Gold News

Bullion Prices 'Set to Drop Markedly' as Silver ETF Shrinks Near 3-Year Low, London Gold Demand Sinks

BULLION  PRICES fell to new 4-week lows in London on Monday, with gold edging $5 per ounce lower to touch $1136 in quiet trade – and silver sliding 6% from last week's spike – as European stock markets shrugged off weak manufacturing data which earlier saw Asian shares drop almost 2% for the day.
 
Strong UK manufacturing data bucked the trend ahead of this week's interest-rate decision from the Bank of England, with the British Pound jumped near its strongest levels since mid-September.
 
That squashed gold bullion prices for UK investors to £734 per ounce, down over 5% from last week's 4-month highs to the lowest level since start-October.
 
"We believe that price expectations for gold and silver are too bullish," says Robin Bhar at French investment and bullion bank Societe Generale, writing about the recent London Bullion Market Association's precious metals conference in Vienna, and the LBMA attendees' average price forecasts of $1159 and $18 per ounce for gold and silver one year from now.
 
"The reality of tightening US monetary policy is still, in our view, set to strengthen the US Dollar and see Treasury yields rise," Bhar explains, leading "both gold and silver to drop markedly."
 
SocGen's poor outlook for silver "[is] compounded by the unresponsive of mine supply and the fact that industrial demand will barely benefit from the much lower prices."
 
Silver's largest investment trust – the iShares Silver ETF (NYSEArca:SLV) – last week shrank to its smallest size since the turn of 2013 as stockholders liquidated shares and the amount of metal needed to back the trust's value fell.
 
Ending Friday below 9,761 tonnes – and with only 17% of its stock held by "institutional shareholders" according to data from Nasdaq.com – the SLV has now shrunk 10% by weight from the 3-year peaks hit this time in 2014, and dropped over 71% by value from the records of spring 2011 to stand at $4.9 billion.
 
Gold's 33% institutionally-owned SPDR Trust (NYSEArca:GLD) meantime shrank 0.5% last week to reach its smallest size since mid-October.
 
Worth some $25.4bn – down 67% from its August 2011 peak value – the GLD has shrunk 49% by weight since its peak holdings by weight at the start of 2013.
 
Monday's demand for bullion at the LBMA Gold Price benchmarking auction this morning started at just 0.3 tonnes – less than 6% of the third quarter's daily clearing average – at the opening suggestion of $1137.20 per ounce.
 
Demand then rose 10-fold as a lower clearing price was found to match supply at $1135.80 – some 1.1% below Friday morning, at the lowest London benchmark since 5 October.
 
Shanghai gold prices had earlier closed near flat for the day, despite a retreat in the Yuan from last week's sharp jump on the FX market.
 
With Dollar bullion prices falling in London, that extended the premium for metal delievered in China, over and above global benchmarks, to $6 per ounce – well over twice the average incentive offered to importers during the last 12 months.

Adrian Ash is director of research at BullionVault, the world-leading physical gold, silver and platinum market for private investors online. Formerly head of editorial at London's top publisher of private-investment advice, he was City correspondent for The Daily Reckoning from 2003 to 2008, and he has now been researching and writing daily analysis of precious metals and the wider financial markets for over 20 years. A frequent guest on BBC radio and television, Adrian is regularly quoted by the Financial Times, MarketWatch and many other respected news outlets, and his views from inside the bullion market have been sought by the Economist magazine, CNBC, Bloomberg, Germany's Handelsblatt and FAZ, plus Italy's Il Sole 24 Ore.

See the full archive of Adrian Ash articles on GoldNews.

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