Gold picks up a little after BoE drops interest rates, adds stimulus

Gold TodayGold closed in New York at $1,358.10 on Wednesday after Tuesday’s close at $1,364.50.  

    • The $: € was up at $1.1135 from $1.1197.
    • The dollar index rose to 95.67 from 95.09 Wednesday.
    • The Yen was weaker at 101.48 from Wednesday’s 101.06 against the dollar.
    • The Yuan was weaker at 6.6409 from 6.6291 Wednesday.
    • Yuan Gold Fix

 

Trade Date Contract Benchmark Price AM Benchmark Price PM
2016  08  4

2016  08  3

SHAU

SHAU

289.78

291.04

289.08

291.42

Dollar equivalent @ $1: 6.6409

$1: 6.6291

$1,357.22

$1,365.55

$1,353.94

$1,356.11

Shanghai prices saw prices consolidate at lower levels ahead of the Bank of England’s statements today. But the main driver of the day was a correcting U.S. dollar in what we see as a normal market reaction to its recent weaknesses.

LBMA price setting:  $1,351.15 after Wednesday 3rd August’s $1,364.40.

The gold price in the euro was set at €1,213.75 up €4.46 from Wednesday’s €1,218.21.

Ahead of the opening in New York the gold price stood at $1,356.90 and in the euro at €1,219.03, but moved back up to over $1,360 as trading progressed.

Silver Today –The silver price closed in New York at $20.41 on Wednesday down from $20.61 on Tuesday.  Ahead of New York’s opening the price was trading at $20.32, but again silver advanced during the day to stand at around $20.38 at midday in New York.

Price Drivers

The Bank of England lowered interest rates by 0.25% and said it had scope to do more if needed, including taking the key rate close to zero, they also announced a plan to lend as much as £100 billion ($132 billion) to banks to ensure the measures reach the real economy. In addition, the Monetary Policy Committee will buy £60 billion of government bonds over six months and as much as £10 billion of corporate bonds in the next 18 months. In total, the balance sheet could expand by £170 billion.

The bank cut its growth forecast for next year to 0.8% from 2.3% and lowered its 2018 prediction to 1.8% from 2.3%. The pound dropped over a percent to $1.3135 immediately after the statement, but this still higher than its level immediately post the Brexit vote..

The dollar’s performance is largely going unnoticed as it continues to trade between 95 and 97 on the dollar index. On the basis of its economy’s performance it should be much stronger. On the basis of its Trade balance the dollar should have collapsed long ago, but the U.S. accounts as the dominant world power which has made the dollar a haven for all other currencies. But this situation is starting to change as its role as the sole currency with which to pay for oil is changing, as is its role as the last resort currency haven. The credibility of currencies as the monetary expression of government is weakening in line with the destabilization of the monetary world.  Gold is not a monetary alternative for many reasons, but it is a vehicle with which to shore up confidence, particularly if it can be eliminated as competition to currencies.

Gold ETFs – In New York on Wednesday there were sales of 0.052 of a tonne sold from the SPDR gold ETF but no change in the Gold Trust holdings. This left their respective holdings at 969.648 tonnes and 219.65 tonnes.

Silver –Silver prices were more cautious today than gold prices ahead of the Bank of England’s announcement.

Julian D.W. Phillips

GoldForecaster.com | SilverForecaster.com | StockBridge Management Alliance [Gold Storage geared to avoid its confiscation]

ETFs main gold price drivers as GLD + IAU combined add close to 400 tonnes this year

 

Gold TodayGold closed in London at $1,355.60 on Tuesday after Monday’s New York close at $1,344.90.  In Asia the gold price jumped ahead of London’s opening and also adjusted for a decidedly weaker Yuan.  

  • The $: € rose to $1.1058 up from $1.1156.
  • The dollar index moved higher to 96.19 from 95.54 yesterday.
  • The Yen was stronger again at 100.41 up from 101.70 against the dollar. It appears that the Bank of Japan has lost its effectiveness.
  • The Yuan was almost weaker at 6.69 from 6.6661 yesterday.
  • The Pound Sterling fell to $1.2987! It was close to $1.48 before Brexit.

Yuan Gold Fix

Trade Date Contract Benchmark Price AM Benchmark Price PM
2016  07  6

2016  07  5

SHAU

SHAU

294.80

288.21

295.00

288.48

Dollar equivalent @ $1: 6.6900

$1: 6.6673

$1,370.60

$1,344.52

$1,371.53

$1,345.78

With HSBC knowing it had to buy over 30 tonnes of gold in London after New York’s purchases of SPDR and Gold Trust shares, to supply the U.S. gold ETFs, it would be expected that the bank would take short-term positions in Shanghai to that extent.

Once London opened they would then find the gold and take it off London’s market, then sell its Shanghai position after the price rise, taking a  turn in Shanghai.

Would this be a conflict of interest? Their role as a Custodian for ETF in the U.S. gives them an advantage over others as they have insider knowledge of the deals, but this is an arbitrage deal of sorts.  Other banks such as Goldman Sachs also had distribution  rights over commodity markets and took advantage of their positions, but worries over the regulatory aspect has obliged them to exit such markets. The arbitrage aspect of HSBC’s position may not make that necessary?

The effect of such demand and how it is handled, as above, puts the pricing power in Shanghai because of this structural aspect. China is the first market to be able to respond to ETF demand.

LBMA price setting:  $1,370.00 up from Tuesday 5th July’s $1,344.75.

The gold price in the euro was set at €1,237.91 up €31.42 from Monday’s €1,206.49.

With New York returning for business today, the gold price ahead of its opening stood at $1,370.00 and in the euro at €1,236.46.  

Silver Today –The silver price closed in London on Monday at $19.95.  Ahead of New York’s opening the price was trading at $20.12.

Price Drivers

There is a new air of crisis in global financial markets this morning as:

  • The pound sterling drops to a new low to $1.2933 this morning in London. This is a victory for Britain’s entrance into the ‘currency war’. Exchange Controls could have protected the pound’s exchange rates, but the advantage of a lower pound and retention of an open economy appears to be better for the U.K. than protection for the pound.
  • The Italian government stands on the brink of bailing out Bank Monti Paschi signaling the start of an Italian banking crisis. Will this spread across the E.U. banking system in a systemic crisis, as many banks look decidedly weak? Bond and shareholders will be asked to carry some of the load should the bank fail.
  • Protectionism is rearing its head again between the U.S. and China on the intellectual property front.
  • German factory orders dropped surprisingly last month [ahead of Brexit] indicating further global growth sagging.
  • U.S., German & Japanese bonds yields hit new lows.

This confirms the fears that Brexit has been the trigger for several crises that were building up before it. Please note this appears to be the start, not the finish of these problems.

Gold ETFs – New York’s demand for gold was seen in the gold ETFs very clearly yesterday as a record amount of gold was bought into the SPDR gold ETF of 28.807 tonnes yesterday. In the Gold Trust 3.26 tonnes of gold was added making its holdings 211.43 tonnes.

These purchases feed through into the London market, where the physical gold is bought for the funds. This caused the price to leap this morning.

Since January 4th this year, the holdings of these two gold ETFs have risen 397.365 tonnes. Until the ‘gold season’ starts in September, Repeat: ETF demand is the main driver of the gold price.

Silver –Silver prices are bounding higher as U.S. investors pile into this small and volatile market.

Julian D.W. Phillips

GoldForecaster.com | SilverForecaster.com | StockBridge Management Alliance [Gold Storage geared to avoid its confiscation]