LAWRIE WILLIAMS: Gold battles to hold $1,200

The past few trading days have seen the gold price hovering above and below the $1,200 mark in the light of a stronger dollar and a lack of Chinese data due to the nation’s Golden Week holiday this week.  Every time the gold price has nosed above $1,200 it has been taken down a few dollars again.

The hard right wing gold fraternity generally put this down to manipulation by the powers that be on the futures markets where at key times remarkable amounts of paper gold are offered for sale – although spoofing, where massive sales or purchase orders are placed on the futures markets, but with an intent to cancel orders before they can be implemented, may well be a prevalent cause. For example, the U.S. CFTC regulator has just fined Canada’s Scotiabank a paltry $800,000 for doing this on the COMEX futures markets for gold and silver from at least June 2013 to June 2016.  It makes one wonder how common this kind of market manipulation is among the other major bullion banks.  The profits that can be gained from playing the markets to their advantage in this manner far exceed any fines that may be imposed by the regulators and the banks may view the prospect of being caught out and fined just as a cost of doing business.  After all an $800,000 dollar fine is just peanuts to a major banking entity.  Who knows what huge profits were made by playing the markets in this manner ?

The Chinese Golden Week holiday suggests that we will not be getting the latest figures for Shanghai Gold Exchange gold withdrawals for at least another week – a week later than usual.  We see the SGE withdrawals as a great guide to Chinese gold demand.  Indeed some Peoples Bank of China data equates the SGE withdrawal figures as THE measure of Chinese gold demand and they do come closer to known and unknown gold imports, plus China’s own gold production plus an allowance for scrap sales far more accurately than any estimates of Chinese gold consumption from the major precious metals consultancies and the World Gold Council. 

Meanwhile we expect the gold price to continue hovering around the $1,200 mark, give or take a few dollars.  There does seem to be an appetite to take it higher, but every time it does so it seems to be knocked back.  It will probably remain data driven for the time being with positive or negative U.S. economic data driving it up or down and the underlying dollar strength is certainly not helpful .  However positive news on Chinese gold demand, when it is released, may give it a bit of a boost and there is some evidence that the lower gold price is driving Asian and Middle Eastern demand.  Eurozone trials and tribulations could have a mixed effect with eyes on the Italian debt situation and the progress or otherwise of the Brexit negotiations could move the dollar.  Should Italy default on its debt, as some observers think possible, the overall effect could be devastating on all markets, including gold and silver, but as in 2008 they would probably be the first to recover and perhaps then go from strength to strength.

A word about silver here too.  It has not been quite as badly affected as gold with the Gold:Silver ratio coming back a little.  But it still remains rather higher than the recent historical norm and there is still a good chance that it may revert to more normal levels with a corresponding boost in the metal price.  The days ahead are going to be particularly interesting for both gold and silver with perhaps some direction becoming apparent.  They are both in a bit of ‘no-man’s land’ at the moment.

04 Oct 2018

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