Gold Market Morning: March-16-2017 -- Gold jumping after the Fed!

Gold Today–New York closed at $1,220.00 on the 15^th March after closing at $1,198.70 on the 14^th March.London opened at $1,224.15 today.

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

-The $: € was weaker at $1.0709: €1 from $1.0623: €1 yesterday.

-The Dollar index was weaker at 100.72 from 101.58 yesterday.

-The Yen was stronger at 113.44:$1 from yesterday’s 114.65 against the dollar. 

-The Yuan was stronger at 6.8967: $1, from 6.9124: $1, yesterday. 

-The Pound Sterling was stronger at $1.2266: £1 from yesterday’s $1.2195: £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, which directly translates into $1,242.48. But allowing for the difference of gold being traded this equates to a price of $1,237.48. This more than $17.48 higher than the New York close and $13.33 higher than London.

With arbitrage opportunities wide open between Shanghai and New York/London we see Shanghai pulling gold out of them. Dealers in London and New York ignored the decent tonnages being bought into the U.S. based gold ETFs recently and held prices down. We expect this to change in the days to come.

LBMA price setting:The LBMA gold price was set today at $1,225.60 down from yesterday’s $1,202.25.

The gold price in the euro was set at €1,142.64 after Friday’s €1,131.85.

Ahead of the opening of New Yorkthe gold price was trading at $1,227.15 and in the euro at €1,144.14 At the same time, the silver price was trading at $17.49.

Silver Today –Silver closed at $17.31 at New York’s close yesterday against $16.88 on the 14^th March.

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

As we said yesterday, “One of the dangers of getting carried away by the early days of a new President is that markets can run too far and ahead of the realities facing that President. This may well prove to be the case with the sell-off in gold of late.....” The Fed has not joined in that exuberance, instead of just raising interest rates by 0.25% but making dovish statements that while a total on 3 rate hikes can be expected, the Fed will maintain its accommodative stance. This disappointed many markets sending equity markets higher [because the fear of much higher rates in the future has dissipated] and the dollar lower against all currencies. Gold benefitted and traded higher, but the digestion of the Fed’s speech leaves more gold price rises to come.

At the same time, President Trump announced major spending cuts but a major expansion of defense spending. We still await his announcements on infrastructure spending which will bring growth but at the expense of inflation and deficit spending. At the moment inflation is reported by government agencies at being close to 2%. This leaves rates negative.

What is expected around the autumn is a signal by the Fed that it will slow its re-investment policies in Treasuries as a start to improving the Fed’s Balance Sheet. This could take 10-year Treasuries to 3.10%. If they don’t it is expected 10-year Treasuries will end the year around 2.6%. We expect that by that time inflation will be higher than Treasury 10-year yields, which is positive for U.S. gold buying.

Over in Europe, the fear of a popularism victory in Holland has gone, as the previous government looks as though it will keep ruling there. The voter turnout was huge leading many to believe that both in France and Germany similar election results will be achieved. We would be cautious about that conclusion. We don’t expect France to be that liberal. But we don’t see markets discounting a Le Pen victory or a Merkel defeat. Nevertheless, those ‘winds of change’ continue to blow!

Gold ETFs –Yesterday saw purchases of 4.442 tonnes into the SPDR gold ETF but no change in the holdings of the Gold Trust.Their respective holdings are now at 839.431 tonnes and 197.22 tonnes. 

Since January 4^th 2016, 235.621 tonnes of gold have been added to the SPDR gold ETF and to the Gold Trust.  Since January 6^th 2017 25.565 tonnes have been added to the SPDR gold ETF and the Gold Trust.

Regards,

Julian D.W. Phillips 

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