Silver Market Morning: Mar 7 2017 - Gold waiting for the rate hike!

Gold Today –New York closed at $1,226.00 on the 6^th March after closing at $1,251.50 on the 28^th February. London opened at $1,224.15 today.

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

  - The $: € was weaker at $1.0598: €1 from $1.0557: €1 on 29^th February.

- The Dollar index was unchanged at 101.57 from 101.57 on 29^th February.

- The Yen was weaker at 113.90:$1 from 29^th February’s 113.45 against the dollar.

- The Yuan was weaker at 6.8981: $1, from 6.8783: $1, 29^th February.

- The Pound Sterling was stronger at $1.2232: £1 from 29^th February’s $1.2373: £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.]

At the close in Shanghai today, the gold price was trading at 275.50 Yuan once again, which directly translates into $1,242.23. But allowing for the difference of gold being traded this equates to a price of $1,237.23. This is $11.23 higher than the New York close and $13.08 higher than London.

In the last week Shanghai has remained higher than New York but moved down with it and London. Clearly the Fed’s voice when talking of a rate hike reaches Shanghai. The arbitrage opportunities are still in place.

LBMA price setting: The LBMA gold price was set today at $1,223.70 down from 29^th February’s $1,246.05.

The gold price in the euro was set higher at €1,157.60 after 29^th February’s €1,178.74.

Ahead of the opening of New York the gold price was trading at $1,222.90 and in the euro at €1,156.84. At the same time, the silver price was trading at $17.69.

Silver Today –Silver closed at $17.77 at New York’s close yesterday against $18.34 on the 28^th February.

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

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

Price Drivers

Since we have been away over approximately the last week the Fed has gone public on a rate hike coming next week. The market has been quick to discount this. While the economy looks much better in the U.S. than it was, we feel it is too early to say the U.S. has robust growth warranting more than two or, at the most, three rate hikes in 2017. At the same time it is clear that in both the U.S. and Europe, inflation is taking off.

Certainly in Europe the E.C.B.’ interest rates are below inflation making real interest rates heavily negative except in the weaker nations of the E.U.

In the U.S. we have yet to confirm, but see that real interest rates may well also be negative. Inflation on both sides of the Atlantic is the bad kind caused by energy price increases and other cost increases. This is the sort that does not promote growth but can have a negative effect. For it to meet central bank objectives it should be driven by wage growth and capacity limitations indicating robust economic growth.

As such we cannot see this as a reason to sell gold. With the U.S. $ exchange rate being relatively unchanged a on a week ago one of the main gold price drivers of late has not caused a fall in the gold price. As a result we cannot see the gold price being held down for too long.

Technically, we see the gold price sitting on support now. When we look at the fundamentals of the gold market, we see them sound and positive for gold prices too.

Underlying the financial system are ongoing uncertainties in Europe with Holland going to the elections ahead of France and Germany. The potential for upsets is great. If Wilders wins in Holland, le Pen looks to be a solid contender for the French Presidency. Either or both of these potential events is going to bring heavy pressure on the euro, which is positive for gold.

In that case, if these were the only gold price factors, we see the gold price in the dollar continuing along the same path as it is on now, namely either sideways or higher. In the euro we see it then rising strongly. But other factors are also in play, which could change the scene too.

Gold ETFs – Since the 1^st March we have seen sales of 4.403 from the SPDR gold ETF executed in one day last week and a sale of 4.72 tonnes from the Gold Trust. Their respective holdings are now at 836.766 tonnes and 197.52 tonnes.

Added together and seen as a reaction to the Fed’s indication that a rate hike will come next week and we see why the gold price has fallen over the last week.

Since January 4^th 2016, 233.256 tonnes of gold have been added to the SPDR gold ETF and to the Gold Trust. Since January 6^th 2017 23.175 tonnes have been added to the SPDR gold ETF and the Gold Trust.

Regards,

Julian D.W. Phillips

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