Gold not allowed to close the week above $1,350.

My latest article on the Sharps Pixley website looks at gold’s performance over the past week with it affected positively and negatively by conflicting statements on U.S. policy on the dollar at the World Economic Forum in Davos, but culminating in gold being held marginally below the psychologically important $1,350 level at the week’s end through activity in the gold futures and currency markets.

With potentially conflicting comments re. the weakness of otherwise of The U.S. dollar from U.S. Treasury Secretary Steve Mnuchin and President Trump, the gold market didn’t know which way to run.  Mnuchin had to backtrack, but not particularly convincingly, on his weaker dollar being beneficial to the U.S. economy statement lest he be accused of talking the dollar down in conflict with U.S. assurances that it would not do so.  President Trump’s Davos statement suggested he was in favour of a stronger dollar, contrary to his earlier position on the currency, and following this the dollar rose, and gold fell on Thursday.  But then the former reverted to lower levels in Friday afternoon trade in the U.S. and gold rose back above $1,350 before activity in the futures markets  and gentle dollar support brought gold back to heel and the yellow metal ended the week a fraction under the key $1,350 level.

To an impartial (relatively) external observer of the market the gold price did appear to be trying to rebound back above $1,350 but kept being knocked back again.  Whether it can build sufficient momentum to breach the $1,350 level permanently next week remains to be seen, but one suspects it will do so barring any major adverse news or data.

So far this year precious metals have all done well as Nick Laird’s bar chart from www.goldchartsrus.com shows (below).  The bar chart shows the relative performances of the four major precious metals, the HUI (the NYSE ARCA Gold Bugs index) and Nick’s Silver 7 index tracking seven major silver stocks and the stock indices have generally outperformed the metals which are their key drivers.  As can be seen platinum is by far the best performer year to date, but all have done pretty well given the year is only just over 3 weeks old.  We suspect that Silver and the Silver 7 Index will ultimately outperform the others – however we would have said that in 2017 too – and ever-unpredictable silver ended the year as performing far more poorly than gold, and particularly palladium which was far and away one of the best assets of any type to hold last year.

As readers of my writings here will know I am anticipating precious metals to do well this year – except perhaps palladium which may have risen too far too fast in 2017.  But I don’t anticipate any of them doing spectacularly well with rises pretty much in line with gold’s 2017 performance (See:Precious metals price predictions for 2018 – gold, silver, pgms, but this year stocks may comfortably well outperform the metals assuming the general trajectory for both is upwards.  The key may well be dollar strength and if the Trump Administration sees exports picking up, and imports falling, due to a weaker dollar, then the engineered decline in the dollar index may be allowed, or even encouraged,  to continue.  This process may well be mitigated though by similar effective currency devaluations among competitor nations or areas as others seek to contain any competitive disadvantage with their own export businesses.

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Will lower growth weaken the dollar (and boost gold)?

The New York gold price closed Thursday at $1,114.50 down from $1.125.80 down $11.30. In Asia on Thursday, it lifted it to $1,115.55 ahead of London’s opening and then the LBMA set it at $1,112.90 down from $1,119.00 with the dollar index up at 99.08 up from 98.85 Thursday. The euro was up at $1.0918 up slightly from $1.0910 against the dollar. The gold price in the euro was set at €1,019.33 down from €1,025.66. Ahead of New York’s opening, the gold price was trading at $1,115.90 and in the euro at €1,022.07.  

The silver price in New York closed at $14.24 down 24 cents at Thursday’s close.  Ahead of New York’s opening, the silver price stood at $14.25.

Price Drivers

Wednesday saw no purchases or sales to or from the SPDR gold ETF but a purchase of 1.40 tonnes into the Gold Trust. The holdings of the SPDR gold ETF are now at 669.229 tonnes and at 166.45 tonnes in the Gold Trust. We expect the gold price try to climb in consolidation mode, today.

Today sees a slew of data from the U.S. GDP to the E.U. inflation rate. For gold and silver investors the importance of these lies in their impact on the exchange rates of the dollar and the euro. We constantly get bombarded with new statistics trying to give us the impression that all is well in the developed world but certain realities come through.

Today, so far we have seen Japan desperately attempting to engineer inflation to 2% using negative interest rates to do so. We see this type of inflation damaging the credibility of the Yen, already no longer a ‘safe haven’ because of the treatment it has received to date. The euro likewise is under attack with hints at more stimuli on the way.

It seems unfashionable to say this but central banks can only influence monetary policy and not engineer growth. This is the job of government using fiscal resources and structural reform as well as doing what they can to assist the consumer on the ground with improvements to his job security, value of his house and putting some disposable income in his pocket. At the moment it is only Saudi Arabia that is doing that for consumers all over the world.

But with U.S. economic growth declining in 2015 today may see economic growth drop to below 1% from nearly 4% at the start of last year. What happened to the recovery and the efforts  to boost it since 2008?

Will lower growth weaken the dollar? With the other globally leading currencies trying their best to fall, against what will the dollar fall? If so, this is gold positive.

Silver Silver should find a solid base today.

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

My articles on palladium and gold on Sharps Pixley and Biznews

As most readers of lawrieongold may already be aware I am now writing on precious metals for Sharps Pixley in London and Biznews in Johannesburg.  Links to my most recent posts on these websites follows:

Palladium no beneficiary of recent gold price rise

Latest SGE deliveries enormous: Physical gold may be nearing crunch point

Gold stock investors following the ‘wrong dollar’

 

 

Gold dives again as dollar and stocks make a recovery

Another day and yet another episode in the great gold/markets/dollar/yuan saga.  While the Shanghai Composite Index fell another 1.3%, and Hong Kong’s Hang Seng Index was also down around 1%, Japan’s Nikkei and European and American markets were all picking up strongly after a week of almost continual red ink and some better US consumer confidence figures.  However markets are extremely volatile at the moment – take yesterday’s activity in the Dow swinging from a strong upturn at the opening and through most of the day before swinging into a complete reversal at the end, falling over 200 points by the day’s end.

The latest moves were because of, or in spite of in respect to the Chinese and Hong Kong markets, the Peoples Bank of China (PBoC) announcing a twin pronged easing in lowering interest rates and raising the reserve requirement ratio for most of the major banks.

With the dollar rising fairly sharply after several days of decline, gold has been the major sufferer with what looks like the gold bears taking advantage of a perceived hole in the yellow metals’ armour and driving the price down below $1120 – a level last seen over a week ago – before making something of a recovery as the day has progressed.  But in the current markets it looks like anything could happen – they appear to be totally unpredictable at the moment.  One suspects markets will remain extremely volatile in the days and weeks to come as banks, funds and investors digest moves and counter moves by the globe’s big economic players.

Some might say forewarned should be forearmed and there had been forecasts from as long as three years ago (See:  What China is really doing to rebalance. All not as generally perceived) that China was in the process of planning a virtually total reboot of its economy from being export driven to a domestic consumer society and that this process might be an extremely painful one domestically – as it has proven to be already.  However the key is perhaps employment levels and a big resultant rise in unemployment may cause panic buttons to be hit.   Interestingly the Chinese had been promoting gold and silver investment to its ever growing middle class populace as being perhaps a safer haven against the coming internal financial upheavals and despite gold’s lacklustre performance over the past four years, the recent stock market downturns may have reinforced the metal’s comparative safety.

But the Chinese stock market collapses have generated fear outside China that the same could happen elsewhere, and the Dow and S&Ps falls this year – and the huge downturns of last week and early this – may have brought this lesson home.  In China the seemingly inexorable stock market rise which preceded the massive downswing was drawing the gambling Chinese into the markets as though they could not go wrong.  Much of this money going into the markets was reportedly on margin which means the falls made investors doubly vulnerable and the falls may not have ended yet despite moves by the PBoC to prop things up.

But surely American investors should be learning from the Chinese debacle – but it seems not.  Here again much of the growth has been built on margin which accounts for a lot of the fear which is currently striking the markets.  Investors need to be wary that the apparent recovery today, could like yesterday’s, be shortlived.

Paradoxically one would have thought that gold might have benefited through its potential safe haven appeal.  While the withdrawals from the big ETFs seem to have ceased, at least for the moment – indeed we have been seeing inflows again – the price has still fallen back from its recent surge level.  ABN Amro analysts put this down to gold more and more being seen as a speculative investment which runs counter to its previous safe haven status and is thus as vulnerable to  almost as big fluctuations as the markets.

But while China is rebooting its economy, with the painful consequences noted, it is also almost desperate to have the yuan included in the IMF’s SDR to confirm its status as a potential reserve currency, and moves intended to assist this may also be seen as a sign of the weakening of the massive Chinese economy.  Add these two factors together and the effect can be dramatic as we have seen in the Chinese and Hong Kong stock markets in particular.  And nowadays what happens in one part of the world is almost inextricably tied to markets elsewhere.  Markets do not operate in a domestic vacuum any longer.

So what happens next?  Is the recovery in Western markets sustainable.  We’re not sure.  The dollar resurgence could prompt further devaluation of the yuan and given it was perhaps the initial yuan devaluation which initiated the big recent falls, a further such move could possibly see it all happen over again.  Maybe it’s worth staying out of the stock market for the moment.  The long predicted crash has already happened in China and arguably may have begun also in the Americas and Japan.  We wouldn’t like to take odds against further big falls being in the offing and if so investor panic. Coupled with algorithmic trading, could drive them into freefall.

Speculators try to drive gold down as Euro weakens

Julian Phillips sees the clashing of the US and Chinese tectonic plates re currencies ahead.  What will be the impact on gold?

New York closed Wednesday at $1,210.20 down $15.10 over Tuesday’s close. Asia took it up a dollar this morning and London held it there. The LBMA Gold price was set at $1,209.60 down $10.05 over Wednesday’s level. The euro equivalent stood at €1,089.12 down €3.70 while the dollar was stronger and the euro weaker at $1.1142 down from $1.1198 against the euro. Ahead of New York’s opening, gold was trading lower in London at $1,209.50 and in the euro at €1,085.92.

The silver price closed at $17.12 down a large 56 cents over Tuesday’s level. Ahead of New York’s opening it was trading at $17.17.

Yesterday saw sales of 2.983 tonnes of gold from the SPDR Gold ETF, after no sales on Tuesday when the gold price fell so hard.  No movement has been seen in the Gold Trust for the last two days. The holdings of the SPDR gold ETF are at 715.260 tonnes and at 166.14 tonnes in the Gold Trust.  These sales are the same amount as we have seen from time to time in the last month and indicate that it is a trader who is trying to follow the Technical picture.

The gold market continues to move because of currency issues. For instance, yesterday saw speculators once again try to drive gold down as the euro weakened and succeeded. In doing so, they hoped that the fall through the 100 and 200 day moving averages would trigger stop loss selling, but the fall halted yesterday and then turned up slightly. We have been seeing similar pressures on gold today.  Asian demand does not like it when prices move higher too fast and stand back until bottoms are tested, so ignoring the Technical picture, they will come in close to $1,200 as usual. In New York, it is becoming clear that the Technical picture is not working as it has in the past when chart patterns dictated future moves.

The dollar index is stronger at 95.35 up from Tuesday’s level of 94.88. The euro is stabilizing today at $1.1135 but has fallen from Tuesday’s $1.1190. ‘Brutal’ falls seen on Tuesday after the ECB said that they will increase QE in months when liquidity is low in holiday months make central banks unhappy, so the path to $1 on the euro will be extended in a smooth manner, but we still expect it to happen as Draghi wants. It is unlikely that the U.S. will condone this as they are visibly suffering on the export front.  But what can they do? Will gold walk its own road then?

Often we think that governments and central banks just react to situations including on the financial front. Governments are full of intelligent well educated people who are constantly looking ahead and planning for potential situations. They are rarely caught by surprise. We are sure they have mapped out the future path of the dollar and its role in global finance.

Likewise, so have the Chinese. The two think differently from different viewpoints with different objectives. The Chinese want to quietly move into a strong global position with the Yuan and the dollar wishes to remain all powerful. The question we need answers to, concern the extent of the disturbance that will happen as events unfold. Will these two ‘tectonic plates’ of influence smooth transformation or will there be earthquakes and financial tsunamis. The first answers will come in the next ten days, and gold?

Please note, the Chinese have embraced gold!

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

Could 2015 be a most exciting year for gold and silver?

Julian Phillips’ intuitive understanding of what is driving the global gold and silver prices

We are starting to see the world’s markets synchronizing much more now than ever before. The statement from Janet Yellen, Chairlady of the Fed, that equity markets were high, set off alarm bells all over the world’s markets. She is aware that when prices of both bonds and equities are far ahead of prospective profits and being driven up by investors seeking yield and not prospects, they are vulnerable to a crash. Translated this means that markets are in ‘bubble’ territory. The subsequent sell off across the globe may well continue. Why did she make this statement? To us it is an attempt to pre-empt a major sell off once interest rates begin rising. The Fed’s greatest fear is that once they begin raising rates markets will overreact. So expect more of such statements.

This does not explain the $10 drop in gold in China or does it? Dealers lower prices if they expect to be met by sellers because of Janet Yellen’s comments, across the world. This marking down of prices could change in a heartbeat, once any potential selling is completed. But we must be careful not to see too much in these small moves, because Chinese demand will remain unabated.

Attempts to drive gold and silver prices down continue but have been frustrated by Asian demand. This frustration is likely to continue as west battles east on this subject, but once a clear direction is determined we could see 2015 producing one of gold and silver’s most exciting years.

Meanwhile, the dollar continued to slip this morning with the dollar index falling to 94.07 against yesterday’s 94.81, but then recovering some of the lost ground. Against the euro the dollar slipped to $1.1347 from yesterday’s $1.1233. There were no purchases or sales of gold into the SPDR gold E.T.F. but there were purchases into the Gold Trust of 0.56 of a tonne yesterday. The holdings of the SPDR gold ETF are still at 741.750 tonnes and at 166.14 tonnes in the Gold Trust.

The dollar’s fall and the rise of the euro is now not only because of the news on the U.S. Trade deficit but on Janet Yellen’s statements too. Foreign Treasury holders understood that a sell-off in U.S. markets would affect them on the dollar front too. This may well remove hopes of higher levels in both bond and equity markets in the foreseeable future?

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

China, the yuan, the dollar and gold. Where is it all heading?

Lawrie Williams
I have just published an article on Mineweb which looks a little more deeply at the possible impacts of the Chinese yuan becoming part of the IMF’s Special Drawing Right basket en route to it being acceptable as a global reserve currency. This seems to be China’s aim, but we don’t see how it can happen without some major currency structural changes, and these could have a very significant impact on the future of global trade and on gold and it could force China to announce the long awaited uprating of its gold reserve this year – as many have speculated it will.

We see any move to bring the yuan into the SDR basket as necessitating China decoupling the yuan from the US Dollar. The SDR basket is made up of a mix of currencies – the dollar, euro, pound sterling and yen, the idea being that between them this provides broad stability in the SDR’s value over time and that bringing in a currency which is tied to one of the others already in the basket would defeat the overall objective! Thus to participate in the SDR we suggest that China will have to drop the currency peg to the dollar and allow it to float freely.

See: What happens to gold when the yuan floats free of the dollar?

The ramifications of this are potentially far greater than the financial markets have probably been anticipating. They have been assuming that in order to add credibility to the Chinese currency’s entitlement for inclusion in the SDR that China will at long last announce a big increase in its gold reserve – some reckon this will be upped to at least second place among globally held gold reserves – there is even a suggestion that it could usurp the U.S.’s position as the world’s No. 1 gold holder, although most discount this. For it to have any effect on the IMFs deliberations, due to be entered into next month with the decision to be made by October, such an announcement would have to come within the next few months – perhaps as early as in the next few weeks.

But be this as it may it is the ramifications of a freely floating yuan that is perhaps most concerning to the current U.S. dominance in world trade. The yuan is seen as undervalued and if allowed to float could rise sharply against the dollar – or rather the dollar might be seen to fall sharply against the yuan. There has even been the suggestion that the recent strength in the dollar has actually been strength in the yuan, to which as noted the dollar is tied, in anticipation of the unpegging of the two currencies and subsequent revaluation of the latter.

This could all be seen as a prerequisite for the yuan to take its place as a – not the – global reserve currency. But another point we made in the Mineweb article is that once China has achieved the level of gold reserve it is comfortable with and is deemed necessary to cement the yuan’s place on the world stage, it has every incentive to intervene and allow gold to rise at a steady pace, given its past policy of persuading its citizens to buy precious metals. An increasingly wealthy middle class, given this sector of the population is growing so fast, would be both a way of ensuring its continuing popularity as well as a way of boosting the overall economy.

Whether any, or all, of this comes about we will have to wait and see – but we may not have to wait long.

Gold – down in dollars but up in Euros

Julian Phillips commentary for today on movements in the gold and silver markets and their respective price drivers.

Gold

New York closed yesterday at $1,166.90 up $1.20 in a thin market but with more heavy ETF sales, but still dominated by currency issues. Asia took the gold price down to $1,158.00 before London opened. London then Fixed the gold price at $1,161.00 down $13.75 and in the euro, at €1,079.398 up €1.426, while the euro was at $1.0756, down another one and a quarter cents. Ahead of New York’s opening, gold was trading in London at $1,164.00 and in the euro at €1,083.55.

Silver

The silver price closed at $15.79 down 8 cents. Ahead of New York’s opening it was trading at $15.75.

SPDR Gold ETF

There were sales of 3.284 tonnes of gold from the SPDR gold ETF and of 0.6 of a tonne from the Gold Trust on Monday. The holdings of the SPDR gold ETF are at 753.037 tonnes and at 164.86 tonnes in the Gold Trust.  Once again the ETF sales dominated as the euro continued to fall and the dollar to surge up to 98.38, up from 96.80 last week.

The euro continues to tumble as it sits at $1.0742 and headed lower, currently taking gold down with it. As you see gold is now rising in the euro and falling in the dollar.

With financial markets closed to it and the Greek central bank keeping its banks on a tight leash, the Greek treasury could face a cash crunch in one, two or three weeks. Greece won’t get any more cash from its €240 billion ($260 billion) rescue program until its official creditors are satisfied that the Greek Prime Minister is committed to all the economic fixes needed to meet its conditions. After the swagger of the government’s election are we watching Greece put firmly in its place? Or will they go to a referendum to get support for a Greek exit from the Eurozone? Or will they wait until they see funding finally halt and have to return to the Drachma. The issue is not off the table by any means. An exit, we feel will see a stronger euro.

There was little Asian demand for gold, despite bargain prices. Perhaps they are waiting for even better bargains. We see demand rising when a bottom is set in place. What is for sure is that Asian demand has not gone away.

Again we expect the next fortnight to continue to be a volatile one, in both currency and precious metal markets.

We see the silver price continuing to fall with gold but not at the same pace, we feel. Once Asian demand comes in we expect the silver price to recover quickly.

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