Gold prices have begun this week on a slightly firmer note, reversing the trend of the previous six days, after physical buying emerged in Asia as well as some short covering ahead of a meeting of the U.S. Federal Open Market Committee meeting this week.
Last week, gold came under selling pressure as prices fell below certain key technical levels triggering sell-stop orders which caused prices to fall to the $1230 an ounce handle in relatively thin volumes. By the end of the week, the price of the yellow metal settled at $1228.30 per ounce.
The recent price drop can be attributed to traders on Comex who have a bearish view on gold due to the current U.S. dollar strength. And, the strength in the greenback has nothing to do with a vibrant economy and instead has everything to do with the weakness in the euro and the yen as economies in Europe and Japan plunge.
Geopolitical tensions have now also become a distant second to central bank policies and the latest economic news. And, almost all the articles as well as radio and TV interviews about the gold market have nothing positive to say.
After the ECB announced another round of stimulative monetary policies, the euro tumbled, and the U.S. dollar rallied to a 14 month highs. The U.S. Dollar Index has shot up 6% from its May low, an uncharacteristically strong move for a currency.
This has weakened the gold price, since the two generally have an inverse relationship. And if the dollar is strong, maybe we should expect gold to be weak.
As investors flock to the U.S. dollar on the premise that the U.S. Federal Reserve will raise interest rates earlier than expected, many other fiat currencies in addition to the euro and yen, got hammered last week.
While the dollar index trades near the highest level since 2010, many emerging market currencies, for the most part having held their own, have now begun to show fragility. So far in September, the Brazilian real is down 4.4%, the Colombian peso 3.8%, the South African rand 3.2%, the Turkish lira 2.7% and South Korean won 2.1%.
The rouble tumbled to a record low of 37.7265 per dollar and Russia threatened retaliation against the new round of sanctions imposed on it by the EU and U.S.
Also, the Australian dollar has dropped 3.6%, the New Zealand dollar 2.1% and the Canadian dollar 1.9%. And, Brent crude fell to a two-year low, wheat to a 50-week low and gold to an eight-month low.
Not only has gold come under pressure from the strengthening U.S. dollar, geopolitical tension surrounding Ukraine, which has been buoying up gold prices, appears to be easing. Prices spiked in July when a Malaysian passenger airplane was shot down in Eastern Ukraine, with that country accusing Russia of causing the crash. However, a ceasefire between the countries seems to be holding well, and the situation appears stable.
In a new act of madness, and despite the ceasefire in Ukraine, the U.S and its Western counterparts have imposed another round of sanctions against Russia.
Without presenting any convincing evidence, NATO and the US have repeatedly accused Russia of directly controlling the separatists and intervening in eastern Ukraine, recklessly raising the possibility of war between nuclear armed powers.
Recently, the U.S Treasury Secretary said the following:
Given Russia’s direct military intervention and blatant efforts to destabilize Ukraine, we have deepened our sanctions against Russia today, in concert with our European allies. These steps underscore the continued resolve of the international community against Russia’s aggression.
What aggression is he referring to? In simple language what he means is that Russia isn’t doing what the US and its Western European allies want it to do, and they are upset about it. So until Putin and Russia comply with their demands, more sanctions will come.
While all these lies continue, the one thing that cannot be disputed is that Russia is the only country that has supplied any humanitarian aid to the innocent victims of this crisis. Maybe the U.S and its western allies are confusing this with military aid.
After roughly five months of bitter fighting between Ukrainian government forces and pro-Russian rebel groups, the question is whether the ceasefire will last. Ukrainian forces and pro-Russian rebels have battled in eastern Ukraine since April, leaving more than 2,200 people dead, according to the United Nations. And, more than 330,000 people have now been displaced.
While Ukraine together with the U.S. and its European allies continue to blame Russia for this crisis, the only country who has provided humanitarian aid is Russia. Something is amiss here, and it is obvious that the U.S. and Europe have a hidden agenda regarding Ukraine. (How come apart from RTV, no mainstream media is mentioning anything about this humanitarian aid provide by Russia?).
While they try to make Russia look like the aggressor, they back Ukrainian President, Petro Poroshenko, who appears delusional or a good liar like most other politicians.
On August 28, Poroshenko told members of the now G-7 that Russian forces had entered his country, and the conflict was worsening. He also accused Russia of using humanitarian aid as pretext for sending in the army.
As to be expected when the Russian aid did finally arrived and no weapons or troops were found, Western media did not have another thing to say about this.
Now, Ukraine’s Prime Minister has accused Vladimir Putin of wanting to “restore” the Soviet Union and claimed both sides were “still in a state of war”.
Speaking at a conference in Kiev, Arseniy Yatsenyuk claimed the Russian President wanted to “take the entire Ukraine”, despite a cease-fire agreement existing between them.
“He [Putin] cannot cope with the idea that Ukraine would be a part of a big EU family,” Mr Yatsenyuk told the assembled politicians and business leaders on Saturday. “He wants to restore the Soviet Union.”
The Ukraine premier’s speech came shortly after a second convoy of Russian trucks rolled into rebel-held territory in the east of the country, reportedly filled with almost 2,000 tons of humanitarian aid.
According to reports from one news agency about 250 trucks headed for the city of Luhansk, though numbers have not been officially confirmed.
I wonder what government officials in Ukraine, Europe and the U.S are going to say about this latest convoy of aid. Maybe they will claim its carrying Bin Laden’s armed cousins!
Until I see Russian tanks cross over into Ukraine, I can’t believe a word of this nonsense. But, more importantly it just goes to show how desperate governments have become when they propagate misinformation trying to beguile you into their way of thinking.
The real enemy of the world is not Russia. And, the actions of these misinformed politicians in the U.S. and in Europe will only turn a potentially powerful friend into a very powerful enemy. And, the way I see things, it will hasten a move away from the dollar that’s been stirring since the global financial crisis and be the catalyst to developing a more multicurrency world, or at least one that is not solely dependent on the U.S. dollar.
Clearly, US dollar dominance is on the way out. As the dollar grows less and less crucial for trade, its value will fall. In recent developments China signed a bilateral currency swap agreement worth 150 billion yuan ($24.17 billion) with the Swiss central bank, which can invest up to 15 billion yuan in China’s bond market.
Last month, Russia announced that oil company Gazprom will accept roubles and yuan for crude oil deliveries. This will directly reduce dollar usage. And Gazprom isn’t a small company—it made $2.4 billion last year, and production is growing.
As more countries opt to use an alternative to the U.S. dollar, and as deflationary pressures persist in most Western economies, we will see further rounds of competitive currency devaluations by the leading central banks. This can only end in disaster for fiat currencies.
The Shanghai Gold Exchange will launch its international board on Sep. 29 in the financial hub’s new free-trade zone; a widely anticipated move to open China’s tightly controlled gold market to foreign capital.
The board is China’s bid to deepen its influence over the global gold market, where China is the biggest producer and consumer but sees itself as lacking clout in pricing.
“This is our window to the world,” Shen Gang, the bourse’s deputy chief executive, said at an industry conference.
Traders expect the international board will broaden the global use of the yuan and help to simplify how gold is brought into the country, though it is not likely to drastically loosen state control over gold trade flows. China exercises strict control over the amount of gold that can be brought into the country, and the Shanghai Gold Exchange is a unit of the People’s Bank of China, the country’s central bank.
The exchange is also setting up a warehouse in Shanghai’s free-trade zone that can hold up to 1,000 tons of the yellow metal. It is hoping that regional countries, including those in Southeast Asia, will use the warehouse as a storage facility for gold trade flows.
Meanwhile, the Singapore Exchange is planning to launch a gold contract for wholesalers in the next 1-2 months to meet demand in Asia. The contract will allow physical delivery within 2 days.
In June the Singapore Exchange (SGX) indicated that their 1kg gold contract would probably be launched by September, but the launch date has now been pushed back to either October or November. The SGX is Singapore’s securities and derivatives exchange and clearing and depository provider.
The Singapore contract will be in lots of 25 kilograms, denominated in US dollars, and it will trade for three hours in the Singapore morning time. Singapore is 7 hours ahead of London and 12 hours ahead of New York, and 2.5 hours ahead of the Indian market, but is in the same time zone as both Hong Kong and Shanghai.
Physical settlement is two days after trade date and consists of 99.99 purity 1kg gold bars that meet the approval of the Singapore Bullion Market Association (SBMA) good delivery list. This means that wholesalers will be able to gauge demand and supply of 1kg bars over the following week.
China and India account for more than half of global gold consumption, but Asia still largely relies on the London fix for reference.
Meanwhile, as long as the markets continue to believe that the world, specifically the US, is in full economic recovery and higher interest rates are just around the corner, gold will remain under pressure. Personally, I think the downside is limited and we are getting close to a bottom of this cycle.
My message here is that while you have many reasons to sell your gold, don’t. Gold is now on sale, and everyone wants to buy valuable assets when they’re cheap. Bullion’s current dip is a golden opportunity to buy low in order to sell high later.
The weekly charts show a major support level at around $1210/0z. – $1200/oz. I expect to see this support hold and then more consolidation before the next move upwards.
About the author
David Levenstein is a leading expert on investing in precious metals . Although he began trading silver through the LME in 1980, over the years he has dealt with gold, silver, platinum and palladium. He has traded and invested in bullion, bullion coins, mining shares, exchange traded funds, as well as futures for his personal account as well as for clients.
His articles and commentaries on precious metals have been published in dozens of newspapers, publications and websites both locally as well as internationally. He has been a featured guest on numerous radio and TV shows, and is a regular guest on JSE Direct, a premier radio business channel in South Africa. The largest gold refinery in the world use his daily and weekly commentaries on gold.
For more information go to: www.lakeshoretrading.co.za
Information contained herein has been obtained from sources believed to be reliable, but there is no guarantee as to completeness or accuracy. Any opinions expressed herein are statements of our judgment as of this date and are subject to change without notice.