Price Drivers

We are watching the underlying currents in the gold price now dominate traders and speculators. We still see the ebb and flow of the price continue but with a positive tidal influence. We do expect to see COMEX increase their long positions and to cover short positions as the gold price moves higher. We note that consolidation phases are quicker and at the top of their trading ranges from $1,250 onwards.

There were purchases of gold into the SPDR gold ETF [GLD] on Monday of 3.297 tonnes but none into the Gold Trust, which left their respective holdings at 802.605 tonnes and 164.24 tonnes. This is the second time in the last week that purchases were made. No sales have taken place during this time. We believe that the attitude to gold in the U.S. is changing from selling, to invest in equities, to one of a more global outlook. It seems that smart money is investing in precious metals now, while selling from all U.S. investors is drying up. As we have said previously, this takes away a very large line of supply that kept the gold and silver prices down in 2013. This explains why the gold price broke out from $1,250 to current levels and will keep on rising in 2014.

We note that the Chinese Yuan is now falling, which we have expected and do expect in the future, simply because it is against Chinese interests to see the Yuan rise in the future. We also expect this to happen as the Yuan reaches full convertibility in the future. At the same time we believe that gold will take on a greater importance in the global monetary system as this happens.

Right now and in the future, as monetary and civil uncertainty causes emerging nations to suffer the effects of capital outflows [to ‘harder’ currencies] in their exchange rates, these nations and their citizens will favour gold investments [high caratage]. This will see demand for gold rise even more than we see at present. We can see little reason for capital to flow into these nations as the economic recovery in the developed world brings closer the day when interest rates rise. The G20 nations have tried to calm these fears by saying they will continue ‘easy’ money policies still, but this will only slow down or postpone such potentially disruptive flows.

Silver – The silver price will move cautiously with gold as it rises.

Julian Phillips is the founder of and