Silver Market Morning: July 13 2017 - Gold and silver are rebounding!

Gold Today –New York closed yesterday at $1,220.30. London opened at $1,222.15 today.

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

 - The $: € was stronger at $1.1402 after yesterday’s $1.1448: €1.

- The Dollar index was almost unchanged at 95.75 after yesterday’s 95.76.

- The Yen was stronger at 113.03 after yesterday’s 113.36:$1.

- The Yuan was stronger at 6.7821 after yesterday’s 6.7881: $1.

- The Pound Sterling was stronger at $1.2927 after yesterday’s $1.2855: £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.]

New York followed Shanghai higher yesterday leaving a $2.40 differential. Today, London turned higher, also following Shanghai but raising the differential to $9.27 from yesterday’s $7.

All global gold markets are seeing a rebound from the breakdown of the Technical picture from $1,250.

Silver Today –Silver closed at $15.92 yesterday after $15.84 at New York’s close Monday.

LBMA price setting: The LBMA gold price was set today at $1,221.40 from yesterday’s $1,219.40. The gold price in the euro was set at €1,071.03 after yesterday’s €1.064.23.

Ahead of the opening of New York the gold price was trading at $1,220.80 and in the euro at €1,071.35. At the same time, the silver price was trading at $15.90.

Gold _{(very short-term)} The gold price should continue rebounding, in New York today.

Silver _{(very short-term)} The silver price should continue rebounding, in New York today.

Price Drivers

The gold price is rebounding and not simply because it is a natural market move to do so. Janet Yellen’s comments yesterday in front of the Senate are playing a part. We expect more of the same from her today.

The Fed

Janet Yellen’s comments yesterday made it clear that the Fed wants a ‘neutral’ interest rate, neither higher than inflation nor lower. At the moment it is lower, but with inflation falling in the U.S. the Fed may well delay another rate hike beyond year’s end because they may see ‘neutral’ rates without raising rates again this year. This has softened the dollar, which at one point nearly touched the point at which the dollar falls into a ‘bear’ market. We see that as coming very soon. It will benefit the dollar gold price.

The Gold Price

We do note that with demand and supply nearly in balance in London before the breakdown the sales over two weeks of 27 tonnes of physical gold into the London Market tipped that balance and the price fell.

What is important to understand about the gold price is that it does not reflect total demand and supply. For instance, in June, 220 tonnes of gold were sold into India. This did not impact the gold price, because it did not go through the market. It was contracted and a price between the contractors was set against the afternoon price setting in London. It did not travel through the market. But sales from the SPDR cause the Custodian to unload that gold into the London market, which does affect the price. Essentially, the gold price is determined by what is called the ‘marginal’ supply and demand, that is the unforeseen amount that are needed or got rid of in the market. Of course, this does not reflect total demand and supply and allows speculators considerably more pricing power than would be the case if all gold sales and purchases do go through the market.

In China there is an interbank market in gold, which operates off market, but the bulk of the physical gold bought and sold does go through the Shanghai Stock Exchange with its 10,000 institutions and 8.3 members. With both an institutional and now a retail physical arbitrage market between London and Shanghai in operation Chinese and other international investors can affect price by dealing between the markets.

We believe that where gold is contracted between two parties they may well find that the Shanghai Benchmark prices are more reflective of a truer gold price than the LBMA gold price settings and adjust the price they use to Shanghai’s in the future, as some exchanges are already doing.

Gold ETFs – Yesterday saw no sales or purchases from or into the SPDR gold ETF or the Gold Trust. The SPDR gold ETF and Gold Trust holdings are at 832.391 tonnes and at 211.41 tonnes respectively.

Since January 4^th 2016, 193.902 tonnes of gold have been added to the SPDR gold ETF and to the Gold Trust. Since January 6^th 2017 31.387 tonnes have been added to the SPDR gold ETF and the Gold Trust.

Regards,

Julian D.W. Phillips

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