Silver Market Morning: Feb 13 2017 - Gold recovering but moving with the euro at the moment!

Gold Today –New York closed at $1,234.00 on the 10^th February after closing at $1,231.50 on the 9^th February. London opened at $1,230.00 today.

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

  - The $: € was weaker at $1.0653: €1 from $1.0639: €1 on Friday.

- The Dollar index was weaker at 100.67 from 100.87 on Friday.

- The Yen was almost unchanged at 113.61:$1 from Friday’s 113.64 against the dollar.

- The Yuan was stronger at 6.8804: $1, from 6.8862: $1, Friday.

- The Pound Sterling was stronger at $1.2520: £1 from Friday’s $1.2498: £1.

Yuan Gold Fix

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.]

Shanghai was trading in gold at 274.40 Yuan during today’s session before London opened. This equates to $1,240.45. This shows Shanghai is trading in line with New York’s close and $5 higher than London at its opening.

LBMA price setting: The LBMA gold price was set today at $1,229.40 up from Friday’s $1,225.75.

The gold price in the euro was set higher at €1,155.55 after Friday’s €1,151.75.

Ahead of the opening of New York the gold price was trading at $1,230.20 and in the euro at €1,155.99. At the same time, the silver price was trading at $17.96.

Silver Today –Silver closed at $17.94 at New York’s close yesterday against $17.67 on the 8^th February. You will note its rise against gold has accelerated. We expect it to continue to accelerate but for gold then to move up to catch it in relative terms.

Gold _{(very short-term)} The gold price will consolidate with a stronger bias, in New York today.

Silver _{(very short-term)} The silver price will be stronger, in New York today.

Price Drivers

After the High Frequency trading attack last week, gold is cautious waiting for a lead.

In Shanghai, after the return of those investors from their Lunar New Year, demand has yet to recover fully as they slip back into their usual routine and gain full momentum. Until then we do expect New York and London to stay in line with Shanghai and for the global gold price to be influenced by exchange rates. That is so today too, but we do expect the dollar to weaken.

As you know we have been expecting a turn down in the bond market as yields rise and a turning against the equity market as the improved yield in fixed interest markets challenged the yields in equity markets. But a more sinister feature of rising yields will have a significant impact on the Treasury market. The U.S. Treasury market is 43% owned by foreigners down from 2008’ 56%. There is a long term trend that will continue to see this number slide.

We are fully aware of the Chinese objective of reducing their exposure/dependence on the U.S. as they build their own ‘empire’ with an internalized currency the Yuan.

In the medium term what is important to the U.S. is not to worry about the selling, but to find more buyers of Treasuries to finance the shortfall between President Trump’s infrastructure etc, spending and his major tax reformation. The gap needs to be financed by new borrowing. If the current U.S. creditors are unwilling to buy and remain sellers the U.S. has a major problem coming. But if the U.S. has to finance itself, it will lead to major deficits and a cheaper dollar. A cheaper dollar rapidly eliminates the gains made by interest rate differentials! Those losses began to mount through 2016 and will continue in 2017.

Right now Japan is in the spotlight as a seller. Japanese investors who hedged all their dollar exposure in Treasuries suffered a 4.7% loss, the biggest in at least three decades, in 2016. The same thing happened in Europe, where record currency-hedged losses also hit euro buyers.

A cheaper dollar is gold positive. The above trend is long term and so will impact the gold price long term.

Gold ETFs – Yesterday we saw no purchases or sales into the SPDR gold ETF or the Gold Trust. Their respective holdings are now at 832.577 tonnes and 200.90 tonnes.

Since January 4^th 2016, 232.867 tonnes of gold have been added to the SPDR gold ETF and to the Gold Trust. Since January 6^th 2017 22.786 tonnes have been added to the SPDR gold ETF and the Gold Trust.

Regards,

Julian D.W. Phillips

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