Markets this week have been all about renewed dollar strength, with
precious metals side-lined. The only notable move was when gold lost $20 and
silver 40c on Tuesday, following holidays in the US and UK on Monday.
The reason for the sudden fall was the dollar strengthened against the
euro, which faces a possible Greek exit, and also the yen for unspecified
reasons other than its recent consolidation looks to be over. In the case of
the yen, the chart level of ¥123 was comprehensively taken out, clearing the
way to a run north of €130 (note that a higher number is a weaker yen).
By early this morning gold had lost a net $15 on the week to $1190, and
silver a net 35 cents to $16.75.
Last Tuesday's dollar strength pushed gold and silver lower through
support levels at $1200 and $17 respectively; as if they didn't even exist. This
may lead to further weakness because of the speculative build-up of positions
expecting the support levels to hold. The next chart illustrates the position
in silver futures contracts on Comex (the dotted line is the average net
longs since 2006).
This market is now clearly overbought and vulnerable to a correction.
However, it is not the whole story, because it appears that US imports of
silver have accelerated in recent months, suggesting someone is building a
physical position for unknown purposes. Nevertheless, if the dollar continues
to strengthen against other currencies there would appear to be astrong
possibility silver will weaken further. The position in gold is not as
exposed as that of silver, and with Greece running up towards crunch-time in
Euroland there is every reason for the longs to stay with it for the moment.
Our last chart is of gold priced in other currencies since the year-end.
With gold up only 0.5% in US dollars on the year so far, it has risen 11%
in euros, 4% in yen and 2.5% in sterling.
It emerged this week that China's gold mining industry is planning to set up
a $16bn gold investment fund, which may invest some of its liquidity in
physical gold or gold ETFs. This appears to be an initiative to increase
China's domination of the industry on the Eurasian continent, feeding her
state-owned refiners. This announcement, coupled with a statement by a senior
Russian central banker that Russia is acquiring gold as a reserve asset
"free of legal and political risk", points the way to the eventual
reintroduction of gold as a stabilising factor for Pan-Asian trading
currencies.
Next week
Monday
Japan: Vehicle Sales
Eurozone: Manufacturing PMI
UK: CIPS/Markit Manufacturing PMI
US: Core PCE Index, Personal Income, Personal Spending, Manufacturing PMI,
Construction Spending, ISM Manufacturing
Tuesday
UK: BoE Mortgage Approvals, Net Consumer Credit, Secured Lending, CIPS/Markit
Construction PMI, M4 Money Supply
Eurozone: Flash HICP, PPI
US: Factory Orders, IBD Consumer Optimism, Vehicle Sales.
Wednesday
UK: Nationwide House Prices
Eurozone: Composite PMI, Services PMI, Retail Trade, Unemployment, ECB
Deposit Rate, ECB Refinancing Rate
US: ADP Employment Survey, Trade Balance, ISM Non-Manufacturing.
Thursday
UK: Base Rate
US: Initial Claims, Non-Farm Productivity (Final), Unit Labour Costs (Final).
Friday
Japan: Leading Indicator
UK: Halifax House Price Indicator
Eurozone: GDP (2nd Est.)
US: Non-Farm Payrolls, Private Payrolls, Unemployment, Consumer Credit.
