Gold and Silver Market Morning: Dec 15 2016 - Gold and Silver thumped by Fed statement!

Gold Today–New York closed at $1,142.60yesterday after closing at $1,158.6 on the 13^th December.London opened again at $1,136.80 today.

Overall the dollar is much stronger against global currencies today.

-The $: € was stronger at $1.0478: €1 from $1.0649: €1 yesterday.

-The Dollar index was stronger at 102.54 from 100.87 yesterday. 

-The Yen was weaker at 117.81: $1 from yesterday’s 114.95 against the dollar. 

-The Yuan was much weaker at 6.9352: $1 from 6.9025: $1 yesterday. 

-The Pound Sterling was weaker at $1.2520: £1 from yesterday’s $1.2656: £1.

Yuan Gold Fix

Please note that the Shanghai Fixes are for 1 gm of gold. From the Middle Eat 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 prices held $33.94 higher levels than prices in New York. London opened at a higher discount to Shanghai of $39.74.In the last day London and New York gold prices have dropped in the dollar around 11% whereas Shanghai gold prices in the Yuan have dropped only 0.5%. This is an important point, we feel pointing to volatility in London and New York continuing then doing so both ways. i.e. Shanghai is implying that gold prices are falling too far too fast, despite the rising dollar.

This confirms that the moves in gold prices in the different markets are a reflection of currency movements not sales and purchases of gold. The arbitrage opportunities are huge for those selling gold to sell into China, not London or New York.

LBMA price setting:The LBMA gold price setting was at $1,132.45 this morningagainst yesterday’s $1,160.95. 

The gold price in the euro was set higher at €1,085.45 after yesterday’s €1,090.45.

Ahead of the opening of New Yorkthe gold price was trading at $1,129.50 and in the euro at €1,083.66.  At the same time, the silver price was trading at $16.11.

Silver Today –Silver closed at $16.80 at New York’s close yesterday from $16.91 on the 13^th December. We see it falling further than gold now, but also rallying, thereafter, faster than gold.

Gold_{(very short-term)} The gold price will look for a lower bottom, in New York today.      

Silver_{(very short-term)} The silver price will follow the gold price, in New York today.

Price Drivers

The gold price in the Yuan and the euro only fell slightly. It was a strong dollar rising against gold that brought the price down in dollar terms. We do not expect to see the dollar continue to get stronger over the next few weeks, as that is against the U.S. interests.

We see the fall in the gold price as coming to an end ahead of a rally soon. Shanghai and the silver price points to this. The sale of 6+ tonnes from the SPDR was a large amount but not one likely to cause such a fall. Once the Fed’s announcement is fully digested, then we see gold rallying.

The Fed’s announcement rocked all markets including gold and silver not because of the hike of 0.25% but for the three year forecast pointing to three hikes in each of the next three years. No more the waiting for data to guide them? This was a vote of confidence in the U.S. economy, where they clearly see the economy reaching a self-sustaining momentum, if not there already. Inflation is rising through their 2% target and pointing higher. Trumpanomics was certainly factored in by the FOMC which adds tremendous fiscal stimulus to the formula. If they stick to these rate forecasts [and they don’t have to] and they are too optimistic such rate hikes will hurt the economy and it will turn down fast. But will ‘real’ interest rates go positive?

Take a robust U.S. economy against a weak EU & Japan still in their QE phase and the prospects for exchange rates outside of the U.S. down strongly, something they have wanted for years. The race to the bottom in currencies will produce a very volatile currency world for several years. Right now the “Carry Trade” are racing to unwind their positions, strengthening the dollar and taking it back into its ‘bull’ market. Unless the Treasury takes action to restrain the dollar we expect several currency crises in the next three years. That’s the rosy picture for the future. Of course the Fed expressed intentions, not certain realities, so this picture could easily turn bad if the reality is very different.

Outside of the U.S., difficult times lie ahead as the U.S. will become solely interested in what benefits the U.S., likely at the cost of its current trading partners. We do see a trade war but against a robust ‘enemy’, China. China is on course to eliminate poverty by 2020 and by then should also have a robust, self-sustaining economy too.With their interests diverging we see more division in the world. This will directly impact the currency world to the detriment of the dollar as a reserve currency.

As to gold and silver in this environment we say this;

-Currency turmoil will benefit gold and silver prices as it brings instability and uncertainty.

-Trumpanomics will lessen the value of the dollar and all other currencies, [as they try to remain lower than the dollar], as rising debt and inflation benefits gold and silver prices.

-A multi-currency monetary system is inevitable, which will benefit gold and silver.

Gold ETFs – Yesterday, there were sales of 6.818 tonnes from the SPDR gold ETF and a sale 0f 0.6 of a tonne from the Gold Trust holdings, leaving their respective holdings at 849.441 tonnes and 196.35 tonnes. Under these circumstances we would expect more sales today as the Fed’s announcement is digested.

Since January 4^th this year, 245.322 tonnes of gold has been added to the SPDR gold ETF and to the Gold Trust. 

Regards,

Julian D.W. Phillips 

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