LAWRIE WILLIAMS: Gold and silver dip further as dollar continues on upwards path

Gold fell back this morning to the high $1,120s and silver to around $16.15 as the bears tasted blood.  However, it should be recognised that a significant part of the fall in US dollar terms is actually due to the rise in the dollar index as a result of the Fed’s interest rate increase and predictions, rather than a fall in gold and silver prices per se.  According to kitco.com the dollar index is now sitting at over 103 – and still rising.  Kitco also makes calculations on the dollar falls in the gold price based on how much has been due to the rising dollar index and what due to actual selling and concludes that it is the rising value of the dollar which has been having by far the greatest effect on the headline gold price.  That means that the fall in the price of gold in most other currencies has been much more limited.

But it is the headline US dollar price which tends to set the sentiment for precious metals and, at the moment, this is decidedly negative.  Yesterday there were some big outflows from the major gold ETFs for example, which also have the effect of helping drive the price downwards.  GLD, the biggest gold ETF of all, shed 6.82 tonnes yesterday bringing the total amount of gold held to 849.44 tonnes – the lowest amount in the ETF since mid-June, and around 13% below its 2016 peak, but still up some 207 tonnes (32%) year to date.

One suspects the US Fed will be worried about the strength of the US dollar given it can have an adverse impact on US exports and make imports more expensive – and thus on its payments balance – which sits uneasily anyway given President- elect Trump’s protectionist stance.  So far the Fed’s low interest policy has had the effect of buoying up US equity markets, which suits the Wall Street elite very nicely thank you, and also has a positive effect on an upbeat perception by the general public of the state of the US economy.  If the equity markets are doing well then so must the economy be doing – even if the trickle-down effect on the average person in the street may well be nonexistent.  Given the levels of credit card and other consumer debt a higher interest rate regime may prove to be a risky policy.  It will be interesting to see how the equity markets continue to react.

 

15 Dec 2016

About the author

Lawrence Williams

Lawrence (Lawrie) Williams is a well known London-based writer and commentator on financial and political subjects, but specialising in precious metals news and commentary. He is a qualified and experienced mining engineer having graduated in mining engineering from The Royal School of Mines, a constituent college of Imperial College, London - recently described as the World’s No. 2 University (after MIT).

e: lawrie.williams@sharpspixley.com