Gold and silver moving up, China taking control?

Please note that the Shanghai Fixes are for 1 gm of gold. From the Middle Eat eastward metric measurements are used against 0.9999 quality gold.

The difference between New York’s close and Shanghai’s gold prices  is gaining momentum. Yesterday and today there is a $10 difference, commonly referred to as the ‘premium in Shanghai. Such a comment implies that Shanghai has to add on an amount because gold is less available there and must wait for imports to even out prices. But the reality is that China has more than enough physical gold to satisfy the market on ‘normal’ days. When demand is growing ahead of supplies, it’s because of a short-term increase in demand over supply, a different feature. That’s why prices rise anywhere in the world. The question to be asked is, “Which price reflects the balance of supply and demand better and which price should world markets, as well as suppliers and buyers, use as a basis for their contracts?”

Yesterday saw a partial answer to that as the Dubai gold exchange signed a contract to use the Shanghai Fixings in place of the London Fixings. Clearly, the Shanghai physical gold market [the biggest physical market in the world] is thought to better represent physical gold prices than COMEX paper market prices. Shanghai is negotiating with other exchanges to use Shanghai Fixings in their markets. This will sap the power of both New York and London over gold prices. As you can see London is much close to Shanghai prices than to New York’s prices now. Is pricing power on its way to Shanghai now, permanently?

LBMA price setting:  The LBMA gold price setting was at $1,261.65 against yesterday’s $1,252.70. The gold price in the euro was set higher at €1,146.95 against yesterday’s€1,139.85.

Ahead of the opening of New York the gold price was trading at $1,261.00 and in the euro at €1,146.36.  At the same time, the silver price was trading again at $17.60.

Silver Today –The silver price fell to $17.44 at New York’s close yesterday from $17.45, Friday.  

Price Drivers

In what is an extraordinary turn of events, Deutsche Bank AG has agreed to pay $38 million to settle U.S. litigation over allegations it illegally conspired with other banks to fix silver prices at the expense of investors, yesterday. It is also cooperating with the authorities to provide evidence that HSBC Holdings Plc and Bank of Nova Scotia (ScotiaBank) rigged silver prices through a secret daily meeting called the Silver Fix, and accused UBS AG of exploiting that fix. The case against UBS AG has been dismissed. The alleged conspiracy started by 1999 and suppressed prices on roughly $30 billion of silver and silver financial instruments traded each year, and enabled the banks to pocket returns that could top 100% annualized. The unethical, immoral behavior of the banks continues and feeds their loss or reputation that now covers a host of industries.

The question of, did such behavior happen in the gold market, lies unanswered! The greater liquidity in the gold market would make it more difficult, but it is the banks that control the prices of both precious metals, so it appears likely that they behaved badly there too.

Gold ETFs – There were purchases of 1.78 tonnes into the SPDR gold ETF but no change in the holdings of the Gold Trust, leaving their respective holdings at 967.208 tonnes and 227.56 tonnes.  This did not change the gold price at all. But again, U.S. investment demand is seen to remain positive is serving to stabilize prices at current levels.

Since January 4th this year, the holdings of these two gold ETFs have risen by 393.789 tonnes.

Silver – Silver prices continue to mark time alongside gold waiting for the breakout one way o the other.

Julian D.W. Phillips

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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). He has worked in mines in South Africa (gold, uranium and platinum), Canada (uranium), Zambia (copper) and U.K (coal) and holds a South African Mine Managers certificate. He also worked as a gold mining company analyst for one of the major South African mining houses. He left South Africa to join Mining Journal as Financial Editor and worked his way through that organisation to edit Mining Magazine, and then join the Board. He was Managing Director (CEO) of the company for 13 years up until it was sold in 2001. During part of this period he was also President of Nevada-based U.S. company Mining Media Inc which was publisher of North American Mining magazine.