Gold and silver had a poor week, with no relief from drifting prices
after the end of the second quarter.
The gold price opened on Monday morning in the Far East at $1,187 and fell
to a low point at $1,158 yesterday. Silver mirrored gold's move falling from
$16.05 to $15.50. Both metals rallied yesterday afternoon with gold down
slightly but silver up 14 cents. In early European trading this morning there
were further small gains.
The news this week was dominated by Greece, which should have led to European
demand for gold, and it was indeed reported that Greeks were buyers of
British sovereigns and that European bullion demand picked up somewhat from
low levels. Precious metals were otherwise side-lined and left to drift in
markets dominated by central bank intervention in foreign exchanges, with the
Swiss National Bank triggering a very strong rally in the euro on Monday,
driving the rate from an overnight low below 1.1000 to the US dollar to
1.1270.
This rally in the euro was counterintuitive given the Eurozone crisis.
Central banks must have been on red alert over last weekend when it became
clear that Greece was going to default on an IMF loan repayment and that her
banks were going to remain closed for the whole week ahead of this Sunday's
referendum. The result is that the euro showed every sign of being closely
managed.
The excitement in the Eurozone has obscured the collapse in China's stock
markets, with the Shanghai index crashing 30% in little more than a
fortnight. And yesterday, the US's Labour Force Participation Rate fell to
its lowest since 1977, indicating the US is dipping back towards recession.
While China is facing a contracting credit bubble, the US economy is simply
stalling; both developments implying global monetary policies are likely to
gain a new inflationary impetus.
While this implies higher prices for precious metals in the medium term, the
bears point to gold's disappointing performance during the Greek crisis.
Furthermore oil prices have continued their decline which is also regarded as
a negative factor.
The underlying vested interest is the high level of short positions on Comex,
which showed no sign of being unwound in the first few trading days of the
new financial quarter. This is shown in the chart below, which demonstrates
increasing open Interest in Comex gold futures, despite a falling price over
the last fortnight.
In the last Disaggregated Traders Report the Managed Money category had
record short positions, and this bearish momentum has held for the moment.
While the prospects for today suggest a modest rally on bear-closing on
Comex's Globex platform ahead of the weekend, US markets are closed for the
Independence Day public holiday.
In other news, China is stepping up her involvement with gold, having
announced the Shanghai Gold Exchange will introduce a gold fix priced in yuan
by the year end, and this coincides with the Bank of China's application to
become a direct participant in the London bullion market. Combined these
moves can be regarded as a tentative move towards a floating gold-renminbi
conversion rate. This being the case, it will be an important step towards
the remonetisation of gold.
Next week
Monday
Japan: Leading Indicator.
UK: Halifax House Price Index.
Eurozone: Sentix Indicator.
US: ISM Non-Manufacturing Index.
Tuesday
UK: Industrial Production, Manufacturing Production, NIESR GDP Est., BRC
Shop Price Index.
US: Trade Balance, Consumer Credit.
Japan: Bank Lending Data, Current Account.
Wednesday
Japan: Key Machinery Orders, M2 Money Supply, Economy Watchers Survey.
Thursday
UK: BoE Rate Decision.
US: Initial Claims.
Friday
Japan: Consumer Confidence.
UK: Construction Output, Trade Balance.
US: Wholesale Inventories.
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