Gold and Bitcoin Surge on North Korea Fears

Article written prior to the sharpish turndown in the gold price after the weekend.

By Frank Holmes, CEO and Chief Investment Officer, U.S. Global Investors

bicion

If you’re familiar with ABC’s popular reality show Shark Tank, you should already be familiar with the concept behind the San Antonio Angel Network (SAAN). Select entrepreneurs and innovators pitch their startup ideas to accredited investors, who can choose to make early-stage investments in a potentially successful company.

I attended an SAAN meeting last week at Ferrari of San Antonio, and what struck me the most was how fluid and seamless the whole thing is. Other professionals in attendance, including lawyers and CPAs, had a similar opinion, with some of them saying it was because there wasn’t any bureaucracy or red tape to hamstring the presenters.

This is unlike the world of mutual funds, which I believe has become excessively regulated.

As I’ve said numerous times before, regulation is essential, just as referees are essential to a basketball game. No one disputes that, because otherwise there would be chaos.

Similarly, the new and very unregulated world of cryptocurrencies has grown dramatically, beyond bitcoin and ethereum. Did you know there are over 800 cryptocurrencies? These new initial coin offerings, called ICOs, are like initial public offerings (IPOs) but with little regulation or accountability. As I’ve commented before, if the refs get too powerful or too numerous, and the rules too complex, the game becomes nearly unplayable.

Cryptocurrencies Still Draw Investor Attention Following China Crackdown

Bitcoin, ethereum and other cryptocurrencies have had a meteoric year, with more than $2 billion raised in ICOs so far in 2017, according to Bloomberg. Approximately $155 billion in cryptocurrencies are in circulation around the world right now. Bitcoin by itself is at $78 billion, which is close to the $90 billion invested in all gold ETFs.

Cryptocurrencies have made red hot moves this past year
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Like gold, cryptos are favored by those who have a deep distrust of fiat currency, or paper money. Money, after all, is built on trust, and the blockchain technology that bitcoin is built on top of automates trust through an electronic ledger that cannot be altered. Every transaction is anonymous and peer-to-peer. The system is entirely decentralized and democratic. No monetary authority can see who owns what and where money is flowing.

This, of course, is a huge reason why some world governments want to crack down on the Wild West of virtual currencies, especially with bitcoin surging close to $5,000 this month.

China did just that last week, putting a halt to new ICOs and crypto transactions. In response, ethereum tumbled as much as 15.8 percent last Monday, or $55 a unit. Bitcoin lost $394 a unit.

China’s decision comes a little more than a month after the SEC said cryptocurrencies are securities and therefore should probably be regulated as such. At this point, though, the implications are unclear.

What’s clear to me—after seeing firsthand how easily and quickly transactions are made—is that there’s no going back. It’s possible cryptocurrencies will one day be regulated. But I’m confident bitcoin, ethereum and some other virtual currencies offer enough value to weather such a potential roadblock.

I also believe there has to be a happy medium between the excessively regulated fund industry and the potential chaos of the cryptocurrency. This is what I witnessed at the SAAN event I mentioned, which allowed the professionals in attendance to gain information, ask questions and make informed decisions.

Gold Trading Above $1,350 an Ounce

Speaking on cryptocurrencies last week, Mark Mobius, executive chairman of Templeton Emerging Markets Group, said gold could be a beneficiary of China’s decision to clamp down on ICOs. As more governments and central banks turn their attention to virtual currencies, investors could move back into the yellow metal as a store of value.

That’s a possibility, but I think gold’s price action right now is being driven by negative real Treasury yields and fears over a potential conflict with North Korea. Adjusted for inflation, the two-year and five-year Treasuries are both currently yielding negative amounts, and the 10-year continues to fall closer to 0 percent.

Real treasury yeilds fall further
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As I’ve explained numerous times before, gold and real interest rates share an inverse relationship. It makes little sense to invest in an asset that’s guaranteed to cost you money—which is the case with the two-year and five-year government bond right now. Investors seeking a “safe haven” might therefore add to their weighting in gold, especially with North Korea’s Kim Jong-Un raising tensions.

The yellow metal closed (last week) above $1,350 an ounce, more than a one-year high – (but has come down quite sharply this week as some of thge geopolitical fears eased – temporarily perhaps? – Editor).   

Gold price up more than 15 percent year to date
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Despite Efforts to Control Spending, National Debt Expected to Continue Growing: CBO

Similarly driving the gold Fear Trade are concerns over the national debt. Last week President Donald Trump sided with Congressional Democrats in raising the federal borrowing limit to allow Hurricane Harvey recovery aid to pass. An initial package of $7.85 billion for Harvey victims was agreed upon, but with total costs expected to be as high as $190 billion—more than the combined costs of Hurricanes Katrina and Sandy—and with Hurricane Irma the federal aid amount could eventually run even higher.

Trump partially ran on reigning in government spending, which I and many others would like to see. Even so, this might not be enough to control our runaway debt. According to an August report by the Congressional Budget Office (CBO), debt will likely continue to grow as spending for large federal benefit programs—Social Security, Medicare and the like—outpaces revenue. Interest payments on the debt will only continue to accelerate as well.

Below is a chart showing national debt as a percentage of GDP going back to the founding of the U.S. Although we’ve seen periodic spikes in response to national crises, the debt could soar to unprecedented levels within the next 10 years.

Federal debt expected to continue rising
click to enlarge

Financial writer Alex Green, the Oxford Club’s chief strategist, told me during my recent interview with him that he thought out-of-control spending posed a greater threat to our country than even North Korea.

I tend to agree with him, and that’s why I believe that investors should have a 10 percent allocation in gold, with 5 percent in bullion and 5 percent in gold stocks, mutual funds and ETFs.

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Gold will go to $2,000 plus on coming central bank failure – Michael Pento

Mike Gleason* of Money Metals Exchange interviews Michael Pento.  Below is a transcript.  However the interview is also available on a YouTube video and if you’d prefer to watch the video here’s a link to it: https://www.youtube.com/watch?v=3QKushYDGH0.  The interview was recorded before North Korea conducted its H-Bomb test on Sunday and gold has moved up a few notches as a result, but that does not detract from Michael Pento’s overall message – it perhaps brings the timing scenario forwards.

Mike Gleason: It is my privilege to welcome in Michael Pento, President and founder of Pento Portfolio Strategies, and author of the book, The Coming Bond Market Collapse: How to Survive the Demise of the U.S. Debt Market. Michael is a well-known and successful money manager, and has been a regular guest on CNBC, Bloomberg, Fox Business News, and also the Money Medals Podcast, and shares his astute insights on markets and geopolitics from the perspective of an Austrian school economist viewpoint.

It’s always a real pleasure to have him on with us. Michael, welcome back and how are you?

Michael Pento: I’m doing fine and thank you for having me back on Mike.

Mike Gleason: Well Michael, let’s start out here with the topic that is dominating the news. Hurricane Harvey has laid waste to Houston, and the Texas Gulf coast. But Wall Street doesn’t seem to be bothered. Gold and silver have got a bit of a boost, but the equity market shrugged it off. This all makes me think back of the parable of the broken window, which was introduced by the well-known 19th century economist, Frédéric Bastiat, where he described why the money spent to recover from destruction is not actually a benefit to society.

But Michael, it appears as though Wall Street and the financial world might be buying into the idea of the broken window fallacy and viewing it as truth, and that all the destruction will somehow be good for the economy. What are your comments there, and what do you makes of the market’s initial response here, to this terrible, terrible tragedy?

Michael Pento: I guess it’s part of the hyperbole and hysteria that encompasses Wall Street right now. Nothing can knock down the stock market. You didn’t even mention the fact that North Korea Kim Jung-un, his new regime, launched his 80th scud missile, and they’re ICBM’s, ballistic missiles, into the Sea of Japan and over Japan, and towards southern, south Sea of Japan. And nobody seems to care. As a matter of fact, the market rallied, from being down about 150 points in the pre-market to, I think, plus 58 on the DOW, yesterday (Tueday).

There’s nothing (that) can harm this market. The reason for that … The simple reason behind that, is that central banks have printed 15 trillion dollars’ worth of confetti and counterfeit money, leading out of the financial crisis, from 2008 to today. 15 trillion and counting. You know, don’t forget you still have 60 billion euros per month, over in Europe, and you’ve got the Swiss Central Bank. You’ve got the Bank of Japan, which is hopefully enamored with money printing in it, at least Mr. Kuroda, the head of the BoJ, understands that he can never, never, even think about, or hint about reducing his quantitative easing, or QQE program that he has.

Going back to Frédéric Bastiat … Wall Street, very low level of thinking, very idiotic group of individuals, who actually … I was listening to CNBC, comment about how … By the way my heart and my prayers go out to the people in Houston, and now in Louisiana. I heard a commentator on the show saying, “Hey, but let’s look at the good news here. Look at all the construction that’s going to happen, so this is actually a boom for the economy.” Well, you know, if you follow that philosophy, then we might as well just bulldoze all the houses, and all of the physical structures in the United States. That’s how you grow GDP. You don’t grow GDP through productivity, and you don’t grow GDP by increasing and boosting your labor force.

The new way of growing productivity now, is to break things, and to pray for catastrophic storms. Of course, they never think about where the money comes from. In other words, if I was going to fix this pane of glass, in the analogy that you brought up, the broken window analogy … Well, I was going to buy a pair of shoes, and now I have to spend that money on fixing the pane of glass. Or, if I have to just borrow that money, that money that’s borrowed, to fix the glass, would have been borrowed to, perhaps buy capital goods, and expand the economy. And of course, if that money is just printed, well then, we have the scourge of inflation. There is no magic. There is no free lunch, in anything, and especially in economics. That’s true.

Mike Gleason: When the flooding in Texas moves out of the news, the coming fight over the debt ceiling could be front and center. Now, it looked like, to us a fight was brewing with a contingent of conservative Republicans revolting on one flank, and Democrats looking to thwart Trump and his agenda, everywhere possible, on another. Trump and GOP leadership have their hands full, getting a bill to hike the borrowing limit passed. But it could be that Hurricane Harvey will be used to prevent a big fight here, relief for Texas, might be inserted into the bill to raise the borrowing cap. And few politicians will object for fear of being criticized. With that said, are you expecting a fight over the debt ceiling to be significant Michael? And any chance, we could see a government shut down here?

Michael Pento: Well, at first glance, a prima facie look at this, is that I expect more dysfunction in DC. I predicted this when Donald Trump was elected. I said that his massive reform of healthcare, his tax reform packages would be both, deluded, and delayed, and that’s exactly what has happened. And of course, Wall Street likes to look at every event as a positive. The glass is always half full. So, now they’re saying that we have hurricane that we have to pay for, that this is going to somehow make the passage of everything, tax reform, construction spending, infrastructure, the debt ceiling, the budget. Everything’s going to go smoothly.

I have my doubts. I run an actively managed portfolio. So, the base case scenario is dysfunction in DC. That has been very, very prudent, and a correct path to assume and to take. I believe it’s not going to go smoothly. I believe that we have to pass the budget by the end of September, and raise the debt ceiling by middle of October. Now, Mnuchin and Mulvaney, they were on opposite sides of this, but now they’re on the same talking points as Trump. They just want to raise the debt ceiling cleanly. But I don’t think the Tea Party Republicans, in the House of Representatives are going to go alone with that, so yes there will be a fight, even if they try to attach this hurricane spending bill, infrastructure bill to it.

Mike Gleason: The U.S. dollar isn’t looking too good these days. We’ve seen pretty steady decline, since the beginning of the year. Of course, the dollar is a terribly flawed instrument, and the fact that the DXY index traded at an all-time high late last year, was more a testament to just how bad other major world currencies must be. Where do you think we’re going from here? Is the dollar going to head lower?

Michael Pento: Well, we went from about 80 on the DXY … which is heavily weighted towards the euro … from 80 to above 100, in anticipation of what? Anticipation of Mr. Trump getting a lot of his agenda passed, rather quickly. And also the divergence between the two major central banks, between ECB and the Federal Reserve. And where, as we see now, things not shaking out that well at all. We see the dollar index has dropped from above 100, now at major support around 92. If it breaks through 92 on the DXY, I think it could head towards 80. All eyes are on the ECB. The ECB is primarily in charge here.

If Mario Draghi, on September seventh, announces a tapering of his 60 billion per euro a month, asset purchase program, I would expect the euro to skyrocket, and the dollar to fall precipitately, right through that 92, towards 80. And, of course if he does not taper his asset purchase program, then the dollar could catch a bid and head back towards 100.

That’s why, again, I run an actively managed portfolio, trying to guess the minds of these megalomaniac schizophrenics, that run central banks, is very, very difficult, so it’s best to have, not a passive ETF strategy, buy and hold, and then forget about your money. You have to actively manage your portfolio. So, I will react to, what Mario Draghi does. European GDP growth is not very strong, but getting stronger. They are missing on the inflation target, just as we are here in the United States, at least the way central banks measure inflation, if you don’t count everything that’s going up, like medical costs, and college tuition, and asset prices. So, who knows what they’re going to do, but you have to be reactive, rather than just proactive in this kind of environment.

Mike Gleason: Staying on monetary policy here for a moment. Any thoughts on where Trump goes with his Fed chair appointee early next year? Any chance Yellen get reappointed, or does he bring in somebody even more dovish? What do you think?

Michael Pento: Well, it’s hard to get someone more dovish than Janet Yellen, but … I guess, you know, I don’t have any special insight here. Gary Cohen would be my best guess, because Trump likes to put his fingerprint on everything, and he needs somebody in there who is going to really fight for low interest rates, and for deregulation policy. Yellen kind of submarines herself at Jackson Hole, talking about the importance of regulation in the banking system. So, my best guess is that, come February 2018, that we have a new Fed chair, and that person is Gary Cohen, who will really fight hard for low interest rates, and a weak dollar. Both those things espoused by our President Trump, not candidate Trump, President Trump, and there’s a difference.

Mike Gleason: Yeah. Very important distinction there, for sure. Let’s dig into the gold and silver markets here for a minute. Now, demand in the retail bullion market continues to be pretty soft. To our way of thinking. That can be largely attributed to a few factors. First off, bullion investors are more optimistic about a Trump Presidency, than the Obama Presidency.

Another is that, precious metals prices really haven’t been going anywhere for a while now. And then, also, those who have been buying gold and silver as a safe haven, have probably, just gotten exhausted. They’ve been on high alert, expecting significant fallout, resulting from ultra-loose Fed policy, massive Federal deficits, unlimited borrowing, et cetera.

But the reckoning, it never seems to come, so are bullion investors just going to have to live a while longer here, in purgatory, or do you see anything exciting developing in the months ahead for the metals?

Michael Pento: Oh. I see something very exciting developing. So, we have a condition here across the United States and in Europe – not in Japan as I mentioned – where we have central banks that absolutely believe they have solved all of the global, economic problems. And, what they have done instead, they’ve engendered, they’ve fostered a huge increase in debt. We have about a 70 trillion dollar increase in debt, coming out of the great recession. We have 230 trillion dollars of debt now in the globe. It’s about 330%, just about 330% of global GDP. And the entire global economy, as anemic as it is, and people talk about this global synchronized growth…

Global growth is not anywhere near where it was in the early 2000’s. We’re about – globally speaking, you look at the major developed economies – they’re about one percent, one to two percent. There is no big expanse in global growth, but whatever global growth there is, it totally and completely hinges on continued low interest rates. And central banks have now convinced that they’ve solved all our problems, as I said. And now, you look at the Fed, who entered QE in 2014, and now we’re getting ready for quantitative tightening, reverse QE to start this year.

And surely, I’m 100% convinced, if it doesn’t start in September, at least in the early part of 2018, Mario Draghi and the ECB, will start to taper, it’s assets. They were 80 billion. Now, they’re 60 billion. He’s going to be reducing his asset purchase program towards zero, certainly by the end of 2018. So, when that happens, you’re going to have … and the Fed likes to talk about tapering, they’re not selling assets, they’re just letting them roll off the balance sheet… assets do not roll off of a Fed’s balance sheet. When the Federal Reserve has a note due, what they’re going to do, is ask the treasury to pay them this note. Well, the treasury has no money.

So, the treasury has to sell an amount equal to the note due to the Fed. The treasury then, has to not only sell this debt, but has to now, service this debt, whereas before those interest payments were being refunded by the Fed to the treasury. And when the Fed gets this money, it’s retired. So, you’re talking about a draining of the money supply. You’re talking about that happening, not only in the United States, but also in Europe. And who’s going to buy all this debt?

Now, the debt has absolutely, as I said, skyrocketed, 70 trillion dollars increase. There isn’t any private source for this funding. No one is going to buy a German bund, yielding .37%, when there is no central bank around, and the central bank is getting ready to sell assets. There isn’t anybody who’s going to buy a U.S. 10-year note, yielding 2.2%, or 2.15 as we make this recording. Nobody is going to make that purchase, when the Federal Reserve is getting ready to sell trillions of dollars. They have four and a half trillion dollar balance sheet. If they take it down to two and a half, it’s two trillion dollars’ worth of mortgage backed securities and treasuries that are going to be adding to that a trillion-dollar deficit that we already have. Deficits go up huge, as interests rates go up. Interest rates rise. It’s a very vicious, counterproductive cycle.

If we have higher debt service costs for every one percent to 200 billion dollars. We have one trillion dollar in deficits, because of demographics. And if we have a recession, deficits will rise and buy an additional trillion dollars. We can have deficits well over two, approaching three trillion dollars, with no help from the government. This is going to cause, whatever relatively anemic economic growth to falter substantially.

And I will add this. We already have the automotive sector, and the real estate sector rolling over in this country. If we have a spike in interest rates, which will emanate from the ECB, whenever they decide to start tapering assets, and the German Bund rises towards nominal GDP, which is close to three percent, actually above three percent. You go from .37% to over three percent, that’s going to drag up yields across the globe, and that’s when the situations really going to be extremely pernicious.

And what’s going to happen then … now the gold market is already sniffing this out, by the way, as we breached $1,300 an ounce a couple of days ago … the gold market is sniffing out this: that central banks are going to have to get back into the QE programs, across the board. And when that happens, faith in fiat currencies – not just the dollar, all fiat currencies – is going to falter very dramatically. You see some of this, not only in the gold market, but you see this phenomenon in the cryptocurrency world.

There is going to be a dramatic watershed, trench and drop in the faith of central bankers. That’s the biggest bubble of all. And when that pops, gold’s going to go back to its all-time high, and well surpassing that level too. So, look for $2,000 an ounce gold. It’s going to happen rather quickly. I think it’s going to happen within the next couple of years, and you already see the beginnings of that happening today.

Mike Gleason: Well, we’ll leave it there. Fantastic stuff as always. Michael, it’s great to have you on, we respect your insights quite a bit. It’s excellent to have you join us every few months.

Now, before we let you go, as we always do, please tell people, who want to both read and hear more of your wonderful market commentaries, and also learn about your firm, and how they could potentially become a client, if they want to do that. Please tell them, how they can find out more information.

Michael Pento: Sure. You can email me directly, mpento@pentoport.com. My website is www.PentoPort.com. The office number here is 732-772-9500. Be glad to talk to you.

Mike Gleason: Well, thanks again Michael. Enjoy the Labor Day weekend. We look forward to catching up with you again later this year. Take care, my friend.

Michael Pento: Thanks again for having me back on Mike.

 

Mike Gleason

Even another flash crash can’t keep gold price down for long

This is a lightly edited version of one first posted on the Sharps Pixley news website

2 million ounces of gold were dumped on the gold market in a minute on Friday, just ahead of Janet Yellen’s speech at Jackson Hole – and, after a very brief downwards spike to below $1,280, the gold price rapidly climbed back to unchanged.  This has to be an incredibly bullish signal for gold in that even this amount of presumably paper gold thrown at it (62.2 tonnes) couldn’t keep the gold price down.  Bloomberg described the 2 million ounce trade as ‘mysterious’.  Perhaps at least that is a welcome change from the usual ‘fat finger’ attribution which seems to be applied to these seemingly increasingly frequent mega-sales of paper gold which, despite protestations to the contrary, seem to be designed to keep the gold price suppressed.

Today, the gold price drifted upwards ahead of New York’s opening and then, at around 11.00 am New York time the price spiked upwards sharply, soaring through the $1,300 psychological barrier.  The question is where to next?

The key here may well be what has been happening with physical gold.  On Friday the SPDR Gold Shares ETF (GLD) had almost 6 tonnes of gold bought into it.  GLD has thus seen 18.33 tonnes of physical gold added to it in 2 weeks after what we might describe as ‘mysteriously’ seeing some 80 tonnes withdrawn over the previous two months – during which time the gold price didn’t seem to be spooked by this amount of gold being taken out of the world’s biggest gold ETF.  We had already pointed out the anomaly that America’s second biggest gold ETF – the iShares Gold Trust (IAU) – had not seen corresponding metal liquidations.  The Swiss gold import and export statistics, also reported in these pages, had shown that there appears to be a ready market in Asia for any physical gold released in the west, and this could well be a sign that gold could be moving into a short supply situation in the West.  If America starts buying physical gold again, we could thus see big price rises with buyers bidding up what might be an increasingly rare commodity.

As I write, the gold price rise seems to have stalled at the $1,310 level and there will almost certainly be attempts to drive it down, or at least prevent it rising further.  But it does seem to have some momentum behind it and could well move up to the $1,320s.  But, as we have pointed out before, this time next week is the U.S. Labor Day holiday and this often seems to provide an inflection point in economic trends.  It could presage a sell-off in gold or see the price boosted into the stratosphere, figuratively speaking.  Nothing is simple with gold.  But if gold gets a boost after September 4th we could see equities – and perhaps bitcoin – moving sharply in the other direction.  Both would seem to be in bubble situations and sooner or later all bubbles burst.

We’d rather bet on gold than alternatives.  Even if there is a gold price turndown ahead it is likely to be relatively minor, while the fall, when it comes, as come it must, in equities and bitcoin could be devastating.  Food for thought ahead of the U.S. holiday weekend.

Gold pausing before tackling $1,300

Gold Today –New York closed at $1,293.80 yesterday after closing at $1,279.60 Monday. London opened at $1,292.65 today. 

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

         The $: € was slightly weaker at $1.1254 after yesterday’s $1.1246: €1.

         The Dollar index was slightly weaker at 96.68 after yesterday’s 96.73

         The Yen was stronger at 109.30 after yesterday’s 109.52:$1. 

         The Yuan was stronger at 6.7931 after yesterday’s 6.7954: $1. 

         The Pound Sterling was slightly weaker at $1.2898 after yesterday’s $1.2904: £1.

Yuan Gold Fix
Trade Date     Contract Benchmark Price AM 1 gm Benchmark Price PM 1 gm
      2017    6    7

     2017    6    6

     2017    6    5

SHAU

SHAU

SHAU

 

 

282.37

281.27

 

Trading at 283.60

282.97

281.35

 

$ equivalent 1oz at 0.995 fineness

@    $1: 6.7931

       $1: 6.7954

       $1: 6.8036     

 

   

 

$1,287.45

$1,280.86

 

Trading at $1,293.52

$1,290.19

$1,281.55

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 rose to the same level as Shanghai yesterday. Today, Shanghai is pausing at the same level. London opened at almost the same level as Shanghai.

Once again we see all three centers with gold prices at the same level. This is only the second time this has happened. The first was in the last month.

Silver Today –Silver closed at $17.69 yesterday after $17.57 at New York’s close Monday.

LBMA price setting:  The LBMA gold price was set this morning at $1,292.70 from yesterday’s $1,287.85.  The gold price in the euro was set at €1,151.01 after yesterday’s €1,144.40.

Ahead of the opening of New York the gold price was trading at $1,291.75 and in the euro at €1,150.37. At the same time, the silver price was trading at $17.67. 

Price Drivers

British Elections happen tomorrow. With the discussions around the size of the conservative majority it appears to us that the result will not affect the gold price.

Draghi and the E.U.

With inflation falling in the E.U. problems in the banking sector [Banco Popular has just been taken over by Santander in Spain]  Draghi, who has repeatedly said that policy makers must be convinced that inflation can rise toward 2% on its own, before removing monetary stimulus, is set to leave the current stimulus position in place through the rest of this year. This is positive for gold.

The Dollar

As you can see above, the dollar index continues to slip to a point where, if it falls to the lower 95 levels, it enters a bear market.  This is the main influence on the gold price, not the short term political news.

But this does not simply mean a falling dollar, it points to disruption in the global monetary system as all the globe’s currencies will be affected. It points to the proximity of a move from a dollar hegemony system to a multi-currency system. Within these changes lies a growing relevance of gold.

The environment globally, continues to be positive for gold.

Gold ETFs – Yesterday, saw purchases of 4.61 tonnes of gold into the SPDR gold ETF, but no change in the holdings of the Gold Trust. Their holdings are now at 855.163 tonnes and, at 205 tonnes respectively.

Since January 6th 2017 48.369 tonnes have been added to the SPDR gold ETF and the Gold Trust.

Julian D.W. Phillips – GoldForecaster.com | SilverForecaster.com | StockBridge Management Alliance 

Will Gold and Silver Pull Back or March Ahead?

By Stefan Gleason*

Either way, long-term gold bulls shouldn’t sweat this particular technical level. Major bull markets need to pull back and reconsolidate periodically.

Whether that starts happening this week, or later on at higher price levels, a downturn of some magnitude is inevitable.

One indicator that may be pointing toward a pullback sooner rather than later is the negative divergence in gold mining stocks which are often leading indicators for the yellow metal.

Gold Price Chart

Despite gold spot prices rallying along with the broader U.S. equity market last week, the HUI Gold BUGS (Basket of Unhedged Gold Stocks) Index fell by 3.8%. That suggests that some big institutional speculators are turning bearish on gold near term.

If you’re looking to accumulate bullion, a pullback should be welcomed as an opportunity to get in at lower levels. Long-term bulls will not want to see anything as severe as the drawdown that occurred in the second half of 2016, however. They will be looking for any coming correction to bottom out above the $1,125/oz low hit in December.

Higher highs and higher lows characterize a major bull market. The December 2016 low was a higher low than the one from 2015. A higher high will occur when gold prices can move above $1,375. At that point, the public might start taking notice of precious metals markets – which so far this year have been overshadowed by the series of record highs in the U.S. stock market.

President Donald Trump has taken credit for the rally in stocks. His vows to cut taxes and regulations have, no doubt, driven buying by investors.

Over the weekend, Trump sent out this tweet: “Great optimism for future of U.S. business, AND JOBS, with the DOW having an 11th straight record close. Big tax & regulation cuts coming!”

Great optimism for future of U.S. business, AND JOBS, with the DOW having an 11th straight record close. Big tax & regulation cuts coming!

Trump also wants a weaker dollar to help boost U.S. manufacturing. That could put him in conflict with the Janet Yellen Fed if it moves to raise interest rates.

Trump will have the opportunity to appoint multiple new members to the Federal Reserve Board. It’s one of the reasons why top financial and geopolitical analyst Jim Rickards is so bullish on gold.

“If Trump follows through on the logic of the cheaper dollar, he’s going to appoint doves to the Board. The market’s going to get the signal immediately and the price of gold is going to soar,” Rickards said in a recent Money Metals podcast interview. “We’ve got some very short run headwinds, maybe between now and April, but for certainly the second half, even the last three quarters of the year, I’m extremely bullish on gold.”

There will be some bumps along the way. But those who hang on tight for the ride in gold and silver markets stand to be rewarded.

Will Shanghai pull gold price through $1,200?

Gold Today –New York closed at $1,187.20 on the 10th January after closing at $1,182.50 on the 9th January. London opened again at $1,190.40 today.

 Overall the dollar is stronger against global currencies today. Before London’s opening:

         The $: € was stronger at $1.0554: €1 from $1.0611: €1 yesterday.

         The Dollar index was stronger at 102.09 from 101.66 yesterday. 

         The Yen was weaker at 116.05: $1 from yesterday’s 115.40 against the dollar. 

         The Yuan was stronger at 6.9225: $1, from 6.9244: $1, yesterday. 

         The Pound Sterling was slightly stronger at $1.2156: £1 from yesterday’s $1.2150: £1.

 Yuan Gold Fix

Trade Date Contract Benchmark Price AM 1 gm Benchmark Price PM 1 gm
      2017    1    11

     2016    1    10

      2016  12    9

SHAU

SHAU

SHAU

/

267.22

265.27

/

268.41

265.71

$ equivalent 1oz @  $1: 6.9225

      $1: 6.9244

$1: 6.9329

  /

$1,200.65

$1,191.56

/

$1,205.99

$1,193.53

Please note that the Shanghai Fixes are for 1 gm of gold. From the Middle Eat 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.]

 If Shanghai is leading the way for the gold price, we would expect London and New York to rise too. Consequently, the gold price needs to move to $1,200 for it to be in line with Shanghai now.

Shanghai on Tuesday was $13 higher than the close of New York. This morning London opened only $10.59 lower than yesterday’s Shanghai closing. And this strength in gold is happening while the dollar is rising and the Yuan slipping slightly.

Meanwhile the People’s Bank of China has reported a fall in its gold reserves of in December by 20.98 tonnes. Is this a change in direction of the PBoC? We don’t accept that for a second.  The Chinese authorities are rarely clear on such subjects and often don’t give a full picture of their situation, as it is not in their interests to do so. So this figure could be some sort of window dressing for our benefit. We know they use two agencies to hold gold on their behalf until it suits them to take the gold into reserves. They could easily have handed it back to the non-reporting one on a temporary basis. What we do know is that it is illegal to export gold from China. We also know that the SGE itself can hold gold and does not disclose it.

LBMA price setting:  The LBMA gold price setting was at $1,187.55 this morning against yesterday’s $1,183.20. 

The gold price in the euro was set higher at €1,128.31 after Friday’s €1,117.60 as the dollar strengthened.

Ahead of the opening of New York the gold price was trading at $1,188.15 and in the euro at €1,131.46.  At the same time, the silver price was trading at $16.77. 

Silver Today –Silver closed at $16.79 at New York’s close yesterday from $16.57 on the 9th January. 

Price Drivers

We decided to look at the gold market through the eyes of a non-professional at the gold market. It quickly became clear just how easy it was to be informed in a way that distorted the true picture and confuse investors.

For instance, when you hear that gold rose x% in sterling or y% in the dollar, that ignores the fact that the gold market is a global market where prices reflect the global market demand and supply eventually.

We would prefer to see, “the dollar fell against gold, or sterling fell against gold”, a reflection of currency performance, not gold’s performance.

As you have read in these reports the gold price is rising in all currencies at the moment, with both London and New York trying to catch up to Shanghai prices. New York and London have not moved up because of what Prime Minister May said, but that gold prices in sterling rose because of the pound’s fall.

No event in the U.S. has caused gold to move up this week. It has moved up because of global demand and supply factors. In China demand for gold is robust. In the U.S. there was a very big sale [nearly 9 tonnes] of gold in one day earlier this week, so if the gold price was driven by U.S. factors alone, the gold price would have fallen. It didn’t, it rose!

After all gold is a currency, it is both an asset and cash, globally.  

Relevant factors to the global gold price must not be local factors, unless they globally affect the gold price. Most that are attributed to moving the gold price just aren’t.

That’s why understanding just where gold’s pricing power lies is so important.

That’s why understanding currencies is so critical to understanding the gold price.

Gold ETFs – Yesterday, in New York, there were no sales from the SPDR gold ETF or any from the Gold Trust, leaving their respective holdings at 804.996 tonnes and 198.30 tonnes. 

As we said in an earlier report, “Substantial sales of gold on a daily basis are needed for New York to control the gold price”.

Julian D.W. Phillips 

 GoldForecaster.com | SilverForecaster.com | StockBridge Management Alliance 

Did sentiment for gold change with the New Year?

Gold Today –New York closed at $1,159.50 on the 3rd January after closing at $1,151.70 on the 30th December. London opened again at $1,166.30 today.

 Overall the dollar is weaker against global currencies today. Before London’s opening:

         The $: € was weaker at $1.0441: €1 from $1.0310: €1 yesterday.

         The Dollar index was weaker at 102.98 from 103.09 yesterday. 

         The Yen was stronger at 117.56: $1 from yesterday’s 117.92 against the dollar. 

         The Yuan was stronger at 6.9321: $1, from 6.9566: $1, yesterday. 

         The Pound Sterling was slightly weaker at $1.2270: £1 from yesterday’s $1.2280: £1.

 Yuan Gold Fix

Trade Date Contract Benchmark Price AM 1 gm Benchmark Price PM 1 gm
      2017    1    4

     2016    1    3

      2016  12    30

SHAU

SHAU

SHAU

/

264.34

264.16

/

264.30

264.70

$ equivalent 1oz @  $1: 6.9321

      $1: 6.9566

$1: 6.9340

  /

$1,181.88

$1,184.93

/

$1,181.70

$1,187.35

Please note that the Shanghai Fixes are for 1 gm of gold. From the Middle Eat 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.]

 As you can see from the above figures [yesterday’s not today’s, as today are only released tomorrow] the discount to Shanghai’s prices is narrowing. Shanghai prices continue to rise showing good demand, but London and New York’s prices are rising faster, despite strong sales from gold ETFs. Against New York’s prices Shanghai was trading $16.38 higher, but against London Shanghai was trading only $10.40 higher. The change in sentiment in the global gold markets is now evidenced by these rising prices.

LBMA price setting:  The LBMA gold price setting was at $1,165.90 this morning against yesterday’s $1,148.65. 

The gold price in the euro was set higher at €1,117.51 after yesterday’s €1,106.01.

Ahead of the opening of New York the gold price was trading at $1,165.15 and in the euro at €1,117.22.  At the same time, the silver price was trading at $.16.42

 Silver Today –Silver closed at $16.29 at New York’s close yesterday from $16.21 on the 30th December. 

Price Drivers

With a weaker dollar today, gold has jumped in the dollar but even more so in the euro.  But what is remarkable is that there was a huge sale of gold from the SPDR gold ETF, which did not move the gold price down. Instead the gold price rose and more so than appeared justified by the fall in the dollar.  We can attribute this to the ongoing pull of Chinese prices and demand in Shanghai. The fact that gold prices went higher in London tells us that the gold sold from the SPDR gold ETF was not sold into London this morning, indicating it is on its way to Shanghai.

It does look like gold prices are no longer headed lower so we do expect a more vigorous response in the gold price as the market is overhung with huge short positions in the Futures and Options markets. Any return of U.S. buyers of the shares in the SPDR gold ETF will act as an accelerant to this rise.

Gold ETFs – Yesterday in New York, there were sales of 8.299 tonnes from the SPDR gold ETF but no change in the holdings of the Gold Trust, leaving their respective holdings at 813.871 tonnes and 196.20 tonnes. This was a significant tonnage unloaded onto the market and should have knocked the price down. As the Custodian HSBC is the one who either takes this amount onto its books, or usually sells it into London, we did not see any impact on London’s prices.

Since January 4th this year, 209.601 tonnes of gold has been added to the SPDR gold ETF and to the Gold Trust.  We are almost at half the level accumulated in 2016.

Julian D.W. Phillips 

 GoldForecaster.com | SilverForecaster.com | StockBridge Management Alliance 

Big gold sales from GLD Friday but having little price impact

Gold Today –New York closed at $1,133.40 Friday after closing at $1,127.4 on the 15th December. London opened again at $1,140.85 today.

 Overall the dollar is slightly weaker against global currencies today.

         The $: € was weaker at $1.0415: €1 from $1.0441: €1 Friday.

         The Dollar index was stronger at 103.09 from 102.95 Friday. 

         The Yen was stronger at 117.11: $1 from yesterday’s 118.17 against the dollar. 

         The Yuan was much weaker at 6.9510: $1 from 6.9463 $1 yesterday. 

         The Pound Sterling was weaker at $1.2373: £1 from yesterday’s $1.2430: £1.

 Yuan Gold Fix

Trade Date Contract Benchmark Price AM 1 gm Benchmark Price PM 1 gm
      2016  12    19

      2016  12    16

      2016  12    15

SHAU

SHAU

SHAU

/

261.65

263.55

/

261.75

263.45

$ equivalent 1oz @  $1: 6.9510

      $1: 6.9463

$1: 6.9352

  /

$1,171.59

$1,181.99

/

$1,172.04

$1,181.54

Please note that the Shanghai Fixes are for 1 gm of gold. From the Middle Eat 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.]

 Shanghai prices were not available when we produced this report.

LBMA price setting:  The LBMA gold price setting was at $1,137.60 this morning against Friday’s $1,134.85. 

The gold price in the euro was set higher at €1,092.11 after Friday’s €1,085.31.

Ahead of the opening of New York the gold price was trading at $1,139.75 and in the euro at €1,093.71.  At the same time, the silver price was trading at $16.10.

 Silver Today –Silver closed at $16.09 at New York’s close Friday from $16.00 on the 15th December. 

 Price Drivers

This week’s performance by gold and silver will be the result of two factors:

  1. The dollar.
  2. Gold ETF sales or purchases.

We feel that the dollar has run too far, for too long on the back of hopes under the Trump administration. It is certainly against the interest of the U.S. to have a strong dollar at this point in the U.S.

With the Yuan continuing to fall we may well see our forecast of 7.00 against the dollar reached by the end of this year. In 2017 we expect more falls in the Chinese currency. Let’s be clear on this, if the dollar continues to strengthen much more, the likelihood of import controls via stringent tariffs increases.

Trump’s rhetoric, via Tweets against China, are not stopping, making the divisions between the U.S. and China ever greater.  While China is pragmatic it also understands the many ways it can retaliate to its advantage.

As such we do expect to see gold demand increase from China and for a strong dollar to be capped in 2017. In a divided world, under tension, gold sees greater demand as history has shown throughout the ages.

2017 will see such tension and happenings that are the unforeseen, unforeseen. It will not be a quiet year. With gold prices at current levels we see gold not being far from its bottom. This next fortnight will confirm this, we think.

Gold ETFs – Friday, there were sales of 5.333 tonnes from the SPDR gold ETF and sales 0f 0.75 of a tonne from the Gold Trust, leaving their respective holdings at 836.991 tonnes and 195.60 tonnes. These sales were again large, but had no impact on the gold price. It would appear that when sales are ONLY as large as this, the buoyancy of the market is stronger than such sales.

The influence of the dollar exchange rate seems greater than physical sales at the moment!

Since January 4th this year, 232.121 tonnes of gold has been added to the SPDR gold ETF and to the Gold Trust. 

Julian D.W. Phillips 

 GoldForecaster.com | SilverForecaster.com | StockBridge Management Alliance 

Deliberations on the U.S. Fed rate rise and gold

Two articles published by me on sharpspixley.com in the aftermath of this week’s FOMC meeting announcing a 25 basis point U.S. interest rate rise and looking ahead to three more in 2017.  Despite virtually every analyst and commentator predicting the increase which should have suggested that the rise had already been discounted in the recently weaker gold price the news precipitated a further $20 plus fall despite this.  This totally disregarded the Fed predicting three rate rises in 2016 the last time it increased rates by 25 basis points, exactly a year ago, and then failing to raise rates at all until now.  How short memories are – particularly in the financial world.  And how poor the Fed’s record has been in predicting the path of the U.S. economy.  Perhaps it will be all-change in 2017 under the somewhat unpredictable President-elect Trump, but we see some hopes being damped.  Whether gold will benefit, or continue to weaken, will probably depend on the big money which is likely to continue setting paper gold prices which still dominate, although Shanghai is doing its best to bolster prices – so far to little avail.

The first of the two Sharps Pixley articles written a couple of hours after the rate increase decision was announced, and the accompanying Fed forecast can be read by clicking on this link: Gold hammered on U.S. Fed rate decision.

The second was written the following morning (UK time) as the gold price continued to weaken and the dollar index to strengthen.  Indeed much of gold’s fall could be put down to dollar strength rather than gold weakness, although offloading of gold from the big gold ETFs did continue which will not have helped sentiment.  To read this article click here: Gold and silver dip further as dollar continues on upwards path.

Today the rise in the U.S. dollar index appears to have halted and precious metals prices appear to have stabilised.  Whether that will continue into next week we do not know given the gold bears appear to be in the ascendant, but there is an impression gold has been oversold, the dollar overcooked and maybe, just maybe, something of a precious metals recovery is already under way.

Major divergence between SGE and London gold benchmarks

Readers of lawrieongold will be well aware that I have not been posting articles here during my recent nearly 8-week hospitalisation.  I am happy to say that I am now recuperating at home – still very shaky on my feet so not getting out much, but fully intend to get back writing again, so here is an edited version of an article I published on the Sharps Pixley website yesterday.  To read the original article click here

The principal additional comment I’d like to make here is to note the almost 20 hour time difference between the Shanghai and London PM ‘fixes’.  In a rapidly moving gold market this can account for a significant price change and some days will indeed have seen that, but in general terms this won’t have accounted for nearly all the difference.  There has definitely been a sharp anomaly between Shanghai and London prices as can be noted from the Shanghai fixes and the Western spot prices as noted by sites like kitco.com at the same time, and in all cases the Shanghai price has been significantly higher.  Do read the article bearing this in mind.  It follows below:

Few seem to have commented on what appears to be an increasing trend towards large anomalies appearing between the Shanghai and London gold benchmark prices.  Up until the beginning of November prices were pretty much in sync give or take a few dollars – a variation based on trading activity during the day, and, in some cases due to a difference between the gold tenor quality required under the two systems.  The SGE specification is for 99.99% gold content or better, while London works to LBMA Good Delivery specifications where the requirement is only 99.5%.  But on one ounce of gold this should only make for a maximum difference in price of around $5-6 at around a $1200 gold spot price.

But recently – as the table below comparing SGE and LBMA (London) PM price benchmarks for the past month makes very obvious the price difference – virtually always strongly in favour of the SGE benchmark since early in the month.  This has been consistently $10-20 or more (often $20-30) – even rising as high as $46 on November 23rd, although a significant part of this difference on that day was due to the sharp intra-day fall in the London gold price,  (as noted in the introductory paragraph above) as will also have been the case on November 9th when there was a somewhat similar $45 difference.

Note that this morning the Shanghai set benchmark price at $1,197.17 was around $24 higher than the prevailing spot gold price on the international market at the same time!

SGE and London PM Gold ‘Fixes’ (US$

Date SGE PM Gold Price London PM Gold Price Price diffce. SGE PM over London
Nov 1st 1283.95 1288.45 -4.50
Nov 2nd 1296.08 1303.75 -7.67
Nov 3rd 1306.66 1301.00 +5.66
Nov 4th 1300.75 1302.80 – 2.05
Nov 7th 1293.91 1283.05 +10.86
Nov 8th 1290.17 1282.35 +7.82
Nov 9th 1326.88 1281.40 +45.48
Nov 10th 1293.91 1267.50 +26.41
Nov 11th 1267.47 1236.45 +31.02
Nov 14th 1227.97 1213.60 +14.37
Nov 15th 1236.99 1226.95 +10.04
Nov 16th 1241.65 1229.20 +15.45
Nov 17th 1237.30 1226.75 +10.55
Nov 18th 1219.26 1211.00 +8.26
Nov 21st 1224.54 1214.25 +10.29
Nov 22nd 1235.43 1212.25 +23.18
Nov 23rd 1231.70 1185.35 +46.35
Nov 24th 1212.41 1186.10 +26.31
Nov 25th 1200.91 1187.70 +13.21
Nov 28th 1218.64 1187.00 +31.64
Nov 29th 1216.15 1186.55 +29.60
Nov 30th 1210.24 1178.10 +32.14
Dec 1st 1199.35 1161.85 +37.50

Source: www.Kitco.com

As we pointed out here yesterday a part of the reasoning behind the higher SGE benchmark price levels is something of a squeeze on Chinese gold supply which is local market specific – particularly now that gold traders and fabricators may be looking to build stocks ahead of anticipated additional demand from the Chinese New Year holiday, and a reported reduction in gold import quotas by the Chinese Government to curb capital outflows. But part may also be due to Shanghai looking to establish itself as the true gold price setting exchange and thus usurping the still dominant position of COMEX and the LBMA.  As China is the world’s biggest physical gold market, while COMEX and London are largely paper markets, it is probably only a matter of time before this comes to pass but for the moment the Western markets look to still be calling the tune as far as the accepted global gold price is concerned despite some hugely anomalous movements from time to time which many observers put down to manipulation.  The latest such was only yesterday when a rise in U.S. jobless claims, which might normally be considered gold positive, saw the price marked down sharply after an initial small rise.

Gold back on the Fed Grindstone

Edited version of another of my articles published on the Sharps Pixley website.  To read original click here

Gold followers will hardly be unaware that every time a Fed Open Market Committee Meeting draws near the gold price moves, often  quite sharply, on the will she, won’t she prospect of Janet Yellen announcing that at long last the Fed will start to raise interest rates again.  Now we are coming up to the December FOMC meeting – a full year after the last Fed rate rise.  Well the meeting is due to take place on December 13thand 14th and perhaps there is actually a realistic likelihood that indeed on this occasion it will be a case of ‘she will’.

So the gold price has been moving accordingly, but perhaps not quite in such a volatile manner as on previous occasions when the likelihood of a Fed rate raising decision was rather more uncertain.  During European and North American trading the futures markets have managed to control it in the $1,170s and $1,180s for the most part, with a so far brief foray into the $1.160s but any moves to the higher levels seem to be swiftly capped and brought back down again.  There does seem to have been something of a plethora of adverse gold price comment being released at present and when this has happened in the past it has sometimes been associated with a significant price takedown.  It remains to be seen whether this is a portent of yet another instance of such.

The anomaly here appears to be the Shanghai Gold Exchange Benchmark Pricing which seems to be coming in at levels above $1,200 two or three times this week so far, although these higher levels don’t seem to appear in the Kitco gold price charts.  We do know that Chinese gold prices are running higher at the moment and carrying the highest price premiums over London and New York prices seen for some time.  Some put this down to reports that the Chinese Government is already restricting, or is planning to restrict, the number of gold import licences.  This has been running in parallel to rumours that India, the other major global importer of gold, is planning to ban gold imports altogether, although one suspects that if this were to happen the amount of gold smuggled into the country would soar.  The caution here though is that when Chinese and Indian demand was just about at its strongest back in 2012, the gold price tanked due to heavy withdrawals out of the big gold ETFs and we have again been seeing some major outflows from GLD in particular.

The other reason for the Chinese high premiums – reportedly approaching $30 an ounce on some days – is that traditionally this is the time of year for Chinese fabricators and gold retail outlets to stock up ahead of the Lunar New Year festivities which can create temporary gold shortages, particularly in a year when gold imports have been running at a lower level.  In 2017 the Chinese New Year falls on January 28th, followed by a full week of holidays (The Spring Festival Golden Week) and gold has always played a hugely significant part in gift giving over the period.

It should be noted, though, in respect of something of an anti-gold media campaign that reports are surfacing that a number of major bank analysts are now seeing a period of substantial gold price weakness ahead coupled with the Fed rate rise decision. and more  Whether these analysts should be given any credence or not given most analysts were predicting that a Donald Trump victory in the U.S. Presidential election would see gold surge and the stock market crash, is a moot point.

Perhaps before drawing any conclusions one should wait for the results of this weekend’s Italian constitutional referendum.  A defeat for the Renzi  Government position,  which the opinion polls are suggesting, given the set anti-euro positions of the opposition could put the EU in turmoil again, which could give the gold price a welcome boost.  But then, after the Brexit vote and the U.S. Presidential election result, who believes the opinion polls any more?

In the context of a Fed rate increase those with only a short memory may also recall that after the last rate increase a year ago, gold fell back just a little, and briefly, in a knee-jerk reaction and then set off on a six month bull run!

The past year has seen a number of major destabilising events occurring (the Brexit vote, Trump victory and Indian banknote cancellation fiasco all within the past few months) and with the Italian referendum perhaps adding another.  In the long term such uncertainties have to be gold positive, but  there could well be some negatives in the interim and perhaps the first will be the actuality of a Fed rate increase.  Prepare for a bumpy ride.Gold

Battle reigns in the physical gold markets

Gold TodayNew York closed yesterday at $1,328.90 Friday.  London opened at $1,327.00.

    • The $: € was slightly stronger at $1.1219 down from $1.1271 Friday.
    • The Dollar index was weaker at 94.40 from 94.94 Friday.
    • The Yen was stronger at 102.08 up from 102.12 Friday against the dollar.
    • The Yuan was weaker at 6.6808 from 6.6798 Friday.

 

  • The Pound Sterling was weaker at $1.3297 from Friday’s $1.3297.

 

Yuan Gold Fix

Trade Date Contract Benchmark Price AM Benchmark Price PM
     2016  09  12

     2016  09  9

SHAU

SHAU

285.53

287.79

286.04

287.75

Dollar equivalent @ $1: 6.6808

$1: 6.6798

$1,329.33

$1,340.05

$1,331.70

$1,339.86

Shanghai has always been keen to go higher than London and New York. This is not because there is a shortage of gold, waiting for imports using premiums to attract it to the country. China’s supply from outside describes its huge appetite, which is continuing. Shanghai continues to try to keep its prices in line with other global gold markets.

Physical supplies will continue to flow into the country while New York prices are being held back.

The difference on Friday was that just under 12 tonnes of gold was sold from the SPDR gold ETF which caused the fall in the gold price.  Physical sales of gold such as these do drive the gold price down, just as earlier, 14 tonne purchases drove it up to $1,350. The battle in the physical markets is on!

LBMA price setting:  The LBMA gold price setting on Monday was at $1,327.50. Friday it was at set at $1,335.65.

The gold price in the euro was set on Monday at €1,183.05 against Friday’s 1,185.61.

Ahead of the opening of New York the gold price was trading at $1,327.10 and in the euro at €1,182.38.  At the same time, the silver price was trading at $18.85.

 

Silver Today –The silver price was pulled back to $19.07 at New York’s close on Friday down from $19.62, Thursday.  

Price Drivers

Today, we have a very important question on the shape of the global economy and in particular the U.S. economy. After so much stimuli globally, inflation should have taken off by now. It hasn’t. All it has managed to do is to counter deflation leaving both interests and inflation at extremely low levels.

But something else is happening: Liquidity levels are dropping, as is the velocity of money.

Central bank efforts, via stimuli, appear to be starting to lose the battle against deflation. In the past, when this has happened, the pressure to add more stimuli to the economy to continue to counter deflation grows. But larger and larger amounts also fail and even more stimulus is needed to counter rising deflation. More is added, then more needed and so on. At some point inflation takes off like a rocket but also fails to counter deflation, which also takes off, with an economy now starting to shrink. This is a fact of history and one very much in danger of being repeated!

Are we on the brink of that?

This time round governments will be unable to act strongly, as in many developed countries, they appear to be emasculated having not acted decisively since the ‘credit crunch’. And central banks, which should have been backed by government actions, were left holding the baby, without the full array of tools to even approach the problem. They are looking increasingly exhausted and unable to anything different, only more of the same.

The prime loser will be the value of currencies as they fall in value against gold [and silver].

Gold ETFs – There was a massive sale of 11.871 tonnes from the SPDR gold ETF but no change in the holdings of the Gold Trust, leaving their respective holdings at 939.940 tonnes and 225.39 tonnes. This sale did not cause the gold price to breakdown convincingly. We expect the next moves by large SPDR gold investors may give the gold price the direction it is looking for.

Silver – The silver price tumbled lower to just above $19.00 showing the typical exaggeration of the moves in the gold price. Silver price volatility will continue.

Julian D.W. Phillips

GoldForecaster.com | SilverForecaster.com | StockBridge Management Alliance

Could be a volatile long weekend for gold as U.S. holiday kicks in

Gold Today –Gold closed in New York at $1,313.30 on Thursday after Wednesday’s close at $1,308.30.  London opened at $1,310.

–         The $: € was weaker at $1.1182 down from $1.1134 yesterday.

–         The dollar index was weaker at 95.79 from 96.11 yesterday.

–         The Yen was almost unchanged at 103.57 from yesterday’s 103.55 against the dollar.

–         The Yuan was slightly weaker at 6.6823 from 6.6801 yesterday.

–         The Pound Sterling was stronger at $1.3267 from yesterday’s $1.3140.

Yuan Gold Fix

Trade Date Contract Benchmark Price AM Benchmark Price PM
      2016  09  2

2016  09 1

SHAU

SHAU

282.69

282.32

282.50

281.63

Dollar equivalent @ $1: 6.6823

$1: 6.6801

  $1,315.81

$1,314.52

$1,314.93

$1,311.31

After New York pulled up from its lows around $1,305 to $1,313 Shanghai stabilized too, following New York, as did London.

The Yuan weakened against the dollar while the dollar weakened against other currencies. It was a day when the U.S. began to wind down ahead of the long weekend.

LBMA price setting:  The LBMA gold price setting on Friday was at $1,311.50. On Thursday it was at set at $1,305.70.

The gold price in the euro was set on Friday at €1,172.34 up slightly on Thursday’s 1,171.45.

Ahead of the opening in New York the gold price was trading at $1,314.05 and in the euro at€1,174.20.  The silver price is trading at $18.87 ahead of New York’s opening. Gold surged in New York following the poorer than expected nonfarm payroll increases in August.  At one time spot gold rose to over $1,130 before coming back down to the mid to low $1320s as trading progressed.

Silver Today –The silver price closed in New York at $18.87 Thursday up from $18.65 Wednesday. 

Price Drivers

Today in New York markets should be quiet as the long weekend has begun for so many. While the trading desks will have few dealers on hand the day is a great opportunity for those large speculators who like to create big movements in prices.

This week alone has seen attempts on COMEX to crush the gold price with High Frequency Trading dumping $1.5 billion worth of Futures contracts onto the market. The day before yesterday and yesterday saw over 17 tonnes of gold dropped into the physical market [which should feed through to London] and yet the gold price in the last day has bounced off $1,306.

With markets now closed from end of business today until Tuesday, there may well be position-squaring to minimize exposure for such a long time [three days in markets is a long time]. Perhaps that is what happened this week, as it is also a week when one month ended and another began.

Nevertheless, the markets are vulnerable to great volatility.

Some may say that it is the dire situation in Venezuela that’s caused the sell-off in gold. We have difficulty with that as this would be seen in London’s market and prices, not in New York, on COMEX or in the SPDR gold ETF. They would be selling directly to willing buyers and more likely to be courted by those looking for large tonnages which would go direct to the sellers and not through the market place.

Gold ETFs – In New York yesterday there was another large sale of 5.342 tonnes from the SPDR gold ETF (GLD)but no change in the holdings of the Gold Trust (IAU). This left their respective holdings at 937.89 tonnes and 225.44 tonnes.

Silver – The silver price was higher at London’s opening, after New York again took it higher. It simply took gold to stabilize at current levels for silver to continue rising. Market stability has certainly made both dealers and buyer feel that the silver price has fallen too far.

Julian D.W. Phillips

GoldForecaster.com | SilverForecaster.com | StockBridge Management Alliance

Gold Jumps on Latest U.S. Data

Gold continues to be strongly driven by speculation as to if and when the U.S. Fed will decide to increase interest rates.  But this mood is very much data driven and while some positive figures last week, coupled with what were taken as some potentially hawkish statements by the Fed Chair and Vice Chair, had led to some sharpish falls in the gold price on the expectation that this had put the possibility of an interest rate increase announcement following the FOMC meeting to be held on September 20th and 21stback on the cards.  But data this week in the form of a poor ISM manufacturing figure, and now a considered-weak nonfarm payrolls increase, have reversed the gold price movement as now a September rate hike announcement is seen as unlikely again.

The latest employment figure suggesting the U.S. had added 151,000 jobs during August, as against expectations of 175,000 to 185,000, with a jobless rate of 4.8% saw gold spike by nearly $20 at one time to above $1330, on the publication of the announcement, before starting to slip back a little again.  Traders and analysts now appear to see no Fed rate increase announcement until the December FOMC meeting – to be held on the 13th and 14th of that month – if then.  That will be yet another blow to the Fed’s economic forecasting credibility given that it has consistently over-estimated U.S. growth and had suggested at the end of last year there would be three or four rate increases this as it moved to ‘normalize’ rates, while so far there have been none.

It is actually a moot point as to whether the U.S. economy is actually in recession or not.  The stock market certainly suggests otherwise but this is buoyed up by low interest rates and Fed monetary policy, whereas some other key indicators make more negative reading.  Apart from the slower than anticipated job growth and the Chicago PMI downturn to below 50, it is apparent that the stronger dollar is impacting manufacturers who export adversely, while the latest domestic news from the auto industry in that sales turned down 4.2% in August.  Reuters reports that some carmakers say the industry has peaked and that a long-expected decline due to softer consumer demand had begun.  All is not well in the world’s largest economy!

Gold only sensitive to exchange rates and ETF movements for now

Gold TodayGold closed in New York at $1,343.40 on Monday after Friday’s close at $1,341.00.  London opened at $1,341 again.

    • The $: € was at $1.1335 with a wide spread, from $1.1305.
    • The dollar index was at 94.39 from 94.64 Monday.
    • The Yen was at 100.15 from Monday’s 100.48 against the dollar.
    • The Yuan was weaker at 6.6447 from 6.6540 Monday.

 

  • The Pound Sterling was at $1.3184 from Monday’s $1.3144.

 

Yuan Gold Fix

Trade Date Contract Benchmark Price AM Benchmark Price PM
2016  08  23

2016  08  22

SHAU

SHAU

286.47

286.54

286.56

/

Dollar equivalent @ $1: 6.6447

$1: 6.6540

$1,340.96

$1,339.40

$1,341.37

$1,354.55

All global gold markets, together with global currencies seem to be moving sideways today.

The Yuan is trying to hold onto the 6.65 area, we presume because we are about to enter the month in which if finally becomes one of the currencies making up the S.D.R.  Thereafter we expect any restraint on the Yuan going weaker [gently] will be lifted.

The dollar, at the same time, continues to show a slightly weakening trend holding at lower levels.

LBMA price setting:  $1,338.50 after Monday 22nd August’s $1,334.30.

The gold price in the euro was set at €1,181.69 down €7.51 from Friday’s €1,189.80.

Ahead of the opening in New York the gold price stood at $1,341.65 and in the euro at €1,183.17.  

Silver Today –The silver price closed in New York at $18.99 on Monday down from $19.75 on Friday.  Ahead of New York’s opening the price was trading at $19.03.

Price Drivers

The market in gold remains sensitive to exchange rate moves and to purchases and sales in the gold ETFs There is little else of substance to move these prices currently.

Janet Yellen is due to speak today, but is expected to remain dovish on rate hikes. Hence the better tone in the gold market.

China has been given the OK to issue an S.D.R. bond, purchasable in Renminbi only, by the World Bank. This new bond issuance is 2 billion SDRs which is equivalent to $2.8 billion.

The precise timing of issue and individual bond terms will be based on favorable market conditions, at the time of issuance.

This is a bold move and one aimed at further internationalization of the Yuan.  It will also make the IMF very happy as the S.D.R. has not been credible money in use widely, itself. By issuing only in the Renminbi any international investor must purchase the Yuan. And this is China’s aim, to widen the use of the Chinese currency as far as possible.

Gold ETFs – In New York on Monday there were purchases of 2.375 tonnes into the SPDR gold ETF (GLD) but no change in the holdings of the iShares Gold Trust (IAU). This left their respective holdings at 958.369 tonnes and 223.85 tonnes.

Silver –Silver prices now holding around $19.00 and will remain sensitive to even small moves in the gold price.

Julian D.W. Phillips

GoldForecaster.com | SilverForecaster.com | StockBridge Management Alliance

Fundamental change in gold price structure under way

Gold TodayGold closed in New York at $1,352.70 on Thursday after Wednesday’s close at $1,346.50.  London opened at $1,341 but immediately recovered to $1,346 before rising further.

    • The $: € was correcting at $1.1307 from $1.1329.
    • The dollar index was correcting at 94.52 from 94.35 Thursday.
    • The Yen was correcting slightly at 100.20 from Thursday’s 100.08 against the dollar.
    • The Yuan was weaker at 6.6517 from 6.6324 Thursday.

 

  • The Pound Sterling was slightly weaker at $1.3122 down from Thursday’s $1.3144.

 

Yuan Gold Fix

Trade Date Contract Benchmark Price AM Benchmark Price PM
2016  08  19

2016  08  18

SHAU

SHAU

288.02

288.80

288.68

288.84

Dollar equivalent @ $1: 6.6517

$1: 6.6324

$1,346.79

$1,354.36

$1,349.87

$1,354.55

New York closed higher than Shanghai’s whole day as Shanghai gold prices remain steady in Yuan!

It was a rapidly weakening Yuan exchange rate against the dollar that was responsible for dollar gold prices to fall. The combination of the Yuan price of gold and the move in the Yuan exchange rate affecting dollar gold prices this way, is just what the Shanghai Gold Exchange wanted. When they established the Fix an accompanying statement made it clear that it was not just to give SGE gold prices but to promote the use of the Yuan in such dealings. Here it is!

The Yuan throughout the week has being doing just that as it gyrated up and down.  The dollar, at the same time, while showing a weakening trend, has been comparatively steady.

We will watch this feature going forward as it indicates where pricing power lies.

LBMA price setting:  $1,346.85 after Thursday 18th August’s $1,347.10.

The gold price in the euro was set at €1,189.80 up €1.20 from Thursday’s €1,188.60.

Ahead of the opening in New York the gold price stood at $1,345.20 and in the euro at €1,187.55.  

Silver Today –The silver price closed in New York at $19.75 on Thursday down from $19.66 on Wednesday.  Ahead of New York’s opening the price was trading at $19.45.

Price Drivers

Long time readers of this daily report will know that we believe a fundamental change in the structure of the gold price is underway with pricing power slowly but surely headed eastwards to Shanghai.

With COMEX, a ‘paper gold’ market with the exception of between 1 & 5% physical dealings, yet controlling the dollar gold price and London, a secondary influence, despite it having a considerably larger measure of physical dealing in its midst, the fundamentals of gold demand and supply have become secondary to the influences of economic events on the gold price.

With China the largest physical gold market in the world and dealings based on physical content it overshadows the rest of the world’s gold markets already and yet this is not apparent. We know it will happen, so we follow the Shanghai Gold Fixings carefully to see the change in influence over the gold price come through and show itself in the price. What we have seen this week, in Shanghai and the Yuan gold price, is a shift away from the dollar in establishing the gold price. If the Chinese get what they want the main gold price will be a Yuan price and not a dollar price!

Gold ETFs – In New York on Tuesday there were sales of 1.781 tonnes from the SPDR gold ETF but no change in the holdings of the Gold Trust. This left their respective holdings at 955.994 tonnes and 223.85 tonnes.

Silver –Silver prices are dropping as they exaggerate gold’s small slippage, but, as always, will turn if gold breaks through resistance. If gold does not, we expect to see silver hold around these levels as they have already discounted a fall in the gold price.

Julian D.W. Phillips

GoldForecaster.com | SilverForecaster.com | StockBridge Management Alliance