Welcome to a very brief overview of the recent performance in the markets. The essentials are captured in the table below and each week we will show a chart of interest.
On an LBMA pm pricing basis gold has dropped $40 from its $1,528.75 auction price of last Wednesday 25th September as sentiment again improved with respect to the U.S. / China trade talks and the dollar showed some independent strength. That said, however, investors poured money into the gold ETFs last week, adding 43 tonnes for a net dollar inflow of $2.1Bn with over $1Bn going in last Wednesday alone. This underscores the fact that the markets are only too well aware that the pendulum can swing in either direction when it comes to U.S.- Sino relations, while the continued political tantrums in the United Kingdom over Brexit continue to add political uncertainty to the state of the European Union.
In addition, there is increasing evidence of the changing complexion of the United States economy. For some months now it has been characterised by an uncertain industrial environment offset by relatively upbeat sentiment at the retail level. This latter is now starting to change, with consumer confidence, while still relatively high, starting to fall with the consumer “expectations” index for September coming in at below 100, and consumer spending on goods and services in July only gaining 0.1%. The University of Michigan Consumer Sentiment Index, a closely watched indicator, was actually marginally better in September than it had been in August, but a number of respondents mentioned the trade wars as one of the elements that was causing them concern.
So the picture at the moment is for sustained institutional investment in gold but a weak physical market. The Chinese market remains subdued and the Indian market is virtually non-existent at present. Between them these two countries usually account for over 50% of gold demand and approximately 60% of gold jewellery demand. The Diwali Festival in India is four weeks away; Diwali itself is 27th October and this is regarded as the most auspicous day of the year in India for buying giving and receiving gold. Some local jewellers are mildly optimistic, but the domestic market is absolutely flat with local prices at a deep discount to the international market. Today’s chart is taken from the World Gold Council and shows the differential between the Indian and Chinese markets to the international (“Loco London”) price. It may seem strange that the domestic Chinese prices are at a premium to London, but this largely reflects the fact that the Chinese government has bene imposing import quotas on international banks and while some of these are reported to have been lifted, imports are still low.
Thought for the week
Gold was first discovered in Biblical times when it was abundant at near surface in Egypt. It is actually mentioned in Genesis!