Silver Market Morning: June 28 2017 - Gold continues to recover from the massive [mistaken?] sale!

Gold Today –New York closed at $1,249.10 yesterday after closing at $1,244.30 Monday. London opened at $1,253.00 today.

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

  - The $: € was much weaker at $1.1358 after yesterday’s $1.1256: €1.

- The Dollar index was weaker at 96.36 after yesterday’s 96.97.

- The Yen was weaker at 112.36 after yesterday’s 111.77:$1.

- The Yuan was stronger at 6.8036 after yesterday’s 6.8145: $1.

- The Pound Sterling was stronger at $1.2810 after yesterday’s $1.2748: £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.]

The three global gold markets are moving back into line today with London and New York rising to almost Shanghai’s level. New York rose to within $7.32 of Shanghai’s prices down from $16 lower than Shanghai, and London opened $7.42 lifting the discount to Shanghai, from $13.42. This is again, confirming Shanghai dominating pricing power.

The Yuan continues to strengthen as you can see above. The Shanghai gold price is moving independently of the Yuan’s exchange rate.

Silver Today –Silver closed at $16.68 yesterday after $16.57 at New York’s close Monday. Today, silver is telling us it wants to rise. Is it leading the way for gold?

LBMA price setting: The LBMA gold price was set today at $1,251.60 from yesterday’s $1,250.40. The gold price in the euro was set at €913.58 after Friday’s €1,111.17.

Ahead of the opening of New York the gold price was trading at $1,252.80 and in the euro at €912.45. At the same time, the silver price was trading at $16.84.

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

Silver _{(very short-term)} The silver price should consolidate with a stronger bias, in New York today.

Price Drivers

The I.M.F. has cut U.S. growth to 2.1% from 2.3% in 2017 with a declining growth rate in the years following, due to the U.S. having trouble adapting to trends such as changes to the job market from technology, low productivity growth and an aging population, the IMF said, noting that household incomes are stagnating for a large share of the population.

At the same time Draghi of the E.C.B. has indicated that it looks like the E.U. has turned the corner for the better after fears over the last couple of years are dissipating and he is considering reducing the stimuli currently in operation in the E.U. The immediate result has been for the euro to begin to rise strongly. If the euro rises through $1.17 we should see it beginning to soar against the dollar.

As we move to a world where a multi-currency system is coming into being we watch for evidence that confirms that. To many, Brexit is clearly a separation of the U.K. from the E.U. The U.K. will as it has done for the last century will remain very close to the U.S. Alongside this we see a growing distance on the monetary front between the E.U. and the U.S. We expect to see this in the €: $ exchange rate. In the past the rate peaked at $1.40. It is important that the previously assumed relationship between gold and the dollar was largely based on the €: $ exchange rate. That has clearly broken down as the euro rises and gold continues to consolidate around the $1,250 area. The strength of the euro has taken the euro price of gold down below €1,000.

We note that the gold price has almost recovered in the dollar from the 56 tonne sale at the beginning of the week. This has confirmed our conclusions in yesterday’s report. Some respected advisors put forward the idea that it was Venezuela doing the selling. That could not be so because Venezuela would sell physical and not in one batch. This was a “paper” futures sale involving no physical gold. That’s why the gold price has recovered.

One of the important factors in the gold price comes from dealers. To understand the gold price one cannot ignore the pricing by dealers of gold. This happens usually without actual gold sales or purchases.. As we said yesterday “… physical dealers move prices higher for fear of more physical gold buying…” They drop prices if they fear sales. This adds to the volatility of the gold price and further illustrates the differences between Shanghai, where high liquidity and the absence of market dominant dealers contrasts with London and New York where the bullion banks act as dealers.

Gold ETFs – Yesterday saw no purchases or sales of gold from the SPDR gold ETF but purchases no change in the Gold Trust. Their holdings are now at 853.684 tonnes and, at 208.41 tonnes respectively.

Since January 4^th 2016, 250.346 tonnes of gold have been added to the SPDR gold ETF and to the Gold Trust. Since January 6^th 2017 49.64 tonnes have been added to the SPDR gold ETF and the Gold Trust.

Regards,

Julian D.W. Phillips

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