Gold and Silver Market Morning: Jan 3 2017 - Gold and Silver reflecting currency moves as 2017 starts!

Gold Today–New York closed at $1,151.70on the 30^thDecember after closing at $1,158.10 on the 29^th December.London opened again at $1,153.20 today.

Overall the dollar is stronger against global currencies today. Before London’s opening:

-The $: € was stronger at $1.0310: €1 from $1.0530: €1 Friday.

-The Dollar index was stronger at 103.09 from 102.39 Friday. 

-The Yen was weakerat 117.92: $1 from Friday’s 116.84 against the dollar. 

-The Yuan was weaker at 6.9566: $1, from 6.9340: $1, Friday. 

-The Pound Sterling was slightly stronger at $1.2280: £1 from Friday’s $1.2277: £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.]

We cannot understand why even the Chinese language website of the Shanghai Gold Exchange does not publish today’s Fixes but only the business day before’s prices and wait to see if this is simplypart of the process of updating the site.

On Friday the New York price closed at $1,151.70 on the last business day of last year, after Shanghai had closed at $1,187.35 a difference of $31.65 allowing for the difference in the gold being priced. This price also reflected a weaker dollar seen on Friday. This distorts the gold price we see today, so until the SGE publishes the gold price on the day it is set, we will need to adjust our perspective with hindsight.

Repeat: Yuan adjusts its currency basket and lowers the dollar content.

The People’s Bank of China has lowered the dollar’s content from 26.4% to 22.4% in the basket of currencies called the CFETS RMB Indexagainst which the Yuan’s value is measured by them.

While the media is interpreting this as an attempt to make the Yuan look better than it is against the dollar, we feel that the very objective PBoC is preparing the way for a more accurate assessment of the Yuan’s value based on its trading through different currencies. That’s why they’ve added 11 more currencies, some pegged to the dollar.Instead of rating the Yuan against the dollar, the PBoC is rating the Yuan against its global trade. It is not trying to remove the detrimental impact of a rising dollar, but putting it in context against China’s entire global trade.

The dollar continues to account for 88% of global trade with at least half of that being transactions between non-U.S. companies using the dollar as their trading currency instead of their own currencies. In 2017 we see this figure falling as more use is made of the Yuan.

China is preparing the way for an independent Yuan not dependent on the U.S. dollar. Yes, it is another step in establishing the Yuan in a multi-currency system, moving away from dollar hegemony.

We expect the Yuan to continue to fall against the dollar, or is that the dollar will continue to rise against the Yuan? We see these moves by the PBoC as modifying this focus.

Try looking at China requiring settlement in Yuan of its international trade and not the dollar and the picture changes completely and the dollar loses a considerable portion of its influence on the Yuan!

LBMA price setting:The LBMA gold price setting was at $1,148.65 this morningagainst Friday’s $1,159.10. 

The gold price in the euro was set higherat €1,106.01 after Friday’s €1,087.43.

Ahead of the opening of New Yorkthe gold price was trading at $1,150.00 and in the euro at €1,107.15.  At the same time, the silver price was trading at $.16.03

Silver Today –Silver closed at $16.21 at New York’s close Friday from $16.03 on the 29^th December.

Gold_{(very short-term)} The gold price will consolidate, in New York today.      

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

Price Drivers

Today, the first trading day of 2017, the gold price was dominated by a strong dollar. In the dollar it fell, in the euro it rose. But without significant physical trade yet today’s pricing is simply a statement on the currency markets.

India – The Rs.500 and Rs.1,000 are no longer legal tender in India and still there are insufficient replacement notes to go around. We doubt the Indian voters will forgive him easily. The failure to replace the notes fully, to date is causing tremendous suffering amongst the poor in India. As the printing process seems set only to complete the process by May this suffering persists at the cost of Modi’s popularity. But as the new notes come into circulation gold demand will increase steadily until it is back to normal by May.

Gold ETFs – Yesterday in New York, there were sales of 1.185 tonnes from the SPDR gold ETF but no change in the holdings of the Gold Trust, leaving their respective holdings at 822.170 tonnes and 196.20 tonnes. Thursday saw a small [Trader’s] purchase of gold into the U.S. based, gold ETF for the first time in weeks, but not sufficient to change prices.

Since January 4^th this year, 217.90 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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