Gold and silver rallied strongly last Friday and into Monday's overnight
trading (UK time) before spending the rest of the week drifting lower from
initial highs to consolidate above notional support at $1200 and $17
respectively. As of first thing this morning, UK time in US dollars gold is
now up 2.2% and silver 10.2% on the year.
From observing price action, there appears to be continuing underlying
physical demand, and on Wednesday the Russian Central Bank confirmed that it
had taken the opportunity of sub-$1200 prices to add 300,000 ounces of gold
to their official reserves last month. It is also reasonable to suggest that
in times of increasing economic and systemic tensions in the Eurozone, some
central banks will swap euros for gold to rebalance their reserves.
The Fed released April's Open Market Committee minutes on Wednesday, which
on balance was little more than another holding operation on interest rates,
not bringing them forward to June or putting them off to next year. Apart
from some minor volatility on their release there has been little effect on
precious metal prices.
The next chart is of the gold price in the other three major currencies
since 31 December 2014.
In terms of gold prices, the best performance has been in weakening euros
with gold up 11.4% so far this year. The European central Bank announced it
would look to accelerate its bond purchases in the short-term, leading
currency markets to conclude that economic conditions in the Eurozone are
weaker than expected, and with the deteriorating Greek situation euro
weakness should come as no surprise.
Finally, it is worth drawing attention to developments on the Hong Kong
Stock Exchange, where first Hanergy Thin Film fell 47% on Wednesday, wiping
$18.6bn off its capitalisation before trading was suspended. This was
followed yesterday by a similar collapse in share price for Goldin Financial
(Hanergy's broker) and Goldin Properties, together wiping out a further
$16.6bn.
These events are typical ahead of a speculative blow-off in markets, and
while Hong Kong's Hang Seng Index appears to have risen broadly in line with
major equity markets, other smaller markets in the region reflect excessive
speculation. For example, on the Shenzen Market equities are trading at an
average of 67 times earnings, having risen by 12% this week alone, and there
are instances of new listings rising more than ten or twenty times in less than
a month of trading.
Therefore, there is a growing risk that Hong Kong and Chinese equities
could become a financially destabilising risk in the region and possibly
further afield, adversely affecting other markets and potentially precious
metal demand.
Next week
Monday
Japan: CSPI, BoJ Monthly Report.
Tuesday
UK: CBI Distributive Trades.
US: Durable Goods, FHFA House Price Index, S&P Case-Shiller Home Price
Index, Consumer Confidence, New Home Sales.
Wednesday
Japan: Large Retailers Sales, Retail Sales.
Thursday
UK: Nationwide House Prices, BBA Mortgage Approvals.
Eurozone: Business Climate Index, Consumer Sentiment, Economic Sentiment,
Industrial Sentiment.
US: Initial Claims, Pending Home Sales.
Japan: CPI, Unemployment, Industrial Production.
Friday
Japan: Constrction Orders, Housing Starts
Eurozone: M3 Money Supply.
UK: GDP (2nd est.), Index of Services.
US: GDP (2nd est.), Chicago PMI.
