Extraordinary developments in the Gold Market: China pulling it down!

Gold Today The New York gold price closed Friday at $1,238.20 down from $1,244.20 as the market took a breather after the stunning rise of last week. On Monday, with China [open after the week long holiday] prices were pulled back to $1,212, ahead of London’s opening. Then the LBMA set it at $1,208.45 down from $1,239.50 down $31.05 with the dollar index stronger at 96.36 up from Friday’s 95.70.

The dollar is stronger against the euro at $1.1203 up from $1.1283 on Friday. The gold price in the euro was set at €1,078.68 down from €1,098.56.

Early afternoon in London, the gold price was trading at $1,209.35 and in the euro at €1,079.01.  

Silver Today –The silver price in New York closed at $15.72 up 2 cents on Friday.  Early London’s afternoon the silver price stood at $15.30.

Price Drivers

We see an extraordinary situation in the gold market first thing Monday morning.

China has re-opened and New York is closed today. When the Chinese went on holiday at the end of the week before last the gold price was fixed in London’s pm at $1,150.35. Now they return to hear that gold actually hit $1,250+, $100 higher than when they left on holiday.  On top of that, they were ready for a weaker Yuan, but return to find a huge trade surplus and a Yuan stronger by 1%. But the Chinese middle classes don’t move gold for such a small reason. It is more likely that while there will be a ‘shunt-effect’ in gold prices, gold investors there, need to get back in gear before their opinion on prices feeds through.

Of course speculating traders would think it was time to take a profit or so dealers would expect. So prices were pulled back in expectation of this. With New York closed today, U.S. demand is out of the way, leaving the Chinese to get used to these much higher prices until the U.S. returns.

Contributing to the fall in the gold price is the strengthening dollar causing dealers to mark gold prices down.

When the U.S. returns they will be used to prices at the $1,240 area. This will provide a measure of the either disjoint or efficiency of arbitrage to smooth prices in the two markets. Just how far apart are these two markets and just how far can arbitrageurs remove the differences? This will tell us just how global, the gold market is.

Bear in mind the Chinese market has just accepted a $62 rise [with gold prices at $1,212] today and not driven it lower. It may lead to a quick acceptance by them of higher prices this week. Nevertheless, such a correction back to support just above $1,200 is healthy and needed for the gold price to be able to rise solidly.

Friday saw understandable profit taking with a sale of 5.057 tonnes from the SPDR gold ETF but a relatively huge purchase of 4.41 tonnes into the Gold Trust. The holdings of the SPDR gold ETF are now at 710.954 tonnes and at 179.19 tonnes in the Gold Trust. The net result was relatively gold price neutral in New York. The move into the much smaller Gold Trust was the highest one day purchase we have ever seen. We expect the U.S. investors to be buyers when they return tomorrow.

China’s equity market is now in a bear market and with Japan reporting a 1.4% GDP shrinkage, the market opinion is that Abenomics is not working.  Adding to the gloom the rally in the oil price is going to be undermined by the first shipment to Europe of oil this week from Iran.

While the silver price is retreating, it is holding onto the bulk of its gains and clinging close to the gold price still.

 

Julian D.W. Phillips

GoldForecaster.com | SilverForecaster.com | StockBridge Management Alliance

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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