By Julian D.W. Phillips

Gold closed in New York at $1.229.20 up from $1,225.00 on Wednesday. In Asia, it rose to $1,241 ahead of London’s opening. It then pulled back during the morning to be set by the LBMA at $1,235.40 up from yesterday’s $1,232.25. The dollar index is slightly weaker at 97.44 up from 97.77 on Wednesday.

The dollar is weaker against the euro at $1.1028 up from $1.0978 on Wednesday. The gold price in the euro was set at €1,120.24 up from €1,122.47.

Ahead of New York’s opening, the gold price was trading at $1,236.55 and in the euro at €1,120.62.

The silver price closed in New York at $15.24 down 2 cents.  Ahead of New York’s opening the silver price stood at $15.20.

Price Drivers

Wednesday saw a purchase of 8.029 tonnes into the SPDR gold ETF and a purchase of 0.75 of a tonne into the Gold Trust. The holdings of the SPDR gold ETF are now at 760.323 tonnes and at 188.25 tonnes in the Gold Trust.  In the week to date, we now see a total of 55.379 tonnes of gold bought into the two gold ETFs we follow.

The technical picture did as we forecast and broke out convincingly.

The gold price hit $1,250 at one point before being dragged down to $1,229, yesterday.

Let’s assume that this was due to physical selling by U.S. bullion banks. The tonnage bought this week must have put a serious dent in the gold holdings that can be used for trading. Should the buying continue at anywhere near these levels, we would question the wisdom of using such amounts of gold simply to hold the price down. The evidence in the physical markets is that Asian demand is so large that such a policy is doomed to fail.

If however, the price of gold yesterday was simply a function of the COMEX futures and Options contracts then physical gold was not involved. The achievement of holding gold prices back would then be to encourage more physical buying of gold globally, both in the developed world markets and off-market where the bulk of physical gold is traded. The price off-market is referenced to London and COMEX prices. By holding prices down [with the fall from $1,250 to $1,229] would simply incite more buying!

While global growth continues to slow, we note that the Services sector in China is still growing fast. This is directly helping to create more middle class Chinese citizens. These continue to love gold as a fundamental investment. The performance of the Shanghai Composite index remains uninspiring, so solid, safe gold that the older people promote, holds a fundamental position in middle class wealth. The slowing GDP numbers from China belie such growth, but this is and will be a fundamental driver for gold for many years ahead.

While the silver price was restrained overall yesterday, gold’s breakout will positively affect silver’s performance from now on.