Shanghai leads gold price up, New York brings it back down – again!

Gold TodayGold closed in New York at $1,268.50 down from Wednesday’s $1,277.70. On Friday morning in Asia it rose to $1,274, as the Yuan steadied against a dollar at yesterday’s levels, before the LBMA price setting in London.

LBMA price setting:  $1,275.15 up from Thursday’s $1,268.30.

Yuan Gold Fix

Trade Date Contract Benchmark Price AM Benchmark Price PM
2016  05  13

2016  04  12

SHAU

SHAU

266.05

266.98

267.51

266.50

Dollar equivalent @ $1: 6.5407

$1: 6.5414

$1,265.17

$1,269.45

$1,272.11

$1,267.17

Once again, Shanghai led the way higher after a lower New York close. The Gold Fixing in Shanghai’s morning was $3.60 lower than New York’s close but rose at the afternoon Fix confirming higher demand in Shanghai.

We still need a few days of price disparity to see who’s leading whom.

The gold price is narrowing its trading range but still dominated by exchange rates. It is also possible that both London and New York are not keen to stray far from Shanghai’s trading range either.

With Friday being the busiest day of the week, we will be watching to see if this is so.

Why is Friday the busiest day of the week? It’s because traders don’t just face a risk for one day but for three days, so trim their positions accordingly. For instance, if traders closed short positions and opened long positions to be ready for the weekend, in a market like today’s, where demand and supply are moving into balance, such changes could cause a strong move higher in the gold price and silver prices.

At this point in time the gold price could go either way in a strong move according to the Technical picture, in the very short term.   

The dollar index is almost unchanged at 94.33 up from Thursday’s 93.96. The dollar is also almost unchanged against the euro at $1.1348 up from yesterday’s $1.1409.

The gold price in the euro was set at €1,123.68 up from Thursday’s €1,111.67.

Ahead of New York’s opening, the gold price was trading at $1,275.8.00 and in the euro at €1,123.81.  At open, as has been the recent pattern, the price was brought back down quite sharply again.

Silver Today –The silver price closed in New York on Wednesday at $17.07 lower than Thursday’s $17.39. Ahead of New York’s opening the silver price stood at $17.12.

Price Drivers

As highlighted by the World Gold Council’s first quarter report demand for shares in the gold Exchange Traded Funds was massive and wiped out all the losses suffered in 2014 and 2015. This represents an about turn in U.S. institutional investor’s views on the gold price. This demand is continuing in the second quarter too.

Indeed, more and more U.S. institutional and private investors are turning to gold and silver now, as the global economy’s prospects dim.

In the E.U. an overall growth rate of 0.5% is being heralded as the first real recovery since 2008, topping the figures seen then. We would suggest that this is somewhat of a myopic view to encourage all, but ignores some broad, global fundamentals. If the markets believe the media ‘spin’ we will see a stronger euro. So far we haven’t!

 

Will the “Brexit” debate affect gold and silver prices? We don’t think so, unless or until it is certain Britain will leave the E.U. If the U.K. does vote to exit, there will be no impact on these prices. If they do, we are being warned of a plunging pound, a U.K. recession and the potential that other countries will leave too. But that is still a month away.

Gold ETFs – Thursday saw another 3.269 tonnes of gold bought into the SPDR gold ETF but nothing into the Gold Trust. This leaves their holdings at 845.189 and 197.78 tonnes in the SPDR & Gold Trust, respectively.  

Silver – The Silver price continues relatively stable and keen to move behind the gold price.

Julian D.W. Phillips

GoldForecaster.com | SilverForecaster.com | StockBridge Management Alliance

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Shift of gold pricing power to Shanghai inevitable

The New York gold price closed at $1,071.70 down from $1,072.70 on yesterday’s close.  In Asia prices held at the same level then the dollar strengthened to 97.90 up from 97.67 on the dollar Index. The euro is at $1.0956 down from $1.0975 yesterday against the dollar. The London a.m. LBMA gold price was set at $1,067.20 down from $1,072.00, on Thursday.  In the euro the fixing was €972.79 down from yesterday’s $979.00. Ahead of New York’s opening, the gold price was trading at $1,064.40 and in the euro at €970.33.  

The silver price in New York closed at $14.11 down 4 cents. Ahead of New York’s opening the silver price stood at $13.92.

Price Drivers

The big news of the day is the announcement that the Yuan gold Fix, based on a 1 kilo bar of gold will begin in April. It had been expected by the year’s end but now we have a firm date.  It will be based on physical demand and supply, not on futures positioning as on COMEX.

We do see it having a major impact on global gold prices despite London and New York basing prices on ounces, not kilos [to move from one to the other would require re-refining]. Nevertheless, we do expect arbitrage activity to smooth out prices across the world. With suppliers moving their gold more towards the physical markets in Asia and re-refining gold bars into kilos, new supplies will veer more to the metric measurements than ounces. Over time, we do expect both London and New York to accept kilos as well as ounce sized bars and coins. It is the dealing in gold that matters not the weights they are dealt in, that impacts price. Therefore, the shift in pricing power to Shanghai is inevitable.

In the meantime, the flow of re-refined kilo bars continues to rise to Asia and in particular China. The shift is inexorable as Chinese middle classes continue to grow at the expense of those in the developed world. It is only a matter of time before physical deals overwhelm futures and options trading in determining prices.

As we wrote this we saw speculators coming into the market to attack the gold price once more taking the price away from currency moves.

(Correction: The Fed’s announcement is due on Wednesday of next week, not Monday, after the 2-day meeting of the FOMC. So, we expect little drama in the markets until then. This applies to all the world’s financial markets.)

Once again, we saw no sales from the SPDR gold ETF and nothing from the Gold Trust, on Thursday. The holdings of the two gold ETFs, the SPDR gold ETF and the Gold Trust remain at 634.63 tonnes in the SPDR gold ETF and at 157.07 in the Gold Trust.

Julian D.W. Phillips for the Gold & Silver Forecasters – www.goldforecaster.com and www.silverforecaster.com