Gold and silver started the year at a muted point, with
gold at $1168 and silver at $15.50, from which modest rallies have developed,
with gold up 4% and silver 6%. These rises were against a background of high
volatility in equity markets, a strong US dollar and very weak oil prices.
The firmly entrenched bearish opinions in recent months
for the outlook for gold and silver have backed off from recent extremes.
There is confusion in dealers' minds, brought about by the threat of
deflation and the collapse in oil prices. Whereas hedge funds would
automatically sell gold whenever they detected dollar strength, this is no
longer the case. Precious metals now seem to be responding more to the threat
of global financial instability triggered by a strong dollar, and fund
managers are selling other commodities instead. Indeed, it is remarkable that
despite the USD hitting new highs against nearly all currencies, gold has not
only held its ground but is actually rising.
In reviewing last year, we note that the establishment
was bearish of gold with forecasts down to $850. Remember that it was
described by one major house as a slam-dunk sell. In the event, gold was more
or less unchanged in USD, but rose in nearly all other currencies: 4% in
sterling, 11% in euros and 15% in yen. In emerging market currencies the rise
was even greater, for example doubling against the Russian Ruble. Silver, in
common with most industrial metals, weakened from mid-year onwards, losing
significantly over the year.
The current market is mildly encouraging for precious metals so far, as the
following two charts of Comex open interest illustrate.
Gold's open interest has perked up this week after the
sharp fall in November as shown in the chart above, indicating buyers
returning to the market. A similar pattern is developing in silver as shown
in the next chart.
Over the holidays the gold open forward rate (GOFO)
stayed negative, signalling a continuing shortage of physical gold in the
market. The pattern of GOFO has been to go more negative on dips below $1200,
which suggests that physical buyers have been accumulating bullion at that
level.
In the three trading days between Christmas and New Year the Shanghai Gold
Exchange delivered a further 28.96 tonnes, giving a total delivered into
Chinese wholesale markets for the year of 2,102.36 tonnes, compared with
2,194.99 tonnes in 2013. This is a remarkable figure, and with a revival in
Indian demand following relaxation of import restrictions, China and India
are officially absorbing the world's mine supply between them, given that
there is strong evidence that China's domestic mine output is quietly
absorbed by the State.
Next week
Monday
Japan - Bank Lending Data, Current Account.
Tuesday
Japan - Economy Watchers Survey, M2 Money Supply.
UK - CPI, Input Prices, ONS House Prices, Output Prices.
US - Budget Balance.
Wednesday
Eurozone - Industrial Production.
US - Import Price Index, Retail Sales, Business Inventories.
Japan - Key Machinery Orders.
Thursday
Eurozone - Trade Balance.
US - Empire State Survey, Initial Claims, PPI.
Friday
Eurozone - HICP.
US - CPI, Capacity Utilisation, Industrial Production, Net Long-Term TICS
Flows.
Note: GoldMoney is offering a discount of 10% on
commission for any purchases of gold in the UK vault until 15 January. See
http://www.goldmoney.com/xmas-exclusive
