Gold and Silver Market Morning: June 5 2017 - Gold consolidating with a positive bias!

Gold Today–New York closed at $1,278.20 Friday after closing at$1,270.10 Thursday.London opened at $1,281.00 today.

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

 -The $: € was weaker at $1.1264 after Friday’s$1.1222: €1.

-The Dollar index was weaker at 96.77 after yesterday’s 97.20.

-The Yen was stronger at 110.51 after Friday’s 111.51:$1. 

-The Yuan was stronger at 6.8036after Friday’s 6.8153: $1. 

-The Pound Sterling was stronger at $1.2905 after yesterday’s $1.2875: £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 closed $4.17 lower on Friday than the Shanghai Gold Exchange was trading at today ahead of Monday’s opening. London opened at around $1 lower than Shanghai was trading earlier today. These are very small price differences evidencing arbitrage operations at very professional levels [likely banking operations]. We have been watching these markets, as you know, very carefully over the last year. Our conclusion is that we are watching global gold market developments that are much more significant than the 2005 ‘de-hedging’ operations by gold mining companies and the establishment of gold ETFs by the World Gold Council. These changes not only bring structural changes to the global gold market but demonstrate where gold is going in the future. As China has integrated gold into its financial system, the weight of physical gold trading is being brought to bear on global gold prices. As theemphasis moves to physical dealing in gold, so its importance as an international reserve asset as well as an asset in support of global finances will increase in the months and years to come.

We are now watching three sides of the global gold market that is just about in synch. Shanghai is the most influential on gold prices as it is the physical, global gold bullion hub now.

Silver Today –Silver closed at $17.52 Fridayafter $17.28 at New York’s close Thursday. We expect to see silver outperform gold as it rises solidly. The Technical picture for silver will become dramatic if the gold price rises.

LBMA price setting:The LBMA gold price was set today at $1,280.70 from Friday’s $1,260.95.The gold price in the euro was set at €1,137.04 after Friday’s €1,121.09.

Ahead of the opening of New Yorkthe gold price was trading at $1,280.80 and in the euro at €1,139.60. At the same time, the silver price was trading at $17.56.

Gold_{(very short-term)} The gold price should be stronger, in New York today.      

Silver_{(very short-term)} The silver price should be stronger, in New York today.

Price Drivers

The U.S. Friday’s jobs data disappointed markets, which were expecting much higher numbers. The figures imply that the momentum of jobs creation in the U.S. is waning. But the more important figure was the one giving the inflation picture which showed it was decreasing, a factor likely to influence the Fed’s decision to raise rates this month. We ask, “Will they?” Markets are telling us that they will, but the Fed will be considering the impact on financial markets if they go ahead and raise rates. They will be keen to ensure nothing interferes with the moderate growth the U.S. is experiencing right now. As a result the U.S. SPDR gold ETF and other gold ETFs saw an inflow of funds which pushes them into the market to buy physical gold. This return of demand may well continue to push prices higher.

Indian GST on Gold

At last, the Indian government has issued the level of General Services Tax to be levied on gold inside the country. It will be at 3% and was announced on Saturday by the Indian government [and is lower than industry expectations of around 5%] which will come into effect on July 1 and will replace a number of federal and state levies. The net effect is to raise taxes by around 0.5%, a figure that is going to make little difference to demand in the country. They are currently paying 1% excise duty and 1.5% VAT on gold.

But the net figure paid by Indians for gold is to be 13%, when one adds the Customs Duty of 10%. There is talk that the government will reduce Customs duty, but that talk has been around for well over a year already. We cannot see that happening soon.

As a result, India has a thriving gold smuggling industry that is now that little bit more profitable now. Two years ago the WGC guesstimated that that was 250 tonnes then. With its profitability even higher now, this well-established industry will undoubtedly be bringing in greater volumes. That demand will not be registered in official figures, but analysts should add that sum to official numbers.

Gold ETFs –Friday, sawpurchases of 3.551 tonnes of gold into the SPDR gold ETF. There were purchases of 1.37 tonnes of gold into the Gold Trust since their internet page went down. It has now been corrected. Their holdings are now at 851.003 tonnes and we presume, at 204.34 tonnes respectively.

Since January 4^th 2016, 243.805 tonnes of gold have been added to the SPDR gold ETF and to the Gold Trust.  Since January 6^th 2017 43.759 tonnes have been added to the SPDR gold ETF and the Gold Trust.

Regards,

Julian D.W. Phillips 

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