Shanghai Takes the Gold Pricing Lead

Gold Today –New York closed at $1,314.60 after the previous close of $1,313.60 yesterday.  London opened at $1,319 again.

  • The $: € was weaker at $1.1147: €1 from $1.1187: €1 yesterday.
  • The Dollar index was slightly stronger at 95.96 from 95.82 yesterday.
  • The Yen was slightly stronger at 101.50: $1 up from 101.76: $1 yesterday against the dollar.
  • The Yuan was slightly weaker at 6.6726: $1 from 6.6700: $1 yesterday.
  • The Pound Sterling was slightly stronger at $1.2998: £1 from yesterday’s $1.2989: £1.

Yuan Gold Fix

Trade Date Contract Benchmark Price AM Benchmark Price PM
     2016  09  21

     2016  09  20

SHAU

SHAU

283.14

283.31

284.17

283.29

Dollar equivalent @ $1: 6.6726

$1: 6.6700

$1,319.82

$1,321.13

$1,324.62

$1,321.04

Shanghai ignored New York’s close and took the gold price higher by $10, no doubt reflecting the demand local investors demonstrated for physical gold.

Most importantly this is the first time of late, that substantial sales from the gold ETFs have not pulled gold prices down, but have been ignored to the extent that gold prices have risen.

LBMA price setting:  The LBMA gold price setting was at $1,319.60 against yesterday’s $1,315.40.

The gold price in the euro was set at €1,183.55 against yesterday’s €1,175.83.

Ahead of the opening of New York the gold price was trading at $1,324.60 and in the euro at €1,188.41.  At the same time, the silver price was trading again at $19.60.

Silver Today –The silver price rose to $19.23 at New York’s close yesterday up from $19.16, Friday.  

Price Drivers

There were substantial sales from the SPDR gold ETF yesterday, but Shanghai ignored it then London tried to pull prices back, to sit in the middle between New York and Shanghai.

This is only the second time Shanghai has walked its own road very clearly. Before, exchange rate changes could have explained the moves, but not this time. If this pattern is continued pricing power will be shifting to China from New York.

Why did this move occur now? The announcement from the Bank of Japan’s Kuroda basically did nothing for the Japanese economy. The policy moves we saw tell us that the Bank of Japan looks as though it has run out of ‘effective options’ to stimulate the economy there. With rates being held at current levels, we see the Bank of Japan unwilling to be seen furthering the ‘currency war’ by trying to lower its exchange rate. The moves by the BoJ were therefore at best hormone-free. This switches the attention back to the Fed’s FOMC meeting going on now.

In the light of all factors and Japan’s unwillingness to do anything solid, we cannot see the Fed surprising us by raising rates. Or can we? If they do, we do expect to see the dollar go stronger, albeit temporarily.

We are fully aware that the impact on the dollar exchange rates is a focal point for the FOMC. The U.S. cannot afford a strong dollar now. If the FOMC believe a rate hike of 0.25% will not affect the dollar’s exchange rate we may well see it happen. Otherwise, December will be the time when the Fed is more likely to make such a move.

Gold ETFs – There were sales of 3.858 tonnes from the SPDR gold ETF (GLD) but no sales from the Gold Trust yesterday, leaving their respective holdings at 938.753 tonnes and 223.51 tonnes.

Silver – Silver prices ignored the price action in gold yesterday climbing a little higher. Once again we say, ‘these are not the influences of fundamentals but U.S. silver investors expecting news that will send both gold and silver prices higher.’

Julian D.W. Phillips

GoldForecaster.com | SilverForecaster.com | StockBridge Management Alliance

Advertisements

Central bankers hate to be seen to be wrong

With so much seeming to ride on central bank interest policies in terms of equities in general, and precious metals in particular, perhaps one should look at the motivations behind the timings of likely interest rate hikes.

If we start with the U.S. Fed – nine months ago its Federal Open Market Committee (FOMC), which calls the tune on interest rates, was predicting that the U.S. economy was recovering sufficiently to allow three, or perhaps four, small rate hikes in 2016.  Presumably the economy has not so far recovered sufficiently to do so and thus not a rate hike to be seen as yet, which is why there has been so much attention being paid to a possible September rate increase.  Perhaps this could still happen despite some poor economic data, if only to save FOMC face.  We get successive statements suggesting the U.S. economy is coming right, only for the next set of government data showing that it patently is not doing so, and the rate increase can gets kicked down the road again.

The latest data, showing disappointing retail sales in August, following on from an ultra cautious statement from Fed Governor Lael Brainard, seems to have left those thinking that there could yet be a September rate increase announcement, in the distinct minority.  But there are still lingering doubts that the FOMC may talk itself into a rise this month, hence some of the weakness seen in the gold price and equities.

Everyone rules out a November rate hike as that would come so close only a couple of days ahead of the Presidential election date and now apparently some 70% of analysts believe that the FOMC will bite the bullet and implement a small increase in December – probably whether the data would seem to justify this or not.  While the Fed’s forecasting credibility is perhaps near zero, to do this might be a tiny face-saver, although there are still analysts and commentators out there who believe the Fed may hold off any tightening for a few months beyond that date.

Here in the UK we have the opposite scenario post the Brexit vote.  The establishment spent so much time telling everyone what a disaster a vote to leave the EU would be economically that not surprisingly, in the immediate aftermath of the referendum, economic nervousness prevailed.  Bank of England (BoE) Governor, Mark Carney, was at the forefront of the dire warning brigade, as was the Chancellor of the Exchequer (Finance Minister), George Osborne who had suggested there would have to be an immediate increased austerity budget should Britain vote to leave the EU.  George Osborne is no longer Chancellor and his successor, Philip Hammond, does not seem to be considering drastic changes ahead.

To almost everyone’s surprise, the UK economy is yet to show much, if anything, in the way of a downturn after an initial stutter which we would put down to the ‘Project Fear’ Remain campaign.  Even so the BoE lowered interest rates ‘just in case’ as an economic stimulus in August and although it has kept them steady this month as the data so far has notGovernor  supported the necessity of a further cut, Carney is still forecasting the likelihood of an additional drop before the year-end – presumably taking the bank’s base rate down to zero percent – or very close, although his most recent statements have perhaps been slightly less negative.

Consider the data.  The stock market is up post Brexit, employment has risen, property prices appear to be on the rise again, we are still in a GDP growth phase, the latest Services PMI for August (i.e post Brexit) has shown the biggest month on month rise in its history;  the August manufacturing PMI also grew at the fastest rate in its 25 year history to 53.3 when the market had been expecting a contraction;  inflation has not yet taken off, despite the fall in the value of the pound sterling against the euro and the US dollar.  Indeed the pound seems to be just about the only sufferer so far from the Brexit vote, although this is a two-edged sword in that it makes UK exports more competitive, and boosts tourist spending as foreign currencies go further making the UK an even more attractive destination.

Now Carney, the BoE  and the other Brexit naysayers will warn that this is a phony temporary outcome.  Inflation is almost certainly going to increase as lower sterling means higher costs of imports and if that starts filtering through to consumer spending we could well see difficult times ahead.  It is early days yet, and the UK is still in the EU so the real exit fallout is perhaps still two years or more away.  But so far the figures have confounded virtually all the ‘expert’ predictions and perhaps they will continue to do so when some of the potential positives of Brexit are at last taken into account.

However, this doesn’t stop the Brexit doom and gloom merchants from still trying to talk things down in order to justify their dire predictions – and Carney and the BoE are among these and thus may yet decide to cut rates again whether the data really justifies this or not.  Conversely the U.S. Fed may well raise rates to pursue the so-called legitimacy of its own forecasts.  That’s what happens in global economics and politics.  The experts and the establishment hate to be seen to be wrong and will often follow their pre-conceived paths regardless with no thought for the general public and the investment community if it may affect them adversely in the process.

What is doubly worrying is that this same analysis may well apply throughout the global political arena – even down to going to war!  Once national leaders are set on a particular path they tend to continue regardless, even though intelligence data may change and not ultimately support their decisions.  One might argue that the Iraq wars and the interventions in Afghanistan, Libya and Syria have indeed followed this kind of route with no planning or perception of the potential consequences, not only for the combatants, but probably even more importantly for the domestic populations of those nations. They just create a power vacuum allowing extremist organisations to take control, if not of the whole country, but large swathes of it.

NATO could find itself embroiled in something similar in the Ukraine when it could talk itself into lining up against Russia – altogether a different, and far more alarming, confrontation for all concerned.  But it’s too easy for what starts as combative rhetoric to lead to an ultimate nightmare scenario with neither side willing to back down for fear of losing face.

But that’s something of a digression, albeit an alarming one.  Both the U.S. Fed and the BoE, and perhaps the European Central Bank too, could be talking themselves into economic policies which are to the ultimate detriment of their own domestic communities and will likely also adversely impact the world’s emerging economies.  Arguably the Bank of Japan has already accomplished this having implemented policies which have driven this key economic and industrial powerhouse into years of average zero growth.

But until we hear the results of the FOMC deliberations before the end of this week, precious metals and equities may remain volatile – even with the week-long moratorium on Fedspeak ahead of the meeting so there won’t be FOMC participants muddying the waters with their conflicting statements.  If, as most expect, there’s no decision on rates this time, the markets may breathe a collective sigh of relief up until the weeks ahead of the December FOMC meeting when we’ll see this all play out again.

The above article is an updated and edited version of one which first appeared on the Sharps Pixley website last week

Gold Reacts to Jobs Report – What’s Next? – The Holmes SWOT

By Frank Holmes, CEO and Chief Investment Officer for US Global Investors

Strengths

  • The best performing precious metal for the week was platinum, which recorded a slight loss of 0.24 percent after falling on Friday in sympathy with the pullback in precious metal prices.
  • The Austrian Mint had its third best year on record in 2015, according to its annual gold sales report, showing 756,200 troy ounces of Vienna Philharmonic gold coins sold. Although the bulk of sales are to Austrians, the report is used as a barometer for overall European and global physical gold demand. Sales of silver coins have also seen positive market reaction, with sales of the Perth Mint’s 2016 Australian Kangaroo coins surging to 10 million coins, when expectations were just 5 million for the year, reports GoldCore. According to Bloomberg, investors also amassed the most silver on record in exchange traded funds in July.
  • The Bank of England cut key rates this week for the first time in seven years, sending gold higher on the news. The yellow metal also moved in reaction to details of a stimulus package in Japan, reaching a three-week high before the release of the U.S. jobs report on Friday. BullionVault reported that its Gold Investor Index (which measures a balance of client buyers to sellers) rebounded from an eight-month low this week, rising to 53.4 versus 51.4.

Weaknesses

  • The worst performing precious metal for the week was silver with a loss of 3.10 percent. Relative to the 1.14 percent pullback in gold, the move was about as expected.
  • Gold declined from its highest level in more than two weeks as the U.S. jobs report came out much better than expected on Friday. According to Deutsche Bank’s GDP growth model, the bank’s economists were expecting a much slower pace of job additions, around 150,000 in July, when in reality the U.S. created 255,000 jobs last month. Most economists are modeling the expected jobs number off relative GDP levels and they have come in below expectations for the second quarter, thus they were expecting the jobs number to fall too.
  • Indian gold demand continues to slow, according to analysts at Desjardins. Gold imports fell for a sixth consecutive month, with purchases slumping 77 percent to 22 tonnes in July from this time last year. One explanation could be the surge in gold price by 29 percent so far in 2016. “Customers are staying away, as they feel these prices are too high and they are waiting for a correction,” said Bachhraj Bamalwa, a director at the All India Gems & Jewelry Trade Federation.

Opportunities

  • HSBC has a positive outlook for silver in 2017, according to its latest Global Commodities report. In regards to supply and demand of the metal, the group notes that one side of the equation is anticipated to remain consistent while the other is expected to rise, reports ValueWalk. Francisco Blanch of Bank of America Merrill Lynch says that investing in gold right now makes sense for two important reasons. Not only does gold make an attractive investment when one-quarter of global bonds are offering negative yields, he told Bloomberg News, but gold’s carry costs are even lower compared to some currencies. “The negative carry on gold is actually smaller than the negative carry on, say, the euro or some other currencies,” Blanch explains.
  • Barclays points out that inflows into precious metals in 2016 have topped previous records for the amount of money flowing into exchange-traded products featuring precious metals. Just in the last two months, nearly $8 billion has poured into these products, bringing the tally for the first seven months of the year to $50.8 billion. As the chart below illustrates, gold’s returns have dominated other asset classes and done so with less volatility than Treasury bills and just slightly more volatility than the S&P 500 Index. Note that volatility is graphically represented by the size of the circles.

swotaug8

  • Dovish central bank policies by the Federal Reserve, the Bank of Japan and the Bank of England are lending support to gold, says UBS. The group says that, overall, the regime has not changed, and as such, the macro story for gold remains intact, noting that bouts of weakness are potential buying opportunities. The report reads: “Weaker growth outlook and lower real yields—especially with potential tolerance for inflation to overshoot—in a sense reinforce the themes that have driven investors towards gold this year.”

Threats

  • “We take the seemingly unpopular view, and contend that gold has already seen its 2016 peak,” said Christopher Louney, commodity strategist for RBC Capital Markets. In a report released by RBC last week, Louney notes that investors should be cognizant of just how much/little runway remains for gold appetite, reports Bloomberg, especially since its rally has stemmed almost entirely by investor demand. He does not see the metal moving significantly higher, at least not absent another significant risk-off event.
  • Japan’s Government Pension Investment Fund, the world’s largest retirement savings pool, lost $50 billion last year, reports ValueWalk. A root of the issue stems from Prime Minister Abe’s redirection of the country’s financial assets from Japanese bonds to equities, searching for higher returns. The markets that Abe said would go up declined instead, and now the fund’s plans include buying junk bonds and emerging market debt. The bottom line is, the fund now pays out to retirees more than it takes in, the article continues.
  • Alan Greenspan says we’re seeing the early stages of inflation, Bloomberg reports, noting things like slow productivity around the world, a pickup in wages and a pickup in money supply. Greenspan said the U.S. won’t be able to pay for entitlements, pushing the idea that the economy won’t be able to recover until politicians deal with the issue. He added that it’s crowding out and scaring off investment.

Gold and silver prices in positive run

Gold TodayGold closed in New York at $1,353.30 on Monday after Friday’s close at $1,353.30.  

    • The $: € was down at $1.1197 from $1.1175.
    • The dollar index fell to 95.42 from 95.64 Monday.
    • The Yen was stronger at 101.69 from Monday’s 102.20 against the dollar.
    • The Yuan was stronger at 6.6358 from 6.6415 Monday.

 

  • The Pound Sterling was stronger at $1.3231 up from Monday’s $1.3179.

 

Yuan Gold Fix

Trade Date Contract Benchmark Price AM Benchmark Price PM
2016  08  2

2016  08  1

SHAU

SHAU

288.69

288.65

289.32

287.95

Dollar equivalent @ $1: 6.6358

$1: 6.6415

$1,353.15

$1,351.84

$1,356.11

$1,348.53

Shanghai prices took New York’s close higher still and London even higher.

We are seeing the Yuan strengthen against the U.S. dollar but staying in line with other currencies. The People’s Bank of China is not focused on the dollar but on the broad basket of currencies of its trading partners. The PBoC wants a stable to weakening Yuan and that despite what level the dollar will reach at some point this year.

We previously mentioned that the Yuan would weaken against the dollar to bring it into line with other global currencies against which the dollar had risen. But now that the dollar itself is weakening we are lowering our sights on where the Yuan will be by year’s end. We see it stronger than 7.00 to the dollar [weaker means more Yuan to the dollar] by year’s end.

LBMA price setting:  $1,358.15 after Monday 1st August’s $1,348.85.

The gold price in the euro was set at €1,212.63 up €4.42 from Monday’s €1,208.21.

Ahead of the opening in New York the gold price stood at $1,357.50 and in the euro at €1,212.81.  

Silver Today –The silver price closed in New York at $20.43 on Monday up from $20.34 on Friday.  Ahead of New York’s opening the price was trading at $20.68.

Price Drivers

Ahead of Thursday’s expected rate cut in the U.K. [and likely more QE] we have the announcement from the Japanese government we expected to come and mentioned yesterday. $273 Billion worth of stimuli! The details will follow. And yet we are seeing the Yen continuing to strengthen towards 100 and possibly lower in the days ahead.

It is clear that the Bank of Japan has come to the end of its road and that the government must step up to the plate now. Its demographics are against it as is the age of its population. Disinclined to spend and focussed on less spending, not more, as it ages, the population will not run out to support growth. The Abe government seems to be facing an intractable situation, worse than, but similar to, many other countries in the developed world.

After years of efforts to combat deflation, many now believe that the current round of stimuli will not change the picture of the deflating Japanese economy.

Gold ETFs – In New York on Monday there were purchases of 5.937 tonnes bought into the SPDR gold ETF (GLD) and a purchase of 0.51 of a tonne into the Gold Trust (IAU) leaving their holdings at 964.032 tonnes and 219.70 tonnes, respectively.

The U.S. buying of physical gold via the U.S. based gold ETFs has begun again in earnest. If it continues at this rate gold and silver prices will move through overhead resistance!

Since January 4th this year, the holdings of these two gold ETFs have risen by 386.117 tonnes.

Silver –Silver prices are consolidating alongside gold and at the same pace today. Tomorrow may see it resume its characteristic vigor. The market has a positive tone.

Julian D.W. Phillips

GoldForecaster.com | SilverForecaster.com | StockBridge Management Alliance [Gold Storage geared to avoid its confiscation]

Gold and silver react to US Fed & BoJ

Gold TodayGold closed in New York at $1,341.40 on Wednesday after Tuesday’s close at $1,319.80.  

    • The $: € was down at $1.1084 from $1.0991.
    • The dollar index fell to 96.54 from 97.29 Wednesday.
    • The Yen was stronger at 104.68 from Wednesday’s 105.64 against the dollar.
    • The Yuan was stronger at 6.6610 from 6.6709 Wednesday.

 

  • The Pound Sterling was stronger at $1.3178 up from Wednesday’s $1.3120.

 

Yuan Gold Fix

Trade Date Contract Benchmark Price AM Benchmark Price PM
2016  07  28

2016  07  27

SHAU

SHAU

286.93

283.34

287.55

283.17

Dollar equivalent @ $1: 6.6610

$1: 6.6709

$1,339.82

$1,321.09

$1,342.71

$1,320.30

Shanghai prices were on the same momentum track as New York, rising after the Fed statement. We expect the Bank of Japan to issue a statement ahead of New York’s Friday opening which could well have the same impact as the Fed’s statement on gold & silver prices.

We have watched and listened to the media’s fascination with Fed statements over the last few years and seen how the markets have been led by it. But with hindsight it is clear that the reality is that the Fed is following, not leading the data. When we look at that data there is little to inspire economic optimism and belief that rates are going to rise soon. The future, on the contrary, points to around a decade of very low interest rates as the global economy struggles with structural changes and a solid wave of deflation.

The desperate battle of exchange rates is dominating total returns and while emerging currencies yield good returns at the moment their exchange rates can become mercurial in a heartbeat, ensuring risk levels in the medium to long term remain heightened. We expect another episode in this story to unfold in the days not far ahead.

LBMA price setting:  $1,341.30 after Wednesday 27th July’s $1,321.25.

The gold price in the euro was set at €1,218.15 up €16.55 from Wednesday’s €1,201.60.

Ahead of the opening in New York the gold price stood at $1,342.35 and in the euro at €1,210.74.  

Silver Today –The silver price closed in New York at $20.38 on Wednesday up from $19.64 on Friday.  Ahead of New York’s opening the price was trading at $20.37.

Price Drivers

The report from the Fed was positive on the U.S. economy but not so positive as to indicate September could see a rate hike. Why not? Most U.S. observers are riveted on the U.S. economy in isolation from the rest of the world. But that is myopic. The Fed has made it clear that the global economy does affect the U.S. economy.  The dollar exchange rate does affect the U.S. economy and cannot be ignored or removed from the formula that defines when a rate hike will occur.

The monetary system is under stress reflecting deep ailments [Japan, Italy, Brexit, low growth, burgeoning debt] and the Fed is quite right to bring these into their formulae for rate hike decisions. Gold and silver prices barely reflect these ailments. Should these weaknesses burst upon the global economy [and we cannot see reasons why they shouldn’t] , we will not only see very different global financial markets but a structurally different approach to precious metals.

The Fed’s announcement produced the reaction we expected and tomorrow’s Bank of Japan will likely extend this reaction.

Gold ETFs – In New York on Thursday there were no sales or purchases into or out of the SPDR gold ETF (GLD) or the Gold Trust (IAU) leaving their holdings at 954.235 tonnes and 217.99 tonnes, respectively.

We are starting to hear well-respected investment advisors recommending increasing the percentage of gold held in portfolios from 10% to 25%. To us this signifies recognition of the depth of global financial market changes that lie ahead of the world.

Silver –Silver prices showed the potential for running ahead of gold as they jumped 4% yesterday against gold’s 1.5%. But all silver price movements rely on gold leading the way, both up and down. Such price movements do not reflect the fundamentals of the silver market, only the relationship to gold prices.

Julian D.W. Phillips

GoldForecaster.com | SilverForecaster.com | StockBridge Management Alliance [Gold Storage geared to avoid its confiscation]

 

Another significant sale from GLD – but gold price little moved.

Gold TodayGold closed in New York at $1,319.80 on Tuesday after Monday’s close at $1,314.10.  

    • The $: € was down at $1.0991 up from $1.007.
    • The dollar index rose to 97.29 from 97.03 Tuesday.
    • The Yen was weaker at 105.64 from Tuesday’s 104.13 against the dollar.
    • The Yuan was stronger at 6.6709 from 6.6754 Tuesday.

 

  • The Pound Sterling was weaker at $1.3120 down from Tuesday’s $1.3081.

 

Yuan Gold Fix

Trade Date Contract Benchmark Price AM Benchmark Price PM
2016  07  27

2016  07  26

SHAU

SHAU

283.34

283.84

283.17

283.71

Dollar equivalent @ $1: 6.6709

$1: 6.6786

$1,321.09

$1,322.53

$1,320.30

$1,321.92

Shanghai prices were in line with New York’s close and London held it at the same level adjusting for a slight exchange rate change.

With China the world’s largest gold producer [450 tonnes] and the Shanghai Gold Exchange the largest global gold market, we expect to see its influence over the gold price rise substantially, unless it is in the interests of the P.B. of C. to hold prices around the levels seen in London and New York. The P.B. of C. as the main counterparty is able to do that.

On the supply side we must factor into the long term picture the fall off in exploration and development in the gold mining industry.  This will impact production over the long term. If the gold price goes higher, gold miners increase their reserves as the break-even point falls. This usually leads to a fall-off in production as lower grade ore moves through the mills.

LBMA price setting:  $1,320.80 after Tuesday 26th July’s $1,321.25.

The gold price in the euro was set at €1,201.60 up €0.46 from Monday’s €1,201.14.

Ahead of the opening in New York the gold price stood at $1,319.80 and in the euro at €1,200.80.  

Silver Today –The silver price closed in New York at $19.64 on Tuesday up from $19.51 on Friday.  Ahead of New York’s opening the price was trading at $19.60.

Price Drivers

Not only is the FOMC meeting under way but the markets are expecting an announcement from the Bank of Japan shortly, telling us that they will add more stimuli to their economy. We have no doubt that the BoJ is hoping this will weaken the Yen as well as make another attempt to contain structural deflation in the country. We expect both central banks announcements to be good for gold and silver.

However, we may have to wait until the Fed announcement before we see them react.

Gold ETFs – In New York on Wednesday there were sales of 4.453 tonnes of gold from the SPDR gold ETF (GLD), but no purchases or sales into or from the Gold Trust(IAU), leaving their holdings at 954.235 tonnes and 217.99 tonnes, respectively.

This sale, the second in two days at a similar level should have been enough to hurt the gold price as the first one did, but it didn’t. This is a positive sign, particularly because it is the SPDR gold ETF which is the main driver of the gold price at the moment.

Clearly, as we enter August the proximity of the ‘gold season’, the rising demand potential from India and the ongoing macro-economic problems, worldwide are causing the gold price to hold above $1,300. Add this week’s central bank statements and we expect more potential for a gold price rise than a fall. Once a rise begins, we expect gold ETF demand to resume.

Since January 4th this year, the holdings of these two gold ETFs have risen by 374.61 tonnes.

Silver –Silver prices could have a quiet time today, until gold leads the way again.

Julian D.W. Phillips

GoldForecaster.com | SilverForecaster.com | StockBridge Management Alliance [Gold Storage geared to avoid its confiscation]

Gold attacks $1,300 again but falls back. Big purchase into GLD

Gold TodayGold closed in New York at $1,290.00 up from $1,268.10 on Thursday. On Monday morning in Asia it rose to $1,300.00, as the dollar weakened heavily and before the LBMA price setting in London.

LBMA price setting:  $1,296.50 up from Friday’s $1,274.50.

Yuan Gold Fix

Trade Date Contract Benchmark Price AM Benchmark Price PM
2016  05  3

2016  04  29

SHAU

SHAU

269.80

265.25

269.06

265.54

Dollar equivalent @ $1: 6.4804

$1: 6.4798

$1,294.94

$1,270.77

$1,291.39

$1,272.11

The Shanghai Gold Fixings today again show a real rise in the price of physical gold as the number of the Yuan in dollars rose [weakened]. But a significant weakening of the dollar helped the gold price rise to $1,300. The rise in the gold price held in London ahead of the LBMA gold price setting.

Once again the gold price has highlighted the strength of gold in all currencies. It also highlighted the weakness of the dollar and helped investors to see more clearly the impact of increased physical demand for gold as well as just how much currency weakness is reflected in the dollar gold price.

The dollar index is lower today, at 92.50 down from Friday’s 93.88. The dollar is weaker against the euro at $1.1552 from Friday’s $1.1400.

The gold price in the euro was set at €1,122.32 up from Friday’s €1,118.18.

Ahead of New York’s opening, the gold price was trading at $1,297.30 and in the euro at €1,123.00.  But after New York opened it failed to hold the $1,290 level

Silver Today –The silver price closed in New York on Friday lower at $17.51 down from Thursday’s $17.60. Ahead of New York’s opening the silver price stood at $17.58, but along with gold retreated after New York opened.

Price Drivers

Once again, we have seen gold rise in all currencies, but in particular in the significant weakening of the U.S. dollar and continuing demand for physical gold globally. The Technical picture for both gold and silver continues to look positive. The gold price will fight a battle with stale bulls around $1,300, but this may not be a long battle.

Quite rightly, Mario Draghi of the E.C.B. scolded Germany’s passing the blame for poor treatment of savers in Germany on low interest rates coming out of the ECB. He stated that long overdue structural reforms need to be taken to release pent-up growth in Germany. In other words he said the finger pointed at the E.C.B. has three fingers pointed back at the German government. With the dollar falling against the euro, growth in the E.U. will weaken as its competitive devaluation is stymied. After 8 years of relative inaction on reforms, now is the time to act. But will they?

But we cannot ‘blame’ an individual factor for lack of growth. The wave of deflation sweeping across the world is catching all nations. We are watching, not a battle to increase inflation [which is rising] but a battle to stave off deflation. Close to zero growth is testament to the progress in that battle.

The nation fighting the hardest battle is Japan. While it is expected to soon intervene in the currency market to weaken the Yen, the agreement of the G-20 not to manipulate currencies seems to have gone by the wayside. It is negated by the concept that the agreement holds, provided it does not cause a weakening of international trade advantages. The Yen has swung from 76 to the dollar to 122 to the dollar and now is strengthening through 108 to the dollar.

With growth in China around 6% we have to note that such growth is the equivalent of adding the entire GDP of Belgium annually to the Chinese economy. Such levels have to drop as the Chinese economy grows.

Gold ETFs – Friday saw huge purchases of 20.803 tonnes of gold into the SPDR gold ETF and 0.75 of a tonne into the Gold Trust. This leaves their holdings at 824.943 and 188.31 tonnes in the SPDR & Gold Trust, respectively.  

This is the largest purchase we have seen into the SPDR gold ETF since the 18 tonne purchase when gold was at $1150 the turning point for gold to the uptrend.

Silver – The Silver price has been marking time while gold rose over the weekend, so we expect to see a ‘shunt’ effect on the silver price today.

Julian D.W. Phillips

GoldForecaster.com | SilverForecaster.com | StockBridge Management Alliance

SGE benchmark takes gold price higher overnight

Article first published on news.sharpspixley.com 

There will be arguments as to which came first – the overnight rise in gold price on global after-hours markets, or the Shanghai Gold Exchange (SGE) pm fix – but the latest SGE figure of CNY 261.88 was at the higher end of trading being equivalent to around US$1,258 at the current CNY/USD exchange rate.  Whether the SGE gold fix is leading, or following, the general price trend is thus open to question.  But perhaps the principal driver of the overnight rise in the gold price will have been the fall in the US dollar, with the Japanese central bank keeping its monetary policy steady at its latest meeting.  The Japanese yen thus rose around 2% against the US dollar, which has a significant impact on the US Dollar Index, which fell around two-thirds of a percent.

Needless to say, though, the move above the $1,250 level, which had been strongly resisted on the U.S. and London spot markets yesterday, was breached in the overnight trade.  The CNY price differential between the am and pm ‘fixes’ in Shanghai was around 0.7%.  The big question is can gold retain these kinds of levels, or even mover higher?  (At the time of writing the spot price is sitting at a little over the $1,257 level).  Or will it be brought down again by the big players on the futures markets who could have a lot to lose should the gold price surge higher in having to unwind some big short positions?

Today’s trading will be interesting.  The statement out of the FOMC yesterday was pretty non-committal with the latest deliberations suggesting no further interest rate imposition until later in the year – perhaps even not until Q3 or Q4 – although this was hardly unexpected.  Followers of Fedspeak noted that the latest statement made no mention of the possible adverse effects of a US$ rate rise on the global economy, and particularly on emerging markets, which could have an adverse impact on the US economy.  But as usual the Fed was marginally positive on U.S. economic growth, although its forecasting record on this has not been particularly impressive in the past.

Overall it looks as though the very low interest rate scenario will continue, at least for the remainder of the year, which in effect keeps them in negative territory in real terms.  Coupled with negative and zero interest rates throughout much of the rest of the world, all this remains positive for gold in the short to medium term, and probably into 2017 at least.  To counter this GFMS reports gold demand fell to its lowest level for 7 years in Q1, primarily due to weak Asian demand.  Indian demand fell ahead of anticipated positive changes in the tax position on gold in the budget – which did not materialise, and subsequently led to a jewellers’ strike which will also have depressed Q2 demand.  Chinese demand was also down – some of which will have been due to the timing of the Chinese New Year.  Chinese demand has been reported as picking up of late.  However GFMS sees gold falling back to below $1,200 in the short to medium term, but remain above cyclical lows.  So far the gold price has not been co-operative!

Falling greenback boosts dollar gold and silver prices!  

Gold TodayGold closed in New York at $1,247.30 up from $1,239.40 on Wednesday. On Thursday morning in Asia it rose to $1,258, after the dollar weakened and before the LBMA price setting.

LBMA price setting:  $1,256.60 up from Wednesday’s $1,244.75.

Yuan Gold Fix

Trade Date Contract Benchmark Price AM Benchmark Price PM
2016  04  28

2016  04  27

SHAU

SHAU

260.04

260.06

261.88

259.90

Dollar equivalent @ $1: 6.4798

$1: 6.5060

$1,248.21

$1,243.28

$1,257.04

$1,242.59

The Shanghai Gold Fixings are now showing just how currency moves are affecting the gold price. Overnight the dollar has weakened in a host of currencies including the Yuan. Please note that this rise in the gold price is not Yuan strength but dollar weakening. As a result, while there were only slight moves inside China in the Yuan gold Price, in dollar terms the moves were compounded by the weak dollar.

International investors should note that the same is true in their own currencies. Outside of the U.S. it is not the dollar price that counts, but the gold price in their own currencies that counts!

We see the dollar’s bull market is over and this will be reflected in the dollar price of gold constantly. Gold always measures the value of currencies not the other way around!

The dollar index is lower today, at 93.88 down from Wednesday’s 94.39. The dollar is weaker against the euro at $1.1345 from Wednesday’s $1.1314.

The gold price in the euro was set at €1,100.19 down from Wednesday’s €1,100.19.

Ahead of New York’s opening, the gold price was trading at $1,255.50 and in the euro at €1,106.70.  

Silver Today –The silver price closed in New York higher at S17.28 on Wednesday up from Tuesday’s $17.21. Ahead of New York’s opening the silver price stood at $17.32.

Price Drivers

The Fed mentioned the improvement in labor numbers, despite a slowing in economic activity. This appears contradictory or does it indicate that labor number improvements are peaking in the U.S.? The Fed is data led, so we cannot draw any definitive conclusions from the statement.

The Fed may not have highlighted international vulnerabilities, but we would ascribe that more to the dollar being under control and either moving sideways or weakening, from now on. Nevertheless, it remains a prime concern.

Underpinning the global economy is not only artificial intelligence’s reduction of jobs globally at an accelerating pace, but the continuous shift of wealth and manufacturing to the east. This is barely mentioned in the media and is unlikely to slow, so long as wage and cost disparities between east and west continue.   

The undermining of dollar hegemony is adding to uncertainties. The crucial reason the dollar gained its position was that all had to pay for oil with U.S. dollars. Now it is reported that not only will China have a Yuan oil contract in Shanghai, but Russia is finalizing a Ruble oil market. The biggest supplier and the future biggest user of oil, will impact the use of the dollar.

The process of less use of the dollar may well not be a short term happening, but over time it will structurally change the monetary world and gold and silver will benefit considerably.

Gold ETFs – Yesterday saw no sales or purchases of gold to or from the SPDR gold ETF and the Gold Trust. This leaves their holdings at 802.654 and 187.56 tonnes in the SPDR & Gold Trust respectively.  

Silver – The silver price will continue to show robust behavior but following gold directionally. It promises to outperform gold in the future.

Julian D.W. Phillips

GoldForecaster.com | SilverForecaster.com | StockBridge Management Alliance

Try a $99 trial subscription and gain immediate access to the latest weekly Gold Forecaster Newsletter!