In a generally quiet week, gold and silver prices were marked down in
thin trade towards the quarter-end, when traders make up their books, with
gold falling $32 to $1114.5, and silver by 58 cents by the close on Thursday
night.
Prices opened lower in early European trade, with gold less than $10 from
the $1100 level.
Open interest in both metals on Comex barely changed, yet anecdotal reports
of continuing demand for physical gold from all over Asia persists. Chinese
demand, measured by deliveries to the public through the Shanghai Gold
Exchange is up over 35% so far this year compared with the same period last
year. The annual progression on a monthly basis is shown in the next chart.
The final number for September will not be available for another week or
so, but it is likely to be nearly 250 tonnes. So since January 2011, total
gold delivered is nearly 8,500 tonnes, a staggering amount.
This is despite a continuing weakness in some Asian currencies, such as the
Turkish lira, which makes gold more expensive in local terms for much of Asia
Minor. Separately the Peoples Bank of China announced an addition to its gold
reserves of 16.17 tonnes in August. In silver, according to a report filed
with Reuters, coin demand "is absolutely through the roof", a
manager at Perth Mint was quoted as saying. In this case it is manufacturing
capacity that is to blame for delays in supply, and at the US mint at
Westpoint, the plant is working three shifts and paying staff overtime to
keep up with demand for Silver Eagles.
While the ordinary person shows a growing uneasiness over the financial
outlook, there is still confusion over US interest rate policy, with some
mainstream investment banks still expecting the Fed to raise the Fed Funds
Rate in December. Hard evidence of both disappointing US economic performance
and the destruction a strong dollar has wreaked on commodities and emerging
market economies suggests the future offers deflation, and not inflation. It
is therefore a mystery why views that US rates will rise persist.
The lack of cogent thinking (or is it deliberate disinformation?) is never a
good sign for a stable market outlook. It suggests that multiple markets are
mispriced, a situation that is always corrected. Nor is this something under
the control of central banks, other government agencies, or those who deal on
their coat-tails. Mr Market always wins in the end.
Therefore, if what is going on in precious metals markets, equity and bond
markets, as well as currencies are at odds with financial reality, they are
likely to adjust suddenly and together.
The persistent distortion whereby gold is being cleaned out of western vaults
while futures traders depress the price even further is symptomatic with this
loss of reality. This is not to say a rise in the gold price is immenent,
only the bears are on borrowed time.
Next week
Monday
Eurozone: Markit Composite PMI (Final).
UK: Market/CIPS UK Services PMI.
US: Markit Composite PMI (Final), Labour Market Conditions, Non-Manufacturing
Business Activity, Non-Manufacturing Prices.
Tuesday
US: Balance of Trade
Wednesday
Japan: Interest Rate Decision, Leading Index.
UK: Manufacturing Production, Industrial Production.
US: Mortgage Applications, Consumer Credit
Thursday
Japan: Machinery Orders, Current Account.
UK: Halifax House Price Index, BoE Interest Rate Decision.
US: Initial Jobless Claims.
Friday
UK: Construction Output, Trade Balance.
US: Import Prices, Export Prices, Wholesale Inventories.
