3.2 million oz of COMEX paper gold crashed the price on Tuesday

Gold TodayNew York closed at $1,268.60 yesterday after the previous close of $1,268.70.  London opened at $1,264.65.

    • The $: € was stronger at $1.1199: €1 from $1.1223: €1 yesterday.
    • The Dollar index was stronger at 96.23 from 96.06 yesterday.
    • The Yen was weaker at 103.62: $1 down from 103.11: $1 yesterday against the dollar.
    • The Yuan was weaker at 6.6895: $1 from 6.6820: $1 yesterday.
  • The Pound Sterling was slightly weaker at $1.2728: £1 from yesterday’s $1.2732: £1.

Yuan Gold Fix – the Shanghai Gold Exchange is closed for the Chinese Golden Week holiday

Shanghai remains on holiday. New York prices continue to dominate and will until the Chinese return on Monday.

LBMA price setting:  The LBMA gold price setting was at $1,265.50 against yesterday’s $1,274.00.

The gold price in the euro was set at €1,131.88 against yesterday’s €1,135.27.

Ahead of the opening of New York the gold price was trading at $1,260.25 and in the euro at €1,127.39.  At the same time, the silver price was trading again at $17.56.

Silver Today –The silver price fell to $17.50 at New York’s close yesterday from $17.85, Monday.  

Price Drivers

The evidence is out. 3.2 million ounces of gold futures, not gold, were traded in the first few minutes after New York opened the day before yesterday. This is what caused the fall triggering stop losses.

What all physical gold investors find hard to swallow is the gold prices were affected by no physical dealing. Virtually none of these contracts ever reach maturity but are closed before they do so, so no physical gold changes hands.

Nevertheless, the physical gold markets accepts these evaporating trades as really affecting the gold price, and they do!

Let’s be clear here, if you demanded physical delivery from such a contract, you would be refused and told to accept a cash settlement. Only if you give notice at the start of your contract that delivery must take place and this is matched to a similarly constructed contract, can delivery take place. Between 95% and 99% of contracts on COMEX never reach maturity or involve such physical contracts.

But with China closed and the ICBC/Standard bank a Chinese market maker in London standing on the sidelines and not jumping in on such price falls to buy, COMEX will continue to dominate. The Chinese market maker does have the financial power to take the reins of pricing power, but as yet has not done so. Will the Yuan’s new status be the signal for it to take action? We will have to wait for the ‘Golden Week’ to be over before we have an answer.

With prices looking for the bottom right now, we do expect to see demand from all gold quarters to move in to take advantage of the lower prices. But we do believe we are close to that bottom now.

This is what we think at Gold Forecaster and Stockbridge Management Alliance Ltd? We see the price very close to the Technical targeted bottom. We do see current price areas we see as a major buying opportunity.

Gold ETFs – There were small sales from the Gold Trust (IAU) of 0.323 of a tonne and from the SPDR gold ETF (GLD) yesterday, leaving their respective holdings at 947.629 tonnes and 227.23 tonnes.  The lower prices are still being absorbed by the investors in these shares.

Since January 4th this year, the holdings of these two gold ETFs have risen by 374.88 tonnes.

Silver – Silver prices are stabilizing after the tremendous fall from over $19 and will continue to do so, but should gold make another move soon, silver will follow at a faster pace.

Julian D.W. Phillips

GoldForecaster.com | SilverForecaster.com | StockBridge Management Alliance

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Gold now in bull market: Paper gold breaking down at last?

By Clint Siegner – Money Metals Exchange

Gold officially entered a bull market in last week’s trading with prices gaining more than 20% from their December lows. The silver price also put on some very nice gains, but the price needs to reach about $16.40 before watchers can make the same claim.

If the white metal can exceed last week’s gains of more than 5%, the silver market will reach official bull territory too.

Metals investors will be following the speculation surrounding the upcoming Federal Open Market Committee (FOMC) meeting on March 16th. Recent rallies in stocks, commodities, and oil are raising the odds that officials just might hike rates once again. Their problem is that the rally we’re seeing is largely based upon speculation they would not further tighten.

The FOMC hiked rates in December. The ensuing carnage in the markets during the second half of December and January led to a consensus that officials would abandon attempts at further increases. Some even speculated that officials would completely reverse course and may even implement negative rates. At which point the rally began.

Markets are behaving like the stimulus addicts they have become. The Fed is caught in a trap of its own making. Officials may want to raise rates, but recent experience has shown they won’t be able to pull that off without immediate and profound consequences.

Cracks Widen in Paper Gold Market

Gold investors witnessed a “first” in the markets last week. Constraints emerged in the previously limitless supply of paper gold. Blackrock announced that it was suspending issuance of new shares in the iShare’s Gold Trust (IAU).

The Blackrock press release describes the suspension as temporary. The fund has to make a filing with the SEC before they can resume issuing new shares. Demand for gold since the start of the year apparently caught them flat footed. From the Blackrock press release:

Since the start of 2016, in response to global macroeconomic conditions, demand for gold and for IAU has surged among global investors. IAU has $8 billion in assets under management, and has expanded $1.4 billion year to date. February marked its largest creation activity in the last decade.

The growth in investment demand for gold is extraordinary, but that may not be the only story.

Steve St. Angelo of the SRSrocco Report wonders if Blackrock is telling the whole truth. He asks an important question; why did Blackrock wait until their ability to issue new shares was completely exhausted? If it is just a matter of a routine filing, the halt in sales could have easily been avoided.

One possible answer is the halt has more to do with the increasing shortage of gold registered as available for delivery. Blackrock can make the filing easily enough, but perhaps getting the actual gold bars to back new shares is more of a challenge. In other words, the halt may have more to do with this revelation from ZeroHedge.com:

Stocks of “registered” gold bars – those designated as being available for delivery against futures contracts – continue to dwindle.

In the past, inventory of “allocated” gold was reclassified as registered whenever needed, a quick and simple process. But that isn’t happening this time around. In fact, we are seeing the opposite. Registered stocks are being converted to the “allocated” category and taken off the market.

The COMEX gold cover ratio recently hit 542 ounces of paper gold for every ounce of physical metal. Such extreme leverage is so far off into uncharted territory that it cannot be dismissed.

While it is true historically that a sharp decline in registered bars has never resulted in actual delivery problems, even those quickest to discount the developing shortage must be wondering why the cover ratio is now more than five times its previous all-time high.

The most recent COMEX report shows a little over 11 metric tonnes of registered gold on hand. Consider that the IAU added roughly 19 tonnes in both January and February. The much larger SPDR Gold Trust (GLD) added more than 75 tonnes per month in the first two months of the year.

Meanwhile, according to TFMetalsReport.com, gold demand from both Russia and China continues at about 20 tonnes per month and India imports up to 100 tonnes/month.

Of course, not all of this gold is coming from exchange stockpiles. Mine production covers the bulk of demand. However, the World Gold Council reports gold demand outstripped gold supply by more than 80 tonnes in the fourth quarter of 2015. Those tonnes were, in large part, sourced from the COMEX and other exchange vaults.

The supply deficit in the first quarter of 2016 promises to be far worse. It is time for investors in paper gold – ETFs and futures contracts – to seriously question from whence all of the gold supposedly backing their paper is coming.

SGE IS publishing gold withdrawal figures – but only monthly

I am indebted to Koos Jansen (who else) of www.bullionstar.com for initially guiding us in the right direction, and to LawrieOnGold reader John Bentin and his Chinese speaking wife for interpreting the tables, in that, contrary to our previous assumptions, the Shanghai Gold Exchange (SGE) is still publishing SGE gold withdrawal data – but now only on a monthly, rather than a weekly, basis.  Thus for January 2016, some 225.1 tonnes were withdrawn from the Exchange, compared with 255.4 tonnes in the first month of the record 2015 year when full year deliveries reached 2,596.4 tonnes.  The amount is close to the 228.2 tonnes recorded in December last year, and ahead of November 2015 deliveries of 202.7 tonnes.  In January 2013, the previous record year for SGE deliveries, only 173.7 tonnes were delivered out of the SGE.

Given there can be quite substantial month-to-month fluctuations in withdrawals it is far too early to tell how 2016 will measure up to last year, but the figures do show that gold demand as represented by SGE withdrawals remains at a strong level – 56.3 tonnes  a week on average.  However it remains to be seen how the surge in the gold price over the past few weeks will affect February deliveries (which are anyway likely to be substantially lower due to the week-long Chinese New Year celebrations next week during which the SGE will be closed.)  We will really need to wait until March and April to see how 2016 deliveries are measuring up to previous years.

Even so, the January figures are quite encouraging in showing that gold demand has indeed been holding up pretty well so far.  Overall China and India, where gold imports of over 100 tonnes were recorded in November, look like remaining the key gold market drivers.  We are also seeing a pick up in a third key market, the U.S. where there have been strong gold ETF inflows year to date, and very strong demand for gold coins from the U.S. Mint.  With the gold price up 9% year to date the yellow metal is currently outperforming any other asset class.

(But, be warned.  Gold started off strongly in January 2015 too, also rising by around 9% in the first three weeks of the year.  But from then it was almost all downhill.  This year’s upturn is looking perhaps stronger and longer, and does seem to have more going for it than a year ago, but the price is still largely set by the COMEX paper gold market in New York where huge amounts of virtual metal are traded on a daily basis and there may well be other forces at play here which seem to ignore fundamentals.  Could this yet be déjà vu all over again!!)

Gold’s notable strength in the Euro

Julian Phillips’ latest gold and silver market commentary.

New York closed yesterday at $1,198.80 up $15 with Asia lifting it just over $1,200. The Fix saw the gold price set at $1,199.25 up $12.75 and in the euro, at €986.550 up €10.007 while the euro was barely changed at $1.2156. Ahead of New York’s opening today gold was trading in London at $1,197.80 and in the euro at €985.56.

New York saw short positions closed yesterday with the gold price rising to $1,206 at one point, before settling back to consolidate at $1,200 once more.

There were sales of 1.494 tonnes from the SPDR gold ETF but no change in the Gold Trust yesterday, but this did nothing to slow the recovery of the gold price over $1,200.  The holdings of the SPDR gold ETF are at 710.808 and at 161.73 tonnes in the Gold Trust.

We expect trading ranges to narrow today, the last day of 2014, as we move forward to the point where the gold and silver prices make strong moves into the New Year. What is of note is the strength of gold in the euro at €985.

We expect 2015 to be the first of the next few years of consequences.   We may well see a Fixing or similar established in Shanghai as that market matures and becomes the center of gold trading, overtaking but partnering with London in a 24-hour gold market. It will likely, also be a year when arbitrageurs between the two centers will smooth out the premiums between east and west giving us  a global price all the time.

Just a word on yesterday’s commentary, where we said that, “New York is losing its influence over the gold price.” While New York and London have highly developed markets where traders can move prices around very quickly and make them react in the short-term to most pieces of news, the physical demand for gold has risen to the point where marginal supplies of gold are also being absorbed by the east. This is making it difficult for traders to move physical gold in sufficient amounts to move prices. The physical amounts of gold available for trading the gold price have dropped dramatically in the last two years leaving physical demand from the east reaching in to take most of that stock as well. Consequently, just as oversupply in the oil market has crushed the influence of marginal supplies to dominate prices, so ‘over-demand’ is doing the same in the gold market.

Some will retort that COMEX dominates gold prices due the huge volumes traded there. We again point out that COMEX trades paper and is essentially a financial market and only trades around 5% of its contracts in physical gold that will be delivered.  COMEX traders need to trigger real physical sales or purchases to back up their ‘paper’ transactions to move gold prices. If there are no deliveries of gold on COMEX there can be no impact of COMEX on the gold price. 95%+ of gold contracts on COMEX are closed out before a physical delivery of gold happens.

The silver price is as quick to recover as it is to fall.

 

Julian Phillips is founder and editor of www.goldforecaster.com and www.silverforecaster.com