BullionVault Weekly Update
Monday, 11 January 2016
In the markets this morning...
Golden (New) Years
from Adrian Ash
Head of Research, BullionVault
LET'S PUT last week's mind-warp pavilion for the kings of oblivion to one side for a moment.
Because until it sticks, this 4% rise in gold prices just means gold is doing what it usually does at New Year.
Eight times in the last decade, in fact. And to date, this January gold jump maps pretty much exactly what happened at the start of 2015, too.
Silver is staying true to form too...lagging gold as the New Year starts.
That's pushed the Gold/Silver Ratio of relative prices up towards multi-year highs. One ounce of gold equates to more than 78 ounces of silver at current prices.
Bloomberg reckons this must mean a pullback is coming...with silver outperforming gold in the months to come.
But what if "safe haven" gold retains its New Year's appeal, while silver continues to lag?
Silver, after all, tends to jump hardest and fastest when the threat of inflation jumps.
And no-one says strong inflation is coming.
Whereas gold is often seen as also offering "deflation" protection...a hedge against the bankruptcies and debt destruction which falling consumer prices can create.
Surely that is why gold has jumped...again...on the noise coming from China's stock market.
Because just as in late 2008, the threat of a widespread market crash makes rare, indestructible gold highly appealing to money managers. Most especially because...unlike any other natural resource...gold is also next-to-useless for anything else than storing value, too.
Let's not get too excited. The Chinese authorities haven't entirely lost control of the situation. Not yet. Even if they have helped push the interest rate on offshore Yuan up to 38% for overnight deposits.
Deflation, of course, is hard to see clearly through the smoke and confusion. Because for every Switzerland...stuck with falling prices no matter how many Francs it prints and dumps to try and devalue the currency...there is a Sri Lanka desperate to shore up its currency on the FX market.
Against Sweden, in short, check out South Africa.
Globally, however, food prices fell by almost one-fifth in 2015, according to the United Nations.
Now a glut of everything from corn to soy beans threatens to push prices down further.
That's bad news, in the main, for producer countries. Saudi Arabia, for instance, today felt the need to warn speculators that it will defend the Riyal's peg to the US Dollar come what may.
Fans of history can guess what comes next.
Internal to the precious metals market, meantime, the slowdown in wholesale dealing of late 2015...down to the lowest turnover in 10 years...is sending mixed signals from the big bullion banks and trading houses.
Japan's Mitsui is about to quit helping make the market in physical bullion. Yet Bank of America Merrill Lynch has stepped in to share that role...taking the total number of market makers to 14...while the Chinese-owned ICBC Standard Bank is clearly planning big things by buying its own London vault.
Rumour says ICBC Standard has also applied to become a clearing member, and I can only guess that it must surely be going to join the daily benchmarking process...formerly known as the Fix...now with 12 market makers in gold, and 6 for silver.
What does ICBC...the largest bank in the world's second or first largest gold consumer market...think it knows about the future of precious metals?
Ahead of the fun-loving, cheerful and clever Chinese New Year of the Monkey starting on Monday 8 February, it would certainly seem to know that London remains the world's central gold-trading hub.
Head of Research, BullionVault
Key data and market events, times in Greenwich Mean Time (CET-1, EST+5):