Precious metal prices were broadly unchanged this week, confined to a
tight trading range of $1210 to $1185 for gold and $16.60 to $16.00 for
silver. There were several attempts by sellers to force prices to break down,
but from the price action there appeared to be buyers waiting for the
opportunity.
The result was that yesterday gold rallied to as high as $1209 and silver
to $16.50, though they closed well under these best levels when a senior
Federal Open Market Committee member warned that interest rates would not
remain at zero for ever. Comex volumes in gold were light though they were
better in silver.
Gold's performance in other currencies has been more impressive,
especially in euros and sterling shown in the next chart.
Open interest on Comex in both metals rose over the week, with silver's
close to a record high on Wednesday. This is consistent with accumulation on
dips and should be viewed as generally positive. Silver's Open Interest is
shown in the next chart.
Physical demand for gold continues to be strong, with the news that India
imported 125 tonnes in March, while Shanghai Gold Exchange deliveries
totalled a further 195 tonnes. Global mine production on a monthly basis is
about 250 tonnes, so the markets must have delivered a net 70 tonnes more
than this production to satisfy just two Asian sources of demand.
One wonders how much demand from other Asian buyers is also being covered
by deliveries from Western vaults. This tight delivery position is at odds
with technical trading in paper markets, with gold confined to its current
range. Presumably (and this makes sense) western mines are hedging the price
by selling for forward delivery, putting a short-term cap on the market.
One of the more intriguing news developments is a joint World Gold
Council/Official Monetary and Financial Institutions Forum (OMFIF) meeting
this morning in New York to discuss the inclusion of gold in the SDR basket
when it is revised later this year. It was agreed in 2010 that the renminbi
should be included, but this has never been ratified by the Americans. It is
believed by close observers that China's exclusion from the SDR is one of the
reasons China set up the Asia Infrastructure Bank rather than pursue the IMF
relationship. However, if the proposal to include a weighting for gold in the
SDR1 gets any traction at this morning's meeting, it will be
interesting to see the reaction from the Americans, given that the Chinese
appear to want to incorporate gold into international settlements. It could
also provide the Chinese cover for declaring an increase in the gold content
of their official reserves.
For what it's worth, the chairman of OMFIF (Lord Desai) is quoted as
saying gold's inclusion in the SDR is quite likely to happen. However, there
are legal obstacles to overcome.
Next week
Monday
No material releases
Tuesday
Japan: Leading Indicator (Final), Customs Cleared Trade
Eurozone: ZEW Economic Sentiment
Wednesday
UK: BoE MPC Minutes
Eurozone: Flash Consumer Sentiment
US: Existing Home Sales, FHFA House Price Index
Thursday
Eurozone: Flash Composite PMI, Flash Manufacturing PMI, Flash Services PMI
UK: Public Borrowing, Retail Sales
US: Initial Claims, Flash Manufacturing PMI, New Home Sales
Friday
Japan: All Industry Activity Index
US: Durable Goods Index
[1] After the collapse of the Bretton Woods system in 1973, the SDR was
redefined as a basket of currencies. Today, the SDR basket consists of the
euro, Japanese yen, pound sterling, and U.S. dollar. The value of the SDR in
terms of the U.S. dollar is determined daily and posted on the IMF's website.
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