Gold resistance now support

Gold Today –New York closed at $1,253.20 yesterday after closing at $1,247.30 Friday. London opened at $1,258.20 today. 

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

         The $: € was stronger at $1.0657 after yesterday’s $1.0670: €1.

         The Dollar index was stronger at 100.61 after yesterday’s 100.48

         The Yen was stronger at 110.47 after yesterday’s 111.34:$1. 

         The Yuan was unchanged at 6.8836: $1. 

         The Pound Sterling was weaker at $1.2437 after yesterday’s $1.2508: £1.

Yuan Gold Fix
Trade Date Contract Benchmark Price AM 1 gm Benchmark Price PM 1 gm
      2017    4      4

     2017    4      3

     2017    3    31    

SHAU

SHAU

SHAU

/

/

279.24

/

/

280.70

$ equivalent 1oz @    $1: 6.8836

       $1: 6.8831

      

  /

/

$1,261.83

/

/

$1,263.91

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.]

 Today the Shanghai Gold Exchange remains closed and will be closed until Wednesday for “Tomb Sweeping Day”. Hence there are no prices to report. As a result yesterday and today’s prices reflect New York and London’s prices only.

LBMA price setting:  The LBMA gold price was set today at $1,258.65 from yesterday’s $1,246.25.  

The gold price in the euro was set at €1,183.16 after yesterday’s €1,169.42.

Ahead of the opening of New York the gold price was trading at $1,258.45 and in the euro at €1,181.92. At the same time, the silver price was trading at $18.36. 

Silver Today –Silver closed at $18.22 yesterday after $18.21 at New York’s close Friday.

Price Drivers

With Shanghai closed yesterday and today, the gold price jumped up and away from support into the higher $1,250’s this morning. This was primarily driven by a nearly four and a half tonne purchase into the gold ETF. So many times, in the past, we have seen such points of inflection result in ‘bear’ raids. But this time it was the bulls which came in.  And they came in with physical demand.

Some believe that it is COMEX that makes prices and until Shanghai’s influence grew to the current point, this was so, but with the phenomenal growth in physical volumes, then Shanghai making it expensive to speculate in volume and increasing the risks of doing so in the process, the evidence in 2017 is that the influence of COMEX on gold prices is waning.

Imagine, if oil prices were determined by speculation in ‘paper’ oil on COMEX, while physical demand and supply were trading at significantly different prices, how long would it be before the credibility of COMEX disappeared? In the gold market on COMEX one cannot hold a contract until maturity and then expect physical delivery. One can only settle the prices in cash, for 99.96% of contracts. Physical delivery on COMEX requires notifying the exchange of that expectation and then findinga physical supplier before the contract can be finalized. In other words, COMEX is a cash market, not a gold market!

What we do expect to see is that other exchanges are switching from basing contracts on the LBMA price setting to Shanghai’s Fixings. Dubai and other exchanges have done it, we expect others to follow. In addition sellers and buyers of physical gold will follow suit and ignore the London/New York prices if they fell out of line with Shanghai, a primarily physical market. Certainly, with higher Shanghai prices suppliers will prefer to sell into Shanghai and base sale prices to London or elsewhere on Shanghai prices!

South Africa rated as ‘Junk’

Further to our story on South Africa’s President Zuma’s cabinet re-shuffle, the S&P ratings agency has downgraded South African debt to Junk status. We expect the other rating agencies to follow. The Rand has fallen further to $1: 13.87. We expect further falls.  As a result the South African mining industries hope that President Zuma stays in office for a long time, taking the Rand even lower and increasing their profits. Alas, his tenure may be short going forward. But this is Africa, so let’s see!

Gold ETFs – Yesterday saw purchases of 4.441 tonnes into the SPDR gold ETF but no sales or purchases from or into the Gold Trust.  Their respective holdings are now at 836.765 tonnes and 199.85 tonnes. 

The purchases into the SPDR gold ETF at the point where demand and supply are so closely in balance was the catalyst that caused gold to jump out of consolidation into a rising market. If further purchases follow we expect to see strong rises higher.

Since January 4th 2016, 235.585 tonnes of gold have been added to the SPDR gold ETF and to the Gold Trust.  Since January 6th 2017 25.529 tonnes have been added to the SPDR gold ETF and the Gold Trust.

Julian D.W. Phillips 

 GoldForecaster.com | SilverForecaster.com | StockBridge Management Alliance