Global gold and silver prices rebounding

Gold Today –New York closed yesterday at $1,220.30. London opened at $1,222.15 today. 

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

         The $: € was stronger at $1.1402 after yesterday’s $1.1448: €1.

         The Dollar index was almost unchanged at 95.75 after yesterday’s 95.76

         The Yen was stronger at 113.03 after yesterday’s 113.36:$1. 

         The Yuan was stronger at 6.7821 after yesterday’s 6.7881: $1. 

         The Pound Sterling was stronger at $1.2927 after yesterday’s $1.2855: £1.

Yuan Gold Fix
Trade Date     Contract Benchmark Price AM 1 gm Benchmark Price PM 1 gm
      2017    7    13

     2017    7    12            

     2017    7    11

SHAU

SHAU

SHAU

/

268.39

267.30

Trading at 269.60

268.58

267.30

$ equivalent 1oz at 0.995 fineness

@    $1: 6.7821

       $1: 6.7995

       $1: 6.8034     

  /

$1,222.72

$1,217.03

Trading at $1,231.42

$1,223.59

$1,217.03

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 followed Shanghai higher yesterday leaving a $2.40 differential. Today, London turned higher, also following Shanghai but raising the differential to $9.27 from yesterday’s $7.

All global gold markets are seeing a rebound from the breakdown of the Technical picture from $1,250.  

Silver Today –Silver closed at $15.92 yesterday after $15.84 at New York’s close Monday.

LBMA price setting:  The LBMA gold price was set today at $1,221.40 from yesterday’s $1,219.40.  The gold price in the euro was set at €1,071.03 after yesterday’s €1.064.23.

Ahead of the opening of New York the gold price was trading at $1,220.80 and in the euro at €1,071.35. At the same time, the silver price was trading at $15.90. 

Price Drivers

The gold price is rebounding and not simply because it is a natural market move to do so. Janet Yellen’s comments yesterday in front of the Senate are playing a part. We expect more of the same from her today.

The Fed

Janet Yellen’s comments yesterday made it clear that the Fed wants a ‘neutral’ interest rate, neither higher than inflation nor lower. At the moment it is lower, but with inflation falling in the U.S. the Fed may well delay another rate hike beyond year’s end because they may  see ‘neutral’ rates without raising rates again this year. This has softened the dollar, which at one point nearly touched the point at which the dollar falls into a ‘bear’ market. We see that as coming very soon. It will benefit the dollar gold price.

The Gold Price

We do note that with demand and supply nearly in balance in London before the breakdown the sales over two weeks of 27 tonnes of physical gold into the London Market tipped that balance and the price fell.

What is important to understand about the gold price is that it does not reflect total demand and supply. For instance, in June, some reports suggest 220 tonnes of gold were sold into India (Although others suggest a much smaller 75 tonnes – Editor). This did not impact the gold price, because it did not go through the market. It was contracted and a price between the contractors was set against the afternoon price setting in London. It did not travel through the market. But sales from the SPDR cause the Custodian to unload that gold into the London market, which does affect the price. Essentially, the gold price is determined by  what is called the ‘marginal’ supply and demand, that is the unforeseen amount that are needed or got rid of in the market. Of course, this does not reflect total demand and supply and allows speculators considerably more pricing power than would be the case if all gold sales and purchases do go through the market.

In China there is an interbank market in gold, which operates off market, but the bulk of the physical gold bought and sold does go through the Shanghai  Exchange . With both an institutional and now a retail physical arbitrage market between London and Shanghai in operation Chinese and other international investors can affect price by dealing between the markets.

We believe that where gold is contracted between two parties they may  well find that the Shanghai Benchmark prices are more reflective of a truer gold price than the LBMA gold price settings and adjust the price they use to Shanghai’s in the future, as some exchanges are already doing.

Gold ETFs

Yesterday saw no sales or purchases from or into the SPDR gold ETF or the Gold Trust. The SPDR gold ETF and Gold Trust holdings are at 832.391 tonnes and at 211.41 tonnes respectively.

Julian D.W. Phillips 

GoldForecaster.com | StockBridge Management Alliance 

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Gold and silver on the back foot for now

Gold TodayGold closed in New York at $1,257.30 on Wednesday, from Tuesday’s $1,279.00, a fall of $21.70. On Thursday morning in Asia it fell to $1,254.00, after the minutes of the Fed were published yesterday and the dollar rebounded.

LBMA price setting:  $1,253.75 down from Wednesday’s $1,270.90.

Yuan Gold Fix

Trade Date Contract Benchmark Price AM Benchmark Price PM
2016  05  19

2016  04  18

SHAU

SHAU

265.15

268.71

264.47

268.15

Dollar equivalent @ $1: 6.5646

+$1: 6.5540

$1,256.30

$1,275.22

$1,253.08

$1,272.57

None of the main global gold markets dominated the others as they all moved with the dollar. As you can see from the above, the fall in the Yuan was far less than that of New York or London as the Yuan continued to show weakness, softening the fall in the Yuan. The fall was most clearly seen in the dollar which has risen strongly in the last two days.

The trading pattern of gold is reflecting exchange rates and not so much the balance of supply and demand for gold. This is what gold should do, but with the influence of dealers moving prices down in the expectation of sellers, the price does exaggerate its moves, as a measure of value, to some extent.

The dollar index is almost up strongly at 95.36, up from yesterday’s 94.83. The dollar is also stronger against the euro at $1.1194, stronger than Wednesday’s $1.1275.

The gold price in the euro was set at €1,118.42 down from Wednesday’s €1,126.47.

Ahead of New York’s opening, the gold price was trading at $1,250.00 and in the euro at €1,116.67, and then slipped a further few dollars after the open.

Silver Today –The silver price closed in New York on Wednesday at $16.84 lower than Tuesday’s $17.23 a fall of 39 cents of 2.26%. Ahead of New York’s opening the silver price stood at $16.50. But then slipped further in percentage terms bringing the gold:silver ratio up to over 76 for the first time since mid-April.

Price Drivers

The publication of the Fed minutes yesterday galvanized the markets, including precious metal markets. As with all patterns that we saw yesterday, where gold and silver prices come into balance, any news can have a disproportionate impact, either way. This happened today with gold prices dropping $25 in the strong move we were forecasting.

It was the dollar that precipitated the move as it bounced to $1.1225 against the euro. As you can see above it was seen solidly in the dollar index. Why? The Fed minutes mentioned the “stabilization” of the dollar, as part of the factors that points to a potential rate hike in July.

The Fed is fully aware that the publication of the minutes would have a market impact as it has done. We see this as part of a process of ‘testing the water’ to see what would happen with a rate hike.

For instance, what does “dollar stabilization mean? To us it means that the dollar rise has been contained and will not threaten the U.S. economy because it will not rise further. The market reaction was to make it rise but not to anywhere near its peaks. Today and for a while, the dollar may continue to bounce and the Fed will be watching this carefully.

They were also concerned because of, “Unanticipated developments associated with China’s management of its exchange rate.” As you can see above the Yuan is continuously falling in small steps, something they need to do to counter the fall in the euro and Yen in particular.

They do not want a strong dollar and this is important enough to postpone a rate hike, if it is seen.

Meanwhile gold is on the back foot for now. Who are the main beneficiaries of this fall? It’s the east, China mainly, as the west slows its buying and makes available more gold for the eastern interests.

Gold ETFs – Wednesday saw no purchases or sales into or from the SPDR gold ETF or the Gold Trust. This leaves their holdings at 855.886 and 198.38 tonnes in the SPDR & Gold Trust, respectively.  

Silver –The Silver price pulled back sharply and needs more time to find its bottom still.

Julian D.W. Phillips

GoldForecaster.com | SilverForecaster.com | StockBridge Management Alliance

Precisely Wrong on Dollar, Gold?

 

By Axel Merk, Merk Investments

Since the beginning of the year, the greenback has shown it’s not almighty after all; and gold – the barbarous relic as some have called it – may be en vogue again? Where are we going from here and what are the implications for investors?

Like everything else, the value of currencies and gold is generally driven by supply and demand. A key driver (but not the only driver!) is the expectation of differences in real interest rates. Note the words ‘perception’ and ‘real.’ Just like when valuing stocks, expectations of future earnings may be more important than actual earnings; and to draw a parallel to real interest rates, i.e. interest rates net of inflation, one might be able to think of them as GAAP earnings rather than non-GAAP earnings. GAAP refers to ‘Generally Accepted Accounting Principles’, i.e. those are real-deal; whereas non-GAAP earnings are those management would like you to focus on. Similarly, when it comes to currencies, you might be blind-sided by high nominal interest rates, but when you strip out inflation, the real rate might be far less appealing.

It’s often said that gold doesn’t pay any interest. That’s true, of course, but neither does cash. Cash only pays interest if you loan it to someone, even if it’s only a loan to your bank through a deposit. Similarly, an investor can earn interest on gold if they lease the gold out to someone. Many investors don’t want to lease out their gold because they don’t like to accept the counterparty risk. With cash, the government steps in to provide FDIC insurance on small deposits to mitigate such risk.

While gold doesn’t pay any interest, it’s also very difficult to inflate gold away: ramping up production in gold is difficult. Our analysis shows, the current environment has miners consolidating, as incentives to invest in increasing production have been vastly reduced. We draw these parallels to show that the competitor to gold is a real rate of return investors can earn on their cash. For U.S. dollar based investors, the real rate of return versus what is available in the U.S. may be most relevant. When it comes to valuations across currencies, relative real rates play a major role.

So let’s commit the first sin in valuation: we talk about expectations, but then look at current rates, since those are more readily available. When it comes to real interest rates, such a fool’s game is exacerbated by the fact that many question the inflation metrics used. We show those metrics anyway, because not only do we need some sort of starting point for an analysis, but there’s one good thing about these inflation metrics, even if one doesn’t agree with them: they are well defined. Indeed, I have talked to some of the economists that create these numbers; they take great pride in them and try to be meticulous in creating them. To the cynic, this makes such metrics precisely wrong. To derive the real interest rate, one can use a short-term measure of nominal rates (e.g. the 3 month T-Bill, yielding 0.26% as of this writing), then deducting the rate of inflation below:

Description: MILLC.Marketing:Insights newsletters and blogs:2016 Merk Insights:2016-05-09 support:2016-05-16-inflation.jpg

The short of it is that, based on the measures above, real interest rates are negative. If you then believe inflation might be understated, well, real interest rates may be even more negative. When real interest rates are negative, investing cash in Treasury Bills is an assured way of losing purchasing power; it’s also referred to as financial repression.

Let’s shift gears towards the less precise, but much more important world of expectations. We all know startups that love to issue a press release for every click they receive on their website. Security analysts ought to cut through the noise and focus on what’s important. You would think that more mature firms don’t need to do this, but the CEOs of even large companies at times seem to feel the urge to run to CNBC’s Jim Cramer to put a positive spin on the news affecting their company.

When it comes to currencies, central bankers are key to shaping expectations, hence the focus on the “Fed speak” or the latest utterings coming from European Central Bank (ECB) President Draghi or Bank of Japan’s (BoJ) Kuroda. One would think that such established institutions don’t need to do the equivalent of running to CNBC’s Mad Money, but – in our view – recent years have shown quite the opposite. On the one hand, there’s the obvious noise: the chatter, say, by a non-voting Federal Open Market Committee (FOMC) member. On the other hand, there are two other important dimensions: one is that such noise is a gauge of internal dissent; the other is that such noise may be used as a guidance tool. In fact, the lack of noise may also be a sign of dissent: we read Fed Vice Chair Fischer’s absence from the speaking circuit as serious disagreement with the direction Fed Chair Yellen is taking the Fed in; indeed, we are wondering aloud when Mr. Fischer will announce his early retirement.

This begs the question who to listen to, to cut through the noise. The general view of Fed insiders is that the Fed Governors dictate the tone, supported by their staff economists. These are not to be mistaken with the regional Federal Reserve Presidents that may add a lot to the discussion, but are less influential in the actual setting of policy. Zooming in on the Fed Governors, Janet Yellen as Chair is clearly important. If one takes Vice Chair Fischer out of the picture, though, there is currently only one other Ph.D. economist, namely Lael Brainard; the other Governors are lawyers. Lawyers, in our humble opinion, may have strong views on financial regulation, but when it comes to setting interest rates, will likely be charmed by the Chair and fancy presentations of her staff. I single out Lael Brainard, who hasn’t received all that much public attention, but has in recent months been an advocate of the Fed’s far more cautious (read: dovish) stance. Differently said, we believe that after telling markets last fall how the Fed has to be early in raising rates, Janet Yellen has made a U-turn, a policy shift supported by a close confidant, Brainard, but opposed by Fischer, who is too much of a gentleman to dissent in public.

It seems the reason anyone speaks on monetary policy is to shape expectations. Following our logic, those that influence expectations on interest rates, influence the value of the dollar, amongst others. Former Fed Chair Ben Bernanke decided to take this concept to a new level by introducing so-called “forward guidance” in the name of “transparency.” I put these terms in quotation marks because, in my humble opinion, great skepticism is warranted. It surely would be nice to get appropriate forward guidance and transparency, but I allege that’s not what we have received. Instead, our analysis shows that Bernanke, Yellen, Draghi and others use communication to coerce market expectations. If the person with the bazooka tells you he (or she) is willing to use it, you pay attention. And until not long ago, we have been told that the U.S. will pursue an “exit” while rates elsewhere continue lower. Below you see the result of this: the trade weighted dollar index about two standard deviation above its moving average, only recently coming back from what we believe were extremes:

Description: MILLC.Marketing:Insights newsletters and blogs:2016 Merk Insights:2016-05-09 support:2016-05-16-dollar.pdf

If reality doesn’t catch up with the storyline, i.e. if U.S. rates don’t “normalize,” or if the rest of the world doesn’t lower rates much further, we believe odds are high that the U.S. dollar may well have seen its peak. Incidentally, Sweden recently announced it will be reducing its monthly bond purchases (QE); and Draghi indicated rates may not go any lower. While Draghi, like most central bankers, hedges his bets and has since indicated that rates might go lower under certain conditions after all, we believe he has clearly shifted from trying to debase the euro to bolstering the banking system (in our analysis, the latest round of measures in the Eurozone cut the funding cost of banks approximately in half).

On a somewhat related note, it was most curious to us how the Fed and ECB looked at what in some ways were similar data, but came to opposite conclusions as it relates to energy prices. The Fed, like most central banks, like to exclude energy prices from their decision process because any changes tend to be ‘transitory.’ With that they don’t mean that they will revert, but that any impact they have on inflation will be a one off event. Say the price of oil drops from $100 to $40 a barrel in a year, but then stays at $40 a barrel. While there’s a disinflationary impact the first year, that effect is transitory, as in the second year, inflation indices are no longer influenced by the previous drop.

The ECB, in contrast, raised alarm bells, warning about “second round effects.” They expressed concern that lower energy prices are a symptom of broader disinflationary pressures that may well lead to deflation. We are often told deflation is bad, but rarely told why. Let’s just say that to a government in debt, deflation is bad, as the real value of the debt increases and gets more difficult to manage. If, in contrast, you are a saver, your purchasing power increases with deflation. My take: the interests of a government in debt are not aligned with those of its people.

Incidentally, we believe the Fed’s and ECB’s views on the impact of energy prices is converging: we believe the Fed is more concerned, whereas the ECB less concerned about lower energy prices. This again may reduce the expectations on divergent policies.

None of this has stopped Mr. Draghi telling us that US and Eurozone policies are diverging. After all, playing the expectations game comes at little immediate cost, but some potential benefit. The long-term cost, of course, is credibility. That would take us to the Bank of Japan, but that goes beyond the scope of today’s analysis.

To expand on the discussion, please register for our upcoming Webinar entitled ‘What’s next for the dollar, currencies & gold’ on Tuesday, May 24, to continue the discussion. Also make sure you subscribe to our free Merk Insights, if you haven’t already done so, and follow me at twitter.com/AxelMerk. If you believe this analysis might be of value to your friends, please share it with them.

 

Discussion of Positive Role for Gold Scorned by Fed Supporters

By Clint Siegner*

Michael Hiltzik, with the Los Angeles Times, recently published a column titled “The Worst Idea in the Presidential Debate: a Return to the Gold Standard.” He thinks “a return to the gold-standard would be so not right that it’s not even wrong.” It’s another way of saying the idea is so bad it defies analysis. Nevertheless, he tries anyway.

He’s terribly smug given his essential argument is for how great centrally planned monetary policy is. The collapse of the Soviet Union and other managed economies revealed the pitfalls of putting a handful of bureaucrats in charge of markets. But his point of view represents what most people are getting from the financial press, Wall Street, and Washington DC. Let’s have a look at Hiltzik’s main points then take them apart.

False Claim #1: The economic science is settled.

Fiat Money vs Gold

Mr. Hiltzik takes a page out of the playbook of climate activists. He wants people to believe that only wingnuts, Luddites, and Republican presidential candidates are still talking about gold. He cites a 2012 survey of economists supposedly “drawn from the entire spectrum of economic theory.” None thought a return to a gold standard was a good idea. Case closed.

One assumption is clearly wrong. The entire spectrum is not represented. None of today’s prominent Austrian school economists are included on the panel. You won’t find names like Mark Skousen, Hans-Herman Hoppe, Robert Murphy, or Joseph Salerno. But you will find Barry Eichengreen, who has criticized the Fed for not being interventionist enough, and Austan Goulsbee, who served as chief on Obama’s Council of Economic Advisors.

The truth is there are plenty of economists who question the stewardship and discretion of Congress, the president, and, especially, Federal Reserve bankers. Heck, even Alan Greenspan is criticizing the fed and talking about an important role for gold these days.

Richard Nixon closes Gold Window

Lots of people, not just economists, wonder if the Fed’s promise to foster higher prices forever is really working out for ordinary folks. Millions of Americans stand to get hurt by unlimited borrowing and money creation.

Following Nixon’s final abandonment of gold redeemability in 1971, all restraint vanished.

That is why presidential candidates talk about reforms. Last week, a 53-44 majority of senators voted for the Audit the Fed bill. It wasn’t enough to defeat the Democratic filibuster, but clearly frustration with the status quo is widespread.

Proponents of unlimited money creation and politburo style management of our currency and markets are the true wingnuts.

False Claim #2: A gold standard favors the wealthy, at the expense of everyone else.

Hiltzik tells us “As far back as the 19th century, it was well understood that the ‘stability’ provided by linking currencies and exchange rates to a fixed value of gold benefited only one economic class – creditors…” In other words bankers and the wealthy, people in a position to loan money, supported gold. The move to fiat currency benefitted everyone else.

Apparently Hiltzik isn’t familiar with the origins of the Federal Reserve. It is privately held by the largest banks (i.e. lenders) in the United States. It was devised, in secret, by the most prominent bankers and politicians of the early 20th century, and they certainly didn’t do it to help the poor. They did it to help themselves.

Since the formation of the Federal Reserve, the banking sector quadrupled as a percentage of GDP. Meanwhile, the wealth gap has been growing, and that trend accelerated dramatically about the time Nixon closed the gold window.

The current system is an unmitigated disaster for virtually everyone outside of Washington DC and Wall Street. Consider the following charts from Zerohedge detailing just how awful the recent trillions of dollars in money creation and unlimited expansion in government has been for Americans at large:

ZeroHedge Charts

Since Hiltzik seems to care about the common man, he should join the large and growing movement of people who want a return to sound money. The idea is so right for these times.

Don’t bet on deflation in the U.S. to define the gold and silver markets

Contributed commentary from Clint Siegner of Money Metals Exchange.  The views expressed are his own and are not necessarily those of lawrieongold.com.  Although this commentary was written a week ago, before the latest sharp stock market falls and mild recovery, it makes some interesting and valid points. This is very much a U.S.-centric appraisal (almost half our readers are in the U.S. so valuable in that context) and may not apply to the same extent in other parts of the world.  However it is still the U.S. futures markets which remain the principal global price setters for the precious metals complex for the time being – a position which may ultimately be usurped by China, but not yet!

There are plenty of reasons we might see even lower official inflation numbers and a stronger dollar in 2016. But don’t think for a second that consumer prices or living costs will fall. They haven’t, they aren’t, and they never will in a sustained way – thanks to the Fed’s creation in 1913. This is where the deflationists have it wrong.

The impact of further disinflationary forces or even a deflationary episode on precious metals prices is a bit harder to predict.

The bear case for precious metals is rather simple. Should metals trade like commodities, they are likely to follow other raw materials lower. If we get a liquidity crunch akin to the 2008 financial crisis, just about everything will be sold as investors raise cash to meet margin calls or flee to the dollar as a perceived safe-haven.

There is also the possibility that metals prices will simply be managed lower. Growing numbers of investors realize that Wall Street is not a bulwark of free markets. Major banks have admitted to rigging markets against their own customers, and the Federal Reserve aggressively intervenes in markets in its quest to centrally plan the world economy. Why wouldn’t the Fed also be active in trading precious metals? Those dismissing the notion that metals prices are manipulated are naive.

Today’s Situation Is Different Than 2008

The bear case assumes history, in particular the experience surrounding 2008, will repeat. Or that there is still plenty of ability for anyone seeking to force metals prices lower in the futures market to actually do so. Or both.

Maybe. But relying on those assumptions could be a tragic mistake.

For starters, the U.S. dollar is already near record highs. Meanwhile, commodities and precious metals have been beaten down mercilessly. This set-up is the complete opposite of what faced investors leading up to the summer of 2008. And even though stocks and commodities got hammered in 2008, gold posted modest gains for the year as a safe haven from the threat of a collapsing economy.

Lower gold and silver prices have already produced an imbalance between bullion supply and demand. Supply deficits in 2016 are likely to make the developing problem with inventory at the COMEX and other exchanges even bigger. Registered stocks of gold all but vanished recently as bargain hunters, particularly in Asia, have been happy to buy and take delivery. Silver inventories aren’t in much better shape.

More deliverable bars must come from existing stocks, but holders won’t be anxious to sell. Those with “eligible” COMEX bars have certainly been slow to convert them to “registered” of late. By all indications, miners will be unable to provide the needed supply.

With prices below the cost of production, mine output is set to drop significantly this year. [Editor’s Note: Here we might disagree.  The strength of the dollar against most producing countries’ currencies means the economics of gold mining at a lower US dollar price is not reflected in countries where the price received for their output has actually risen in the local domestic currency in which most of their costs are incurred.  We suspect that global new mined gold production may thus be flat this year – indeed it could still rise marginally -, although lack of new project finance availability will eventually see production turning down as older mines are phased out and grades fall, not to be replaced by new projects and expansions coming in.]

If the metals markets look forward, as markets are supposed to do, they will anticipate the Fed’s response to a strengthening dollar and economic malaise. In 2008, investors knew little about the lengths to which the Fed would be willing to go. Today they DO know. The Fed will overwhelm deflation by creating new inflation.

Markets are completely dependent on Fed stimulus, and people simply expect officials to roll out an even bigger initiative whenever the need arises. Anything to prevent the cleansing effect of corrective forces from restoring heath to the economy. In a recent interview, market expert Jim Rickards predicted the Fed will abandon rate increases and actually commence lowering before the year’s end.

Metals investors should take heart in the fact that gold and silver prices have shown some resilience in the face of disinflationary forces recently. Both metals outperformed oil and most other commodities last year. Yes, prices declined roughly 11% for both metals. But crude oil fell 36% and copper lost 22%. The precious metals gained purchasing power against many other things.

Bottom line: Don’t bet on a meaningful deflation. Fed officials will not allow it. And they can keystroke dollars into existence until the power goes out for good.

Gold picks up ahead of Fed interest rate decision

One of the buzz words going around at the moment re. Janet ‘will-she-won’t- she’ Yellen and the FOMC voting to start raising Fed interest rates is ‘normalization’.  But whatever the Fed does it is no way going to be ‘normalization’ in any realistic sense of the word relative to past ‘normal’  interest rate patterns.  The general consensus at the Mines & Money conference in London this past week was that rate rises would almost certainly begin this month as Yellen and the FOMC have talked themselves into a position where not to do so would destroy any remaining credibility that the Fed may actually have brought things under control – but ‘normalization’ – perhaps not..

Let’s face it, interest rate normalization is not raising rates by 25 basis points but more like instigating the start of a raising program which will see them rise to 2.5% or higher and there looks to be no way the U.S. economy is strong enough to handle this even over a couple of years.  Indeed another one of the prevailing thoughts at the Mines & Money conference from some very savvy analysts and commentators was that even if the Fed does raise rates by as little as 25 basis points now, it will likely have to backtrack and bring them down again within the next six months AND then instigate a QE4 on top of that.  The stock markets are weak and potentially on a hair trigger for a massive collapse.  Q3 earnings figures from major companies were mostly pretty dire and the strong dollar is eating into exports, while making imports ever less costly.  Government CPI and unemployment stats are largely a farce.  The market is being held up by sentiment alone – certainly not by fundamentals.  And sentiment can change overnight, sometimes on a seemingly innocuous piece of news.

The gold price performance today, and that of the general equity markets, ahead of any Fed announcement has been perhaps enlightening.  At the time of writing gold has risen about $30 above its recent lows.  Suddenly what had seemed a foregone conclusion that the Fed would start raising rates this month has perhaps run into doubt.  While we await the decision we still feel the Fed is too far down the line not to raise, although we would see the possibility of a smaller rise being implemented.  In some ways the Fed could be damned if it does raise rates, but perhaps even more damned if it doesn’t. A 10 basis point increase would be an uneasy compromise, but has to be a possibility.  However it would be seen as a sign of weakness.

The fall in the dollar index by nearly 2% though would also definitely have strengthened the gold price which tends to move counter to the dollar.  Whether the sharp dollar fall was a natural progression or part of Fed machinations to try and keep the rising currency, seen as damaging to the economy, under some form of control is less certain.

While some key indicators, notably today’s nonfarm payroll figures, are just what the Fed needs to support the interest raising decision, there are others like the recent Chicago PMI figure coming in at 48.7 (anything below 50 is seen as negative) suggests that all is not well in America’s industrial heartland.  Tuesday’s broader ISM manufacturing index figure was equally pessimistic at 48.6, although the ISM services index was positive at 55.9, despite this being a little down on the previous month.  So all in all it does look like the U.S. economy is far from out of the woods.

As noted above, the US Dollar Index dipped back from a brief foray above the 100 mark, back down to a current 98.3, which may have reduced slightly continuing concerns about U.S exports, although this is hardly conclusive.  Mario Draghi’s decision for the ECB to only reduce bank deposit interest rates by a smaller than expected 10 basis points helped here.  A bigger reduction might well have seen the euro move to nearer parity with the dollar.

Gold’s healthy performance today was despite the positive US nonfarm payroll figures and was perhaps down to the feeling that it has been oversold over the past month or so, resulting in a certain amount of short covering.  Markets often react too far in this manner – but even so, if the Fed does raise interest rates by the expected 25 basis points it could take a further knock, but anything less could see it soar.

Fed needs ‘sustainable growth’ to raise interest rates – gold moves higher

Julian Phillips’ analysis of matters driving gold and silver prices.  The U.S. Fed is still non-committal on when it may start to raise rates while the possibility of Grexit looms ever closer

New York closed at $1,187.10 up $5.40.  The dollar is weaker at $1.1387 down 1.2 cents with the dollar index down to 93.87 from 94.90. The LBMA Gold Price was set at $1,198.50 up $19.50 with the equivalent euro price at €1,051.22 up €5.62. This price was higher than pre-setting prices in the market! Ahead of New York’s opening, gold was trading in London at $1,197.60 and in the euro at €1,050.34.

The silver price fell to $16.17 up 15 cents in New York. Ahead of New York’s opening it was trading at $16.28.

In the E.U. the mood has changed markedly. Greece is blaming the E.U. and the E.U. is blaming Greece. After disastrous meetings of the Finance Ministers both sides are now behaving as if no deal is possible and acting accordingly. The euro is getting stronger, as we would expect on a Grexit. Greece is making clear it doesn’t have the money to pay the next installments. After all €6 or €7 billion on a debt of €320 billion only postpones more disaster and as the Greeks see it, with a chain around their necks. Suddenly this is not just about Greece. It’s about the future of the E.U. and the euro, which is why global financial markets are riveted to this story. But it is also about the geo-political balance of power, something of greater consequence to the world.

The other most talked about story in global financial markets focused on Janet Yellen, Chairwoman of the U.S. Fed. The statement issued by the Fed confirmed improvements in the U.S. economy, but Janet Yellen used the word ‘sustainable’ growth is needed before the Fed will lift rates in very small steps. She was concerned that wage growth also needed to improve more.

Between these two stories markets saw the dollar weakening and the gold price move higher today.

On the Technical side we continue to note that the picture continues to point downwards, but the reality is that the gold price has moved sideways. The two must meet and raise the question is overhead resistance likely to dominate the sideways movement and force the gold price down or will the sideways movement break overhead resistance and see the gold and silver prices rise? We are very close to that point now!

Before the conclusion of the Greek debt crisis came so close the euro price of gold fell far more than it did in the dollar. Today sees the euro price of gold dominate the gold price, which is steady in the euro while the dollar price of gold has jumped as the dollar weakened. Seen as currencies moving around the gold price, we get a better perspective.

There were no sales or purchases of gold from or into the SPDR gold ETF or the Gold Trust on Wednesday. The holdings of the SPDR gold ETF are at 701.897 tonnes and at 167.01 tonnes in the Gold Trust.

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