Yesterday’s big gold price drop. Is there more to come?

Followers of the gold market will be well aware of the big drop yesterday in the USD gold price after days trading mostly in and around the $1,270s and up.  In the event the fall might not prove to have been as bad as some had feared would be unleashed by the big money on the gold futures markets but if it gives the gold bears heart we could be due for more of the same ratcheting the gold price down – but gold has been pretty resilient recently and it may well recover, perhaps up until the eve of the next FOMC meeting.

The trigger was the release of the minutes of last week’s FOMC meeting which suggested that a June rate rise was not, as many had speculated, as unlikely as the market had been suggesting but, as is usual with U.S. Fed statements messages were mixed.  We do feel that the Fed has painted itself into such a corner that at least one rate rise this year is probably inevitable, and it may yet talk itself into two more, otherwise it loses yet more credibility in terms of its ability to forecast and control progress, if any, in the U.S. economy.

From the bull camp here’s Ed Steer’s viewpoint in an excerpt from a special edition of his daily newsletter which he produced while he was otherwise taking a week off.  Ed’s newsletter is on a paid subscription so I hope he will forgive me for broadcasting this excerpt.  If you need further information or wish to consider subscribing, the link is here: Ed Steer Gold and Silver Newsletter.

Ed’s take on the gold move with supporting charts was as follows:

‘You really don’t need me to tell you what happened yesterday.  The Fed minutes were released at 2:00 p.m. EDT-‘da boyz’ spun their algos-and the rest, as the say, is history.

In gold, they got the price down to almost its 50-day moving average, with the low tick of the day coming at 3:40 p.m. in the after-hours market-and it recovered a handful of dollars from there into the 5:00 p.m. Wednesday close.

The high and low tick were recorded by the CME Group as $1,283.50 and $1,256.00 in the June contract.

Gold finished the Wednesday session in New York at $1,258.00 spot, down $20.80 from Tuesday’s close.  Net volume was very heavy at a hair over 185,000 contracts-and roll-over activity was nothing special.

Here’s the 5-minute gold chart courtesy of Brad Robertson once again.  There was decent volume between the COMEX open and the London p.m. gold fix, which is 6:40 to 8:10 a.m. Denver time on the chart below.  But the big volume came at noon MST, 2 p.m. EST, when JPMorgan et alappeared and unleashed their HFT traders on the Fed news.  Volume didn’t drop off to background until a bit over two hours later.

The vertical gray line is midnight in New York, noon the following day in Hong Kong-and don’t forget to add two hours for EDT.’  Click on the chart to enlarge it.

You may or may not not agree with Ed’s opinions but there certainly was a huge kick-up in volumes at the precise time of the biggest price fall concurrent with the release of the FOMC minutes brought on by high frequency trading on the markets.  Now whether this is just normal on such data as released at that time, or is indeed the big money using this as a lever to drive the gold price downwards we will probably never know for sure, but high frequency trades certainly have an undue influence on what is mostly a fairly orderly market.

As noted above though the big drop in the gold price appears to have been capped at around $1,255 suggesting decent resistance to a fall below this level although this morning this level is looking a little shaky.  We could be in for an interesting few days.

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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.

 

Gold jumps sharply on weak U.S. jobs figures

The gold and silver markets had very much been marking time over the past couple of days waiting for what most expected to be a decent April U.S. non-farm payrolls rise of over 200,000.  In the event the figure came in at a much weaker than expected 160,000 and the figure for the previous two months was also revised downwards.  Some had thought that a strong payrolls figure might persuade the U.S. Fed to increase interest rates by another 25 basis points at its June FOMC meeting.  Such expectations have now taken another blow.

In a reaction to the seen-as-poor payrolls figure gold immediately shot up sharply.  The price had already been moving up in this morning’s trade in Europe, but once the payrolls figures were announce in the USA, the yellow metal climbed back above the $1,290 level with some speculating that it may be on its way to $1,300 for the third time this month, and that if it passes this level again  that then it could possibly be there to stay, at least for a while.  At the time of writing the gold price rise was stuttering a little having reached a high of over $1,295, but had since fallen back to below the $1,290 figure.

The US dollar also weakened a little today which will have helped the dollar gold price and Asian and European equity markets had also trended lower with the expectation that U.S. equities would open lower too.  With suggestions that investors should exit the equity markets and go for gold from as heavy a hitter as Stan Druckenmiller and a Bank of America Merrill Lynch analytical report suggesting buying gold miner Randgold paper to take advantage of a rising gold price, the general negativity on gold as an investment in North America from some of the market elite seems to be disappearing quite rapidly.

Silver has also been moving up quite nicely in concert with gold, although the gold:silver ratio had moved back above 74, but we suspect that if gold does break through $1,300 again the ratio will begin to come down again.

Will Fed Statement Boost Gold & Silver prices?

Gold TodayGold closed in New York at $1,244.80 up from $1,239.40 on Tuesday. On Wednesday morning in Asia it rose to $1,246, before the LBMA price setting.

LBMA price setting:  $1,244.75 up from Tuesday’s $1,234.5.

Yuan Gold Fix

Trade Date Contract Benchmark Price AM Benchmark Price PM
2016  04  27

2016  04  26

SHAU

SHAU

260.06

259.23

259.90

258.53

Dollar equivalent @ $1: 6.5060

$1: 6.4945

$1,243.28

$1,237.63

$1,242.59

$1,239.44

At the start of the week the Shanghai Gold Fixings were higher than those in London, but today we see them very much in line with New York, transitioning into London’s opening. So we can say that at the start of the process it appears that there is indeed a ’24-hour market’ for gold.  Time will tell if this continues and how the pricing power changes.

The dollar index is lower today, at 94.39 down from Tuesday’s 94.80. The dollar is weaker against the euro at $1.1314 from Tuesday’s $1.1283.

The gold price in the euro was set at €1,100.19 down from Monday’s €1,094.12.

Ahead of New York’s opening, the gold price was trading at $1,245.60 and in the euro at €1,100.94.  

Silver Today –The silver price closed in New York higher at S17.21 on Tuesday up from Monday’s $17.053. Ahead of New York’s opening the silver price stood at $17.32.

Price Drivers

Today, we will hear the statement from the Fed, but no press conference. In view of the less vigorous data since the last meeting, we expect the Fed to remain dovish and to, again, mention the dangers to the U.S. economy from outside of the country. The dollar may well be mentioned, as it remains below its peak, but has barely dropped since the last meeting. We believe the Fed wants it lower!

While markets are myopic, if we stand back and look at the long term, the dollar’s use in the global economy is waning and is set to drop considerably more. This implies a structural change in the gold and, eventually, silver markets, within the monetary system, that cannot be ignored the same way it is being ignored now.

Needless to say, this is all positive for gold and silver prices.

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 is showing 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

Yellen sticks to the gold script

Gold TodayGold closed in New York at $1,241.30 up $23.10 from $1,217.20 Tuesday. On Tuesday morning in Asia, it held that level. London pulled it back to see the LBMA price setting at $1,238.30 although still well up on the previous day’s $1,216.45.

The dollar index held at 95.84 today the same as Tuesday. The dollar is weaker against the euro at $1,1330 after yesterday’s $1.1213.

The gold price in the euro was set at €1,092.94 up from €1,084.86 on Tuesday.

Ahead of New York’s opening, the gold price was trading at $1,234.75 and in the euro at €1,090.00.  

Silver Today –The silver price closed in New York at $15.33 up 16 cents on Tuesday. Ahead of New York’s opening the silver price stood at $15.35.

Price Drivers

The Technical picture remains negative but, as we said yesterday, this could change quickly because of the two-day nature of the fall from the uptrend. We continue to expect a volatile market. Having said that, we continue to expect to see U.S. investors buying the shares of the gold ETFs.

Janet Yellen’s comments were as we expected, with her reiterating Fed fears emanating from the global economy, particularly oil and China. The Fed remains data led and will ‘proceed cautiously’. Observers keep pushing, as always, for a hike in interest rates and keep being disappointed, despite the Fed making it clear that they are following the data not leading it.

For gold investors, the relevance of her comments lies in the dollar’s exchange rate. This continues to weaken with the dollar falling to more than $1.13 against the euro and to 94.96 on the dollar index. This is yet another expression that the U.S. Monetary Authorities do not want a strong dollar.

Gold ETFs For the first time in a long time we saw sales of 3.271 tonnes of gold from the SPDR gold ETF and a remarkable 7.14 tonnes from the gold Trust, yesterday. This leaves their holdings at 820.471 and 185.88 tonnes in the SPDR & Gold Trust respectively. These tonnages were more than enough to push prices down, but they didn’t. Instead the comments by Janet Yellen saw gold prices rise. Such is the power of COMEX over physical features of the gold market.

We suspect the sales were made before Janet Yellen spoke. We expect some tonnage to be re-bought soon, in the light of what she said.

Silver – The silver price began its recovery yesterday and saw 46 tonnes of silver bought into the Silver Trust. It must be noted that investors into the Silver Trust rarely influence the price as the silver price is priced as a monetary metal alongside gold.

These investments were very different from the gold ETFs, but we suspect that we will see more additions to both the Gold ETFs and the Silver Trust.

Julian D.W. Phillips

GoldForecaster.com | SilverForecaster.com | StockBridge Management Alliance

Gold pre- and post- Fed non-decision: Surge back to $1,270

Here are links to a couple of my posts which are up on the sharpspixley.com website.  The first was written prior to the latest U.S. Fed Open Market Committee meeting looking at the nervousness ahead of the meeting which had seen gold fall back to the $1,230s.  while the consensus had always been that the Fed would do little or nothing, which indeed proved to be the case, there were still some predicting a more hawkish stance which did ahave an adverse effect on precious metals.

See: Tense time for gold bulls

In the event, as noted above, the Fed was cautious on any progress on the U.S. economy and on potential global reaction to any suggestion that the next rate increase might be sooner rather than later.  The non-decision by the Fed boosted equities and saw gold as a major beneficiary shooting up to around $1,270 at the time of writing.  What this observer thinks this means for precious metals is covered in the article.

See: Gold back at $1270 level after cautious Fed statement

Gold Surges Higher on Yellen’s Fed Statement and an Uncertain World!

Gold TodayThe New York gold price closed Wednesday at $1,196.50 up from $1,187.80 up $8.70. Ahead of London’s opening, prices were quoted at $1,2o8. After London opened the gold price jumped to $1,217. Then the LBMA set it at $1,1223.25 down from $1,183.40 up $39.85 with the dollar index weaker at 95.51 down from 96.12 on Wednesday. The dollar continues very weak against the euro at $1.1322 down from $1.1260 on Wednesday. The gold price in the euro was set at €1,080.42 down from €1,050.98 up €29.44. Ahead of New York’s opening, the gold price was trading at $1,227.05 and in the euro at €1,083.87.  

Silver Today –The silver price in New York closed at $15.28 up 5 cents at Wednesday’s close.  Ahead of New York’s opening, the silver price stood at $15.60.

Price Drivers

Yesterday we thought gold would be battling overhead resistance in a robust manner. We were surprised at just how strong gold is proving to be. Last night’s close at $1,208 described this well but this morning’s run up to $1,218 while China is closed and ahead of London’s opening well described the underlying U.S. view of gold now. Why? Because Janet Yellen came out and said what we have been saying in our newsletters that the Treasury does not want a strong dollar, was concerned about the impact of the global economy on the U.S. and would adopt a ‘wait and see’ mode, while keeping rate rises on the agenda.

The impact was for gold to vault through resistance to over $1,230! If gold holds this level gold has exited the bear market operating since 2013.

This confirmation by the Fed that they are concerned about the potential spillover from the global economy into the U.S. validates and consolidates the change of financial moods we have seen so far in 2016. If the Fed is ‘uncertain’ going forward, the rest of the world should be.

The foreign exchange markets across the world continue to upset the economic applecart as the dollar continues to fall, the ‘carry trade’ continues to unwind their long-held positions pushing cheap money back home to Japan and other very low interest rate places. The euro is now over 1.13: $1, the Yen is at 111 to the dollar and the Swiss Franc at o.9673 to it. The dollar index continues to plunge. We believe the dollar bull market is in retreat if not over!

We believe we have passed the time when nations could come together to re-arrange the globe’s exchange rate system to a more stable one. Now, nations are blatantly acting in their own interests, to the exclusion of other nations. A global monetary system cannot act in a stable manner in such a climate. With a decaying global economy adding to the pressures on currency exchange rates we foresee growing volatility and instability. We do expect central bank gold reserves to be harnessed in attempts to ease such instability, keeping many parts of the global economy liquid.

Silver Silver will be stronger than gold now.

 

Julian D.W. Phillips

GoldForecaster.com | SilverForecaster.com | StockBridge Management Alliance

 

Negative data driving Fed policy, boost for gold

 

The New York gold price closed Wednesday at $1.125.80 up from $1,121.40 up $4.40. In Asia on Thursday, it pulled back to $1,118.35 ahead of London’s opening and then the LBMA set it at $1,119.00 up from $1,116.50 with the dollar index down at 98.85 from 99.00 on Wednesday. The euro was up at $1.0910 $1.0874 against the dollar with a wide spread. The gold price in the euro was set at €1,025.66 down from €1,026.76. Ahead of New York’s opening, the gold price was trading at $1,119.65 and in the euro at €1,026.26.  

The silver price in New York closed at $14.48 down 2 cents at Wednesday’s close.  Ahead of New York’s opening, the silver price stood at $14.42.

Price Drivers

Wednesday saw no purchases or sales to or from the SPDR gold ETF but a purchase of o.72 of a tonnes into the Gold Trust. The holdings of the SPDR gold ETF are now at 669.229 tonnes and at 165.85 tonnes in the Gold Trust. We expect the gold price try to climb in consolidation mode, today.

The story of the day was the Fed’s decision yesterday and the comments attending the announcement. With a vast array of commentary on this and the future of rate hikes, we suggest readers keep an eye on the overall perspective surrounding the announcement.

To us it was clear that the Fed is data driven and the data is negative. Pertinently, the Fed announced it would monitor the global economy carefully. We have to factor in the changing global cash flow and note that the U.S. is not an island, but very much a part of the global economy, so it must take note of the impact of U.S. interest rates, no matter how small.

The Fed is thus seeing the U.S. in a global context, not just with its eye on the U.S. economy. The recent plunging of global markets bears testament to this. In particular, the level of the U.S. dollar exchange rate has become very, very important. We see the Fed as not being happy with it going any stronger and wants it to remain below 100, on the dollar index or lower.

The importance of this lies in the impact on U.S. exports and imports which are very much a part of the global economy. Evidence of this is the declining market share of Boeing, losing to Europe’s Airbus. We see exchange rates in 2016 becoming a major focus of the global economy and a telling factor on gold prices, particularly in the dollar.

But gold prices do not just reflect exchange rates and inflation. If they reflected inflation they would be moving around $15 a year at present, but we have seen that in the last week. The changing shape of global gold demand and supply alongside fundamental structural changes in the gold markets will decide the gold price in 2016.

Silver should take a breather today alongside gold.

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

 

Could this be the beginning of gold’s return to record price levels

The New York gold price closed Tuesday at $1,121.40 up from $1,108.30 up $13.10. In Asia on Wednesday, it held over $1,120 ahead of London’s opening and then the LBMA set it at $1,116.50 up from $1,114.70 with the dollar index down at 99.00 from 99.36 on Tuesday. The euro was up at $1.0874 from $1.0831 against the dollar. The gold price in the euro was set at €1,026.76 down from €1,029.18. Ahead of New York’s opening, the gold price was trading at $1,117.80 and in the euro at €1,027.86.  

The silver price in New York closed at $14.50 up 26 cents at Tuesday’s close.  Ahead of New York’s opening, the silver price stood at $14.40.

Price Drivers

Tuesday saw purchases of 5.057 tonnes of gold into the SPDR gold ETF and 3.31 tonnes into the Gold Trust. The holdings of the SPDR gold ETF are now at 669.229 tonnes and at 165.13 tonnes in the Gold Trust. This was a surge of physical demand showing a broader section of the investor community is now turning to gold. We expect this to continue.

Overhead resistance is out of the way until the gold price moves much higher and then it is not a significant resistance. There was little dealers and speculators could do, except to bow to the upward pressure. Closing short positions will gain momentum now.  Bear in mind this is not physical buying, simply closing financial transactions related to the gold price.

We expect nothing dramatic from the Fed today except cautionary warnings on the state of global growth and an awareness of the damage dollar strength could do. This will be positive for gold!

We find it significant that Apple described global market conditions as ‘never before seen’. We ignore the demand for Apple i-phones and factor in the commentary on the state of the global economy, which they see as dramatically slowing. Against a background of currencies weakening in the ‘race to the bottom’, the global debt mountain will see a diminishing global cash flow with which to service such debt. This will place extreme pressure on the economic structures around the world. It’s a case of where the next fracture is going to come from?

With Asia having drawn off gold supply so extensively the news that gold discoveries have collapsed confirmed the future supply squeeze in the years to come.  As it is, this year we expect gold supplies from mining to peak. We do see demand for gold being much higher than the bulk of forecasters think particularly from China. This could be the beginning of gold’s return to record price levels! –   Silver is running full pelt now.

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

Both Gold and Dollar boosted by Fed rate rise but Equities diving

While a month is a pretty short time in terms of global finance, the fallout from the U.S. Fed’s December rate rise has seen, as expected, a stronger U.S. dollar.  But what virtually all the major bank analysts had forecast – a consequent decline in the gold price in U.S. dollar terms – just has not come about.  In the event the reverse has been true and gold has been rising along with the dollar, contrary to generally accepted gold price theory.  This is pointed out beautifully in the latest chart from Nick Laird’s www.sharelynx.com charting site and is shown below.

As can be seen from the chart, ever since around the time of the Fed increase of 25 basis points, small though that was, the dollar index has been on an overall upwards trend. Before the Fed increase gold and the dollar had been exhibiting their normal relationship – dollar up and gold down.  But since the rate rise – almost to the day – gold has also been rising overall.  Indeed it has even been rising far faster than the dollar.  Can this continue?

What the forecasters had not been taking into account has been the post Fed rate increase dive in general equities virtually across the board, as markets took the rate rise, together with Fed projections of three or four more similar increases this year, as a sign of continuing money tightening.  Indeed the stock market declines – perhaps further stimulated by something of a rout in Chinese equity markets, which are even more of a casino than their Western counterparts – look as though they could be in danger of turning into a true rout……..

The above is the lead into my latest article published on sharpspixley.com.  To read the full article click on:  Fed Rate Rise has Boosted the Dollar AND Gold

Where will Western Buyers find Gold with Asia All-Consuming?

The New York gold price closed Monday at $1,108.30 up from $1,096.80 up $11.50. In Asia on Tuesday, it rose over $1,115.35 before London’s LBMA set it at $1,114.70 up from $1,103.70 with the dollar index down slightly at 99.36 from 99.43 on Monday. The euro was up at $1.0831 from $1.0817 against the dollar. The gold price in the euro was set at €1,029.18 up from €1,020.34. Ahead of New York’s opening, the gold price was trading at $1,113.20 and in the euro at €1,027.46.  

The silver price in New York closed at $14.24 up 19 cents at Monday’s close.  Ahead of New York’s opening, the silver price stood at $14.37.

Price Drivers

Monday saw no purchases or sales to or from the SPDR gold ETF and none into or from the Gold Trust. The holdings of the SPDR gold ETF are now at 664.172 tonnes and at 161.82 tonnes in the Gold Trust. Nevertheless, it is clear that U.S. investors are turning back to physical gold slowly but surely as resistance crumbles. With gold starting London’s day over $1,115 the overhead resistance is nearly out of the way. The big short positions on COMEX in gold look very vulnerable and we expect them to run to cover those shorts.  

What’s more, with the Fed’s two day meeting this week, no rate hike is expected. The market is moving steadily towards the opinion that in 2016 either one or two rate hikes may happen, leaving the dollar inclined to weaken.

While Mario Draghi is determined to achieve a 2% inflation rate it will be achieved [if it is] against a backdrop of declining growth, a dangerous state of affairs that has done extreme damage to currency credibility in the past. We do not believe that currencies will be allowed to reflect fundamental weakness such as this, in a world where competitive devaluations are the route of exchange rates. To this group we add the dollar. We do see trouble in the E.U. that will turn Europeans to gold as well as, and more than, it did last year.

In China preparations for the Chinese New Year on the 8th Feb are well underway. For gold this represents the time of the year of peak demand. Already this year demand from the Shanghai Gold Exchange has surged in line with the huge upliftment of the Chinese middle classes.

The trouble is that if we see developed world demand for physical gold return, where will they find it, now that Asia is all consuming?

Silver is continues to be robust and on the run higher.

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

Will the Fed really now raise interest rates in December?

New York closed at $1,156.80 at the close on Wednesday but then rose to $1,162 in Asia overnight. London then lowered it back to $1,159.60. The LBMA price setting fixed it at $1,159.00. The dollar Index has risen and now stands at 97.37 and remains well below its peak of over 100. The dollar was trading against the euro at $1.0931 reflecting the dollar’s strength.  In the euro the fixing was €1,056.52.  At New York’s opening gold was trading in the euro at €1,056.75 and at $1,156.70 but has slipped back below $1150 as the day progresses.  

The silver price closed at $15.99 on Wednesday. At New York’s opening, silver was trading at $15.85.

The Fed’s statement was read after keeping interests rates at current levels. The market is now reading a December rate hike as a near certainty, although only on a minute change in language from the FOMC.

References to the global economy were taken out of the statement, giving some the impression that the Fed is now less concerned about global consequences of a rate hike. We find that hard to believe as the Fed is fully aware that a rate hike will impact exchange rates and be detrimental to U.S. global trade, but is now elevating internal consequences of holding rates down.

However, there is always a danger that we over-read consequences into minor details. What is directly affecting the gold price in all of this is the gold being priced in dollars or euros. While the gold price is lower in the dollar over last week’s price the euro price of gold is at €1,056.71 up from last week’s €1,043.10. This illustrates that the gold price is reflecting currency values far more that we have seen before. We expect this to continue.

Chinese gold import numbers continue to be reported differently by the Shanghai Gold Exchange and GFMS the highly respected metals consultancy. The latter has China’s imports as lackluster while the SGE reports record import levels. So either the SGE is not presenting an accurate picture or GFMS is getting it badly wrong.

The Technicals continue to look very good in all currencies including the dollar where it is now sitting right on support.

There have been sales of 2.978 tonnes this week from the SPDR gold ETF and a sale of 0.84of a  tonne into the Gold Trust. The holdings of the SPDR gold ETF are at 694.344 tonnes and 161.99 tonnes in the Gold Trust.

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

Gold moving up ahead of FOMC meeting deliberations

Gold moving up ahead of FOMC meeting deliberations

By Lawrie Williams

Gold has moved back above $1180 this morning on the feeling that today’s FOMC meeting will again turn into a can-kicking session as far as potential interest rate rises are concerned. But beware – the Fed may have painted itself into a corner with a…

To read full article on SharpsPixley.com, Click here

Fed aftermath: Gold rises on weak dollar, markets nervous.

As the world will be aware, the US Fed Open Market Committee (FOMC) has yet again delayed any decision to raise interest rates and the dollar and gold both reacted accordingly.  The dollar index fell while gold rose – although the rise in the latter was primarily just a direct response to the fall in the former – not a specific indicator of much in the way of increased interest in the yellow metal, at least initially.  But this morning, with European markets open, gold has indeed risen at the time of writing, and while the dollar has continued its fall, so far gold has moved up by a greater percentage than gold has fallen indicating perhaps something of a start in change in investment sentiment.

What is perhaps more surprising – and another indicator of sentiment change – is that post the Fed announcement, U.S. markets fell back – continuing their recent downwards trend.  One might have assumed they would have risen on further postponement of any Fed commencement of rate tightening, but the markets may be taking this as an indicator that the U.S. economic recovery is perhaps not all the investment public has been led to believe.  Indeed some indicators also released yesterday were indeed weaker than anticipated.

Asian markets overnight were a little mixed – Shanghai was up by a very small percentage as was Hong Kong’s Hang Seng but Japan’s Nikkei fell – and in Europe the major indexes also opened lower. The Dow has taken a sharp downturn this morning too and is around 8.5% down year to date and 10% down from its May peak. With losses exceeding gains quite substantially over the past two months there is an element of fear in global stock market investment that we could be due for the increasingly frequently predicted market crash following the prolonged 6-7 year bull phase following on from the massive 2007-2009 falls when the Dow plunged around 50% over 16 months.

Over the past 3-4 years  gold has definitely been out of favour with Western investors with the price seeming to slip continually down to a low point of just below $1090 at the beginning of last month.  Major bank analysts subsequently fell over each other to predict a continuing price fall – down to $1000 or even less – but at least so far there has been no indication that this is likely and gold has recovered from its lows to trade consistently back above the $1100 mark.  Where it will go from here we don’t know – but with the seemingly increasing nervousness among major stock market investors, the yellow metal’s safe haven appeal may well be on the rise again.

The Elliott Wave chart analysts are mostly predicting sharp rises as, of course are those ‘always bullish’ commentators.  Gold holders will hope they are right after 4 years of mostly declining prices.

Gold waiting on FOMC statement

Julian Phillips’ daily roundup on what is driving the gold and silver markets

New York closed at $1,181.70 down $4.50.  Today sees the dollar almost unchanged at $1.1263 with the dollar index almost unchanged at 94.90 down from 94.97. The LBMA Gold Price was set at $1,178.50 down $3.60 with the equivalent euro price at €1,045.60 down €4.64. Ahead of New York’s opening, gold was trading in London at $1,179.50 and in the euro at €1,045.84.

The silver price fell to $16.02 down 9 cents in New York. Ahead of New York’s opening it was trading at $15.98.

The FOMC meeting has been today’s focus of attention that markets will react to despite the fact that they will not raise interest rates today. It seems the constant question remains, “When will the Fed raise interest rates?” The market discussion is now, “Will it be September or next year?” The most recent data was not as encouraging as hoped, so much later this year or early next year seems to be the general opinion now.

Will this affect gold? It shouldn’t, but speculators hate markets that don’t move, so they may try to push the price down. London and New York are only seeing thin markets a situation that is likely to persist until the end of next week, when the Greek Tragedy sees its last Act and last scene of that Act.

Asian demand is robust in China and in India, despite the heavy 10% duty on gold imports in India.

India is essentially on the sidelines of the market until September, after selling the harvest in late August / September. Then not only will Indian demand come to life as their festival season begins, but developed world demand joins the fray with its focus on the year end festivities.

But, lest we paint the gold market as a purely seasonal market, monetary matters as well as dramatic economic matters can come in to change the picture rapidly. After all, gold’s peak price around $1,921 happened in these ‘Doldrums’.

We now return to that addition of the Bank of China to the number of banks that set the LBMA gold price daily. While the Bank of China emphasized the likelihood that its addition to this group would reinforce the connection between the Chinese domestic market and overseas markets, making the international gold price better reflect the supply and demand in China, we must ask how could this happen? The essence of their ability to do this is to be able to draw off physical amounts of gold from the trading side of the London Bullion market, at the LBMA price setting times. This price setting session, twice a day, is where the bulk of London’s physical gold trading takes place and cuts out the middlemen [foreign banks] for China and gives access to the heart of the gold market.

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

Silver and gold have a strong undertone.

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

 

The Fed, the Fear Trade and Gold – Frank Holmes

Latest thoughts from Frank Holmes, CEO and chief investment officer of U.S. Global Investors – www.usfunds.com

Following the recent Federal Open Market Committee (FOMC) meeting, Federal Reserve Chair Janet Yellen made it clear (again) that interest rates would not be raised until inflation gains more steam. With current inflation rates negative for the first time since 2009, and with the U.S. dollar index at an 11-year high, we can probably expect near-record-low interest rates for some time longer.

With the Dollar index at an 11-yeah high, gold prices are under a lot of pressure

Image courtesy of http://www.welovecostarica.com/watching/ 

Along with major stock indices, gold prices immediately spiked at Yellen’s news, rising nearly 2 percent, from $1,151 to $1,172. That’s the largest one-day move we’ve seen from the yellow metal in at least two months.

It’s also a prime example of gold’s Fear Trade, which occurs when investors buy gold out of fear of war or concern over changes in government policy.

As I’ve frequently discussed, one of gold’s main drivers is the strength of the U.S. dollar. The two have an historical inverse relationship, as you can see below.

Strong Dollar Weighs on Gold

In September 2011, when gold hit its all-time high of $1,921, the dollar index was at a low, low 73. With the dollar having recently broken above 100, although since fallen back a little, the yellow metal sits under a lot of pressure. However, I’m pleased at how well it’s held up compared to the early 1980s, when gold plunged 65 percent from its peak of $850 per ounce as the U.S. currency began to strengthen.

We’re seeing the opposite effect in the eurozone as well as other regions around the world. In the last 11 months, the euro has slipped 24 percent. Many analysts, in fact, expect the euro to fall below the dollar for the first time.

When priced in this weakening currency, gold has climbed to a two-year high.

Gold Prices in Euro Terms Strengthens as the Currency Falls

Inflation consumes the returns on your five-year treasury bondAs I write in last year’s special gold report, “How Government Policies Affect Gold’s Fear Trade”:

One of the strongest drivers of the Fear Trade in gold is real interest rates. Whenever a country has negative-to-low real rates of return, which means the inflationary rate (CPI) is greater than the current interest rate, gold tends to rise in that country’s currency.

To illustrate this point, take a look at the current five-year Treasury yield and subtract from it the consumer price index (CPI), or the inflationary number. You get either a positive or negative real interest rate.

When that number is negative, gold has tended to be strong. And when it’s positive, gold has in the past been weak.

This month, real interest rates in the U.S. have turned massively positive, putting additional downward pressure on the yellow metal.

HOw real interest rates drive gold

When you look at the yield on a five-year Treasury bond in March 2013, you see that it was 0.88 percent. Take away 1.5 percent inflation, and investors were getting a negative real return of 0.6 percent. This made gold a much more attractive and competitive asset to invest in. March 2013, by the way, was the last time we saw gold above $1,600 per ounce.

Because inflation is in negative territory right now, returns on the five-year Treasury are higher than they’ve been in several quarters. Compared to many other government bonds worldwide, the U.S. five-year Treasury is actually one of the very few whose yields are positive, which tarnishes gold’s appeal somewhat as an investment.

The following oscillator for the five-year period gives you another way to look at the strong inverse relationship between the five-year Treasury bond and gold. As if locked in a synchronized dance, each asset class swings when the other one sways, and vice versa.

HOw real interest rates drive gold

This is why it’s so important to manage expectations.

As Ralph Aldis, portfolio manager of our two precious metals funds, said in our most recent Shareholder Report:

You need to use gold for what it’s best at: portfolio diversification… You have to be a bit of contrarian. Buy it when everybody hates it, sell it when everybody loves it. Our suggestion is to have 5 to 10 percent of your portfolio in gold or gold stocks and rebalance once a year. You might also get some additional benefits by rebalancing quarterly. That’s like playing chess with the market as opposed to rolling craps.