 2005 when after two decades of falling and low prices the gold price brushed aside such downward pressures and surged to more than double the previous peak. Can such pressures exert themselves again? We believe they can as supply has now peaked from newly mined gold and scrap [until much higher prices are seen] and yet Asian demand is continuing to grow.

Bearing in mind that Asian demand is to find financial security by new buyers who are middle classes getting richer or from new entrants into the middle classes. Such demand is unlikely to fade or lessen for the foreseeable future. What we don’t know is when the upward pressure on the gold price will overwhelm speculative liquidity, but we know it is close.

The euro is recovering strongly at the moment while gold is slipping against the dollar. The move of the dollar and the gold price together is still happening.  With the euro rising to $1.1482 before London opened the 1% rise equates to a 1% fall in gold.

In his meeting with Germany’s Finance Minister, the Greek finance minister Yanis Varoufakis’ will propose the exchange of outstanding debt for new growth-linked bonds, running a permanent budget surplus and targeting tax dodgers. Furthermore, Mr. Varoufakis said Syriza would not seek a write-off of Greece’s €315 billion sovereign debt.

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