New York closed at $1,077.20 after closing against the dollar as low as $1,069.50 last Thursday.  In Asia prices were marked down to $1,170 as the dollar continued to rise against everything. The LBMA price setting fixed it at $1,068.35 down from $1,070.50 from Thursday. The dollar Index is at 99.82 up from 99.62 on Thursday. The dollar is at $1.0625 up from $1.0656 against the euro.  In the euro the fixing was €1,005.008 up from 2.81 down from €1,003.81 on Thursday.  At New York’s opening gold was trading in the dollar at $1,069.35 and in the euro at €1,006.02.

The silver price closed at $14.15 down 6 cents since last Thursday. At New York’s opening, silver was trading at $13.93.

Price Drivers

We have been away from the desk since a week last Friday. The moves in the gold price since then are not due to physical sales, but to moves in the U.S. dollar. Look at the gold price in all other currencies and it is doing fairly well, because all other currencies, like gold, are falling against the dollar. So the gold market and most other markets are all about the dollar.

Yes, it is still below 100 on the index but now it seems that we have reached decision time. Will the dollar be allowed to follow market forces and continue higher or will it be ‘managed’ lower [or held here] by the U.S. Treasury? To emphasize this, we expect the Yuan to fall [not be devalued] because its ‘peg’ against the dollar is taking it higher against all other currencies too.

The economic data continues to point to lower inflation and lower growth which, translated, means deflation. With the oil price still falling, this seems to ensure that such numbers continue to decay. What is disturbing is that by now, a halving of the oil price should have stimulated growth, but it hasn’t, so why should further falls? Likewise, more stimulation [QE] is unlikely to produce growth when it has failed so far.

So, we are in a currency war of note! Who will pull the dollar down? The U.S. will have to, as it is damaging the U.S. economy and all the more so, if it rises further.  In that case gold will follow other currencies down but then the damage done will call for a reassessment of the value of gold. The nearest parallel we have to this scene is in 2008 when gold fell to its bottom before moving to its peak of $1,921.  Why, at that time, did the gold price then rise? Because of fears of a collapse of the financial system! We certainly do not believe that the time since then has improved the financial system. This implies that what happened then, probably triggered by higher interest rates, will precipitate similar extreme times.

There have not been sufficient sales from the SPDR gold ETF or Gold trust to move gold prices down.

Silver is pushing lower ahead for potential falls in the gold price.