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.

Advertisements

Gold and silver moving up, China taking control?

Gold TodayNew York closed at $1,254.60 on yesterday after the previous close of $1,251.40.  London opened at $1,260.00.

    • The $: € was weaker at $1.1004: €1 from $1.0097: €1 yesterday.
    • The Dollar index was weaker at 97.73 from 97.94 yesterday.
    • The Yen was stronger at 103.90: $1 from 104.10: $1 yesterday against the dollar.
    • The Yuan was slightly stronger at 6.7378: $1 from 6.7388: $1 yesterday.

 

  • The Pound Sterling was stronger at $1.2276: £1 from Friday’s $1.2179 £1.

 

Yuan Gold Fix

Trade Date Contract Benchmark Price AM 1 gm Benchmark Price PM 1 gm
     2016  10  18

     2016  10  17

SHAU

SHAU

273.89

272.53

273.84

273.03

Dollar equivalent

1 oz @ $1: 6.7378

$1: 6.7388

$1264.35

$1,257.88

$1,264.12

$1,260.19

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.

The difference between New York’s close and Shanghai’s gold prices  is gaining momentum. Yesterday and today there is a $10 difference, commonly referred to as the ‘premium in Shanghai. Such a comment implies that Shanghai has to add on an amount because gold is less available there and must wait for imports to even out prices. But the reality is that China has more than enough physical gold to satisfy the market on ‘normal’ days. When demand is growing ahead of supplies, it’s because of a short-term increase in demand over supply, a different feature. That’s why prices rise anywhere in the world. The question to be asked is, “Which price reflects the balance of supply and demand better and which price should world markets, as well as suppliers and buyers, use as a basis for their contracts?”

Yesterday saw a partial answer to that as the Dubai gold exchange signed a contract to use the Shanghai Fixings in place of the London Fixings. Clearly, the Shanghai physical gold market [the biggest physical market in the world] is thought to better represent physical gold prices than COMEX paper market prices. Shanghai is negotiating with other exchanges to use Shanghai Fixings in their markets. This will sap the power of both New York and London over gold prices. As you can see London is much close to Shanghai prices than to New York’s prices now. Is pricing power on its way to Shanghai now, permanently?

LBMA price setting:  The LBMA gold price setting was at $1,261.65 against yesterday’s $1,252.70. The gold price in the euro was set higher at €1,146.95 against yesterday’s €1,139.85.

Ahead of the opening of New York the gold price was trading at $1,261.00 and in the euro at €1,146.36.  At the same time, the silver price was trading again at $17.60.

Silver Today –The silver price fell to $17.44 at New York’s close yesterday from $17.45, Friday.  

Price Drivers

In what is an extraordinary turn of events, Deutsche Bank AG has agreed to pay $38 million to settle U.S. litigation over allegations it illegally conspired with other banks to fix silver prices at the expense of investors, yesterday. It is also cooperating with the authorities to provide evidence that HSBC Holdings Plc and Bank of Nova Scotia (ScotiaBank) rigged silver prices through a secret daily meeting called the Silver Fix, and accused UBS AG of exploiting that fix. The case against UBS AG has been dismissed. The alleged conspiracy started by 1999 and suppressed prices on roughly $30 billion of silver and silver financial instruments traded each year, and enabled the banks to pocket returns that could top 100% annualized. The unethical, immoral behavior of the banks continues and feeds their loss or reputation that now covers a host of industries.

The question of, did such behavior happen in the gold market, lies unanswered! The greater liquidity in the gold market would make it more difficult, but it is the banks that control the prices of both precious metals, so it appears likely that they behaved badly there too.

Gold ETFs – There were purchases of 1.78 tonnes into the SPDR gold ETF but no change in the holdings of the Gold Trust, leaving their respective holdings at 967.208 tonnes and 227.56 tonnes.  This did not change the gold price at all. But again, U.S. investment demand is seen to remain positive is serving to stabilize prices at current levels.

Since January 4th this year, the holdings of these two gold ETFs have risen by 393.789 tonnes.

Silver – Silver prices continue to mark time alongside gold waiting for the breakout one way o the other.

Julian D.W. Phillips

GoldForecaster.com | SilverForecaster.com | StockBridge Management Alliance

Big gold ETF inlow gives gold small boost

Gold TodayNew York closed Friday at $1,310.90.  London opened at $1,318.

    • The $: € was stronger at $1.1159: €1 from $1.1240: €1 Friday.
    • The Dollar index was stronger at 95.92 from 95.30 Friday.
    • The Yen was slightly weaker at 102.04: $1 down from 102.00: $1 Friday against the dollar.
    • The Yuan was slightly stronger at 6.6737: $1 from 6.6740: $1 Friday.

 

  • The Pound Sterling was very weak at $1.3058: £1 from Friday’s $1.3229: £1.

 

Yuan Gold Fix

Trade Date Contract Benchmark Price AM Benchmark Price PM
     2016  09  19

     2016  09  15

SHAU

SHAU

282.79

/

283.49

/

Dollar equivalent @ $1: 6.6737

$1: 6.6740

$1,317.97

/

$1,321.23

/

With Shanghai back in business we see it registered the purchase into the SPDR gold ETF and took the price higher. On the surface it looked like Shanghai was walking its own road after the holidays, but with the SPDR having to find the gold in London today to supply the Friday buying we feel that Shanghai was fulfilling its role in the 24-hour global gold market.

LBMA price setting:  The LBMA gold price setting on Thursday was at $1,315.05. Friday it was at set at $1,314.25.

The gold price in the euro was set at €1,178.41 against yesterday’s €1,171.03.

Ahead of the opening of New York the gold price was trading at $1,314.80 and in the euro at €1,177.98.  At the same time, the silver price was trading at $19.12.

Silver Today –The silver price was dropped to $18.77 at New York’s close Friday down from $18.98, Thursday.  

Price Drivers

The gold price received a positive input from heavy buying into the fund as you can see below. This has led to Shanghai and London lifting prices today. The buying and selling into the SPDR gold ETF continues to be the main driving force behind the gold price. As we said on Friday, “… the drifting nature of the gold price could be turned back just as fast by a large buy order.” This is what we are seeing now.

This week we expect market moving action from the Bank of Japan in the potential stimuli additions it may announce, or not. With the FOMC also due to meet this week we expect to hear a great deal of chatter on the subject of a rate hike until then.

Indian – The Indian government plans a proposal that includes a major increase in the tax on gold and other precious metals. The gold markets in India expect a Sales Tax between 2%-6%. Precious metals are currently taxed at between 1%-1.6%. If this happens, we expect a loud outcry from those on whom it is imposed.

We have pointed out how Indians are unwilling to bow to government on import duties, as well as Sales tax impositions including striking against such taxes. Normally, taxes deter the buying of gold, but in India there is a long tradition of smuggling gold into the country, with the public more than happy to disobey government and what is seen as their corrupt bureaucrats when policing the trade. We can just hear the whooping from smugglers at the prospect of such an imposition of tax. It will simply serve to make their business more profitable and to expand. As to gauging the volume of smuggled gold into the country, any figures should be treated as uninformed guesses. We have heard figures of between 150 and 250 tonnes per year, but have to question the willingness and veracity of smugglers who come forward with such statistics. It could be much higher! Right now such speculation is likely to spur demand ahead of such an imposition.

Gold ETFs – There was a huge purchase of 10.386 tonnes of gold into the SPDR gold ETF (GLD) but no change in the Gold Trust (IAU)Friday, leaving their respective holdings at 942.611 tonnes and 225.84 tonnes.

Since January 4th this year, the holdings of these two gold ETFs have risen by 368.149 tonnes.

Silver – Silver prices are back over $19.00 showing great resistance to falling too far into the $18.00 area.

Julian D.W. Phillips

GoldForecaster.com | SilverForecaster.com | StockBridge Management Alliance

Gold and silver looking for direction

Gold TodayNew York closed yesterday at $1,327.00 yesterday.  London opened at $1,333.00.

    • The $: € was slightly weaker at $1.1232: €1 down from $1.1219: €1 yesterday.
    • The Dollar index was stronger at 95.30 from 94.40 yesterday.
    • The Yen was stronger at 102.18: $1 up from 102.08: $1 yesterday against the dollar.
    • The Yuan was slightly weaker at 6.6800: $1 from 6.6808: $1 yesterday.

 

  • The Pound Sterling was weaker at $1.3263: £1 from yesterday’s $1.3297: £1.

 

Yuan Gold Fix

Trade Date Contract Benchmark Price AM Benchmark Price PM
     2016  09  13

     2016  09  12

SHAU

SHAU

286.64

285.53

286.14

286.04

Dollar equivalent @ $1: 6.6800

$1: 6.6808

$1,334.66

$1,329.33

$1,332.33

$1,331.70

Shanghai went $6 higher than New York and London followed this price at the opening before pulling back to New York’s close at the LBMA price setting. We are watching to see if this is the start of pricing in Shanghai separating itself from New York. London’s pricing seems to respect Shanghai and could be asking the same question.

We are seeing China stabilizing as the throes of developing an internal economy pull this way and that. The government appears to have an iron grip on the economy which also appears to be following the course it wants. The benefit for gold is that is middle classes continue to grow steadily. They continue to have affection for gold and will continue to do so for the foreseeable future.

LBMA price setting:  The LBMA gold price setting on Monday was at $1,328.50. Yesterday it was at set at $1,327.50.

The gold price in the euro was set at €1,182.26 against yesterday’s €1,183.05.

Ahead of the opening of New York the gold price was trading at $1,325.90 and in the euro at €1,179.89.  At the same time, the silver price was trading at $19.09.

Silver Today –The silver price was lifted to $19.13 at New York’s close yesterday up from $19.07, Monday.  

Price Drivers

Yesterday, another Fed spokesperson spoke on the market obsession of when a rate hike is to occur. She encouraged prudence and caution on when this might happen. This has been read that a hike in September is not going to happen even though it is to be discussed. The markets now react to any person involved in the FOMC committee. This does not make forward guidance a bit ridiculous as it is market reaction that is at fault. To us this is a reflection of the myopic nature of markets which do not seem to look at the facts but at the emotion involved with feeling in the Fed member’s statements.

The wise understand as much as is involved as possible and then take their positions. Otherwise it would be simply reacting to gossip. Traders make money and lose money this way, but investors make money understanding the fundamentals and the structure of markets.  

Gold ETFs – There were no sales or purchases from or into the SPDR or Gold Trust yesterday, leaving their respective holdings at 939.940 tonnes and 225.39 tonnes.

Silver – Like gold, the silver price appears unwilling to fall through support, at $19 in silver’s case,  for any length of time. Silver will follow gold and neither its Technical picture nor its fundamentals, a pattern set some years ago. It is still being treated as a monetary metal and has been throughout those years.

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

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]

Gold rising; silver too even more so but may see a temporary pause

Silver bounding higher, gold still rising as structural damage begins to be realized!

Gold TodayGold closed in New York at $1,323.70 after yesterday’s $1,317.60.  In Asia the gold price jumped higher and London was trying to take the gold price higher just after its opening.  

  • The $: € slipped to $1.1152 down from $1.1067.
  • The dollar index moved higher to 95.89 from 95.51 yesterday.
  • The Yen strengthened slightly [102.65 down from 102.88].
  • The Yuan was strengthening up to 6.6572 from 6.6441 yesterday.

Yuan Gold Fix

Trade Date Contract Benchmark Price AM Benchmark Price PM
2016  07  1

2016  06  30

SHAU

SHAU

284.54

281.54

285.50

281.78

Dollar equivalent @ $1: 6.6572

$1: 6.6441

$1,329.42

$1,317.99

$1,333.90

$1,319.12

Once again Shanghai took the lead in taking gold prices higher in their today, as the perspective on the global economy continued to point to more deflation and national monetary policies targeted more easing. The Bank of England of the United Kingdom [How long will it be called that if Scotland has a referendum to remain in the E.U. – will we have Border Controls in Berwick?] indicated lower interest rates, likely in August. The pound continues to slip.

LBMA price setting:  $1,331.75 up from Thursday 30th June’s $1,317.00.

The gold price in the euro was set at €1,199.02 up €18.07 from Thursday’s €1,180.95.

Ahead of New York’s opening, the gold price was trading at $1,334.30 and in the euro at €1,199.42.  

Silver Today –The silver price closed in New York on Thursday at $18.78 up from Wednesday’s $18.26 a rise of 52 cents. Ahead of New York’s opening the silver price stood at $19.20. We expect it to continue to outpace gold, particularly when gold rises itself.

Price Drivers

The preoccupation in the U.S. with when the next rate hike will be, is giving way to the possibility of rates easing. Perhaps additional Q.E. will come onto market screens as global deflation continues its firm grip on the developed world economies.  We do not believe the U.S. dollar can carry the burden of a strong Dollar.

Japan has announced a further fall in prices, which to us is confirmation that the Bank of Japan’s stimuli is failing badly.

In the United Kingdom we are likely to see a recession. The Governor of the Bank of England, Mark Carney, stated today, “It now seems plausible that uncertainty could remain elevated for some time. The economic outlook has deteriorated and some monetary policy easing will likely be needed over the summer.”

Any loosening by the BoE would be its first since 2012, when it last expanded its asset purchase program. Its key interest rate has been at a record-low 0.5% since March 2009. The BOE has signaled it can go closer to zero. Sterling has fallen about 11% since the EU vote.

Asked about the initial drop after the referendum result, Carney said big moves were to be expected and there had been a need for the pound to “find a new level.” It is doing so and will likely fall further.

Gold is moving higher and will likely continue to do so in the face of monetary easing engulfing the global economy at the same time as deflation grows.

Gold ETFs – On Wednesday the holdings of the SPDR gold ETF remained the same leaving their holdings at 950.054 tonnes and the holdings of the Gold Trust rose a relatively massive 4.46 tonnes to take the holdings to 208.17 tonnes.   Since January 4th this year, the holdings of these two gold ETFs have risen 361.438 tonnes.

Silver –Silver prices need to pause before tackling overhead resistance.

Julian D.W. Phillips

GoldForecaster.com | SilverForecaster.com | StockBridge Management Alliance

Asia Pushing Gold Higher and Silver’s on a Roll

Trading overnight on the Shanghai Gold Exchange (SGE) served to give the gold price a boost overnight last night.  The SGE’s am benchmark fix came in at the equivalent of US$1329.05 an ounce, around $10 higher than it had been trading on Western markets the previous day, and the pm SGE benchmark price came in higher at $1.335.27 on http://www.kitco.com’s calculations – the site has a nice interactive tabulation of the SGE benchmark prices in various combinations of yuan, U.S. dollars, ounces and grams.

Whether the SGE uptick will start to show up in terms of a pick-up in Asian demand – notably in China where it appears to have been lacklustre so far this year – remains to be seen. But this could already be happening given net imports of gold into mainland China from Hong Kong (which currently accounts for around 40-50% of such imports), rose sharply in May to the highest level in five months at 115 tonnes.  If Asian demand does pick up – we will be watching mainland China gold import levels with perhaps added interest in the months ahead to see if there is a continuing improvement – and if gold ETF inflows continue at recent levels, there could well be even more of a squeeze in physical gold availability given inventories of available. non-attributable, metal in London and New York appear to be getting particularly tight.

The real precious metals beneficiary of yesterday’s gold move – indeed of gold’s overall performance over the past few weeks – has been silver, which for the first time since September 2014 has breached the $19 an ounce level.  Indeed its rise of around 6% over the past 10 days has been pretty spectacular.  This is also showing up strongly in the Gold:Silver Ratio (GSR) – effectively calculating the amount of silver it would take to ‘buy a similar weight in gold – which has come down to below 70 from a high of over 83 only around three short months ago.  silver had seemed to be relatively slow to move, but now it appears to have some momentum behind it.

As a result of silver’s increase, silver stocks – even before the latest big surge in price – had been probably the best performing stock market subsector year to date – See: Silver Stocks Best Investment YTD. Can They Continue to perform?.  But since I wrote that article only a few days ago they have, not surprisingly, continued to move sharply upwards alongside the boost in the silver price.  From the UK investor’s point of view, most of these major silver stocks are quoted in Toronto (TSX) and the USA (NYSE or NASDAQ) – the only major primary silver producers with UK quotes are Fresnillo (FRES) and Hochschild (HOC).  FRES is up 142% year to date and HOC 178%.  Another more diversified approach would be the Way Charteris Gold and Precious Metals Fund where silver stocks comprise a large part of its major investments.  After a pretty torrid performance over the past few years, this year to date it is up around 154% from the beginning of January.  These are impressive performances, but as usual with silver, while the upside potential is really positive, the downside risks are similarly large.  Silver tends to outperform gold when the latter is rising, but can substantially underperform on the downside.

Silver too, as a very small market sector in monetary investment terms, is also seen as being particularly prone to potential manipulation on the futures markets by a number of silver analysts and by virtually the whole community of out and out silver bulls.  They will point to a number of occasions, and particularly April 2011, when silver was on a roll and reached just short of $50 an ounce, where huge seemingly anomalous sales on the futures markets saw it crash – even when gold at the time was  to continue on an upwards path for another 4 months.

Both silver and gold have benefited quite strongly from the shock UK Brexit referendum outcome which has had some strange effects on markets in general.  Gold, and silver, have benefited, while the pound sterling has plunged, but the UK’s well-followed FTSE 100 Index, after a  stutter, recovered all its lost ground, and more.  It is currently up 5% on the past month at a new high for the year to date.  Few would have predicted that kind of outcome from a vote for the UK to leave the safety net of the EU.

But as cautioned, silver is a volatile metal to trade, and silver stocks perhaps even more so.  If gold continues to show some strength, there’s a good chance silver’s momentum could carry it yet higher still with the GSR continuing to come down.  If gold were to reach $1,400 or higher by the year end – as many analysts are now suggesting – silver and silver stocks could well be somewhere to put perhaps a limited section of your investment portfolio, but only a true gambler would risk all!

 

SGE benchmark takes gold price higher overnight

Article first published on news.sharpspixley.com 

There will be arguments as to which came first – the overnight rise in gold price on global after-hours markets, or the Shanghai Gold Exchange (SGE) pm fix – but the latest SGE figure of CNY 261.88 was at the higher end of trading being equivalent to around US$1,258 at the current CNY/USD exchange rate.  Whether the SGE gold fix is leading, or following, the general price trend is thus open to question.  But perhaps the principal driver of the overnight rise in the gold price will have been the fall in the US dollar, with the Japanese central bank keeping its monetary policy steady at its latest meeting.  The Japanese yen thus rose around 2% against the US dollar, which has a significant impact on the US Dollar Index, which fell around two-thirds of a percent.

Needless to say, though, the move above the $1,250 level, which had been strongly resisted on the U.S. and London spot markets yesterday, was breached in the overnight trade.  The CNY price differential between the am and pm ‘fixes’ in Shanghai was around 0.7%.  The big question is can gold retain these kinds of levels, or even mover higher?  (At the time of writing the spot price is sitting at a little over the $1,257 level).  Or will it be brought down again by the big players on the futures markets who could have a lot to lose should the gold price surge higher in having to unwind some big short positions?

Today’s trading will be interesting.  The statement out of the FOMC yesterday was pretty non-committal with the latest deliberations suggesting no further interest rate imposition until later in the year – perhaps even not until Q3 or Q4 – although this was hardly unexpected.  Followers of Fedspeak noted that the latest statement made no mention of the possible adverse effects of a US$ rate rise on the global economy, and particularly on emerging markets, which could have an adverse impact on the US economy.  But as usual the Fed was marginally positive on U.S. economic growth, although its forecasting record on this has not been particularly impressive in the past.

Overall it looks as though the very low interest rate scenario will continue, at least for the remainder of the year, which in effect keeps them in negative territory in real terms.  Coupled with negative and zero interest rates throughout much of the rest of the world, all this remains positive for gold in the short to medium term, and probably into 2017 at least.  To counter this GFMS reports gold demand fell to its lowest level for 7 years in Q1, primarily due to weak Asian demand.  Indian demand fell ahead of anticipated positive changes in the tax position on gold in the budget – which did not materialise, and subsequently led to a jewellers’ strike which will also have depressed Q2 demand.  Chinese demand was also down – some of which will have been due to the timing of the Chinese New Year.  Chinese demand has been reported as picking up of late.  However GFMS sees gold falling back to below $1,200 in the short to medium term, but remain above cyclical lows.  So far the gold price has not been co-operative!