Shanghai returned last week and gradually gained momentum but only on one day did it lead the way, before President Trump said he was about to introduce a new fabulous tax regime and then the gold price faltered and fell $5 before falling another $10, before stabilizing and recovering to finish the week at $1,233.
Bear in mind that no physical sales of gold took place, but a small physical purchase happened in the Gold Trust last week in the U.S.
What did happen was a High Frequency Traders raid on the gold price that involved no physical gold. 3,927 April gold futures contracts (paper gold) were dropped onto the COMEX gold market. This was 11.1 tonnes of ‘paper’ gold which hit the COMEX trading floor and electronic trading system in a 60 second window. The subsequent fall was not substantial, so we view it as primarily a response to a stronger dollar.
What was important about the raid was that it had barely an impact on the gold price. Can we believe that such raids have lost their impact? It seems so!
The buying of gold into the U.S. based gold ETFs is persistent enough for the bullion banks to keep their books ‘long’ of gold. The potential for any shortage of open market stocks is great now, as the mood towards gold goes positive. So dealers and banks have re-positioned themselves for higher prices.”
Will the dollar move higher in the days, weeks and months to come. We know that the Fed and the Treasury as well as the government do not want a strong dollar. The ‘strong dollar’ policy is changing as the U.S. wants a globally competitive trade position in the world and a strong dollar goes against that. Hence, we see the rise in U.S. dollar and U.S. markets as being short lived.
Many may feel that with the U.S. raising rates in 2017 and a tightening of liquidity against a Europe and Japan loosening monetary policy will lead to a strong dollar. But we feel that until we can measure the impact of President Trump’s tax cuts and infrastructure spending, it is too early to conclude along those lines. As it is foreigners appear to have lost their appetite for U.S. Treasuries, so the U.S. may well rapidly increase its government deficits to provide such financing and move strongly towards adding liquidity to the U.S. monetary system…