With markets now on edge we are waiting for the dollar index to break above 100, or pull back. Worse still, the dollar is unlikely to do much if it holds below 100, just move sideways. But the importance of it holding current levels and not rising is enormous. As we say repeatedly, the U.S. suffers if the dollar gets much stronger and yet the E.U. wants the euro lower against the dollar. Further interest rate cuts into negative territory are expected in the E.U. alongside more asset purchases and the consensus of opinion among Fed Governors is growing for a December rate hike, so how can the dollar be held back?

The use of swaps between the E.U. and the Treasury has been the usual way to go and we expect will continue to be used in a larger way in the future.

We are still sitting on the edge of our chairs waiting for the I.M.F. announcement on the inclusion of the Yuan in the SDR scheduled for November. This may exert more upward pressure on the dollar as the Yuan then drops in value. It will not be a devaluation as the currency is ‘floating’, the same as most currencies do.  Then, we expect a gear shift in market turmoil as currencies across the board try to go lower, most against the dollar. Then we will see a more visible currency war!

There were sales of just over 4 tonnes of gold from the SPDR gold ETF yesterday but none from the Gold Trust. The holdings of the SPDR gold ETF stands at 655.692 tonnes in the SPDR gold ETF and at 160.27 tonnes in the Gold Trust. These sales seemingly had zero impact on the gold price as it continued to be dominated by the dollar: euro exchange rate and the dollar index. This pattern should persist today too.

We did see the attempt at another ‘bear-raid’ late on Sunday as Shanghai opened, as a major ‘futures’ sell-off happened. Yesterday’s physical sale of over 4 tonnes may well have been in support of this. It is noteworthy that there was no follow through in the gold price. While the futures markets are skewed to the downside and this bear raid produced only a small reaction, we have to ask the question, “Are we seeing a drying up of effective sales?” This is important.