Precious metals in a fix

To no one’s surprise, yesterday the FOMC announced it would be tapering its monthly asset purchases by $10 billion down to $35 billion a month; this was despite drawing attention to the slowing in the economic recovery.

As expected, there was no increase in interest rates and the committee indicated there wouldn’t be for some time, instead suggesting they may take a more aggressive approach to increasing rates early next year.

Following that news, the gold price climbed above $1,270. This morning, it has edged up further, touching $1,280.

Platinum and palladium are also climbing once again, trading at one-week highs, as strike negotiations in South Africa have hit new hurdles. Mine representatives said the main union, AMCU, has made ‘unaffordable’ demands beyond the deal that was originally agreed last week.

Premiums in both India and China are down this week as physical demand is low compared to numbers seen in previous months.

The SPDR Gold Trust, the world’s largest gold ETF, saw two consecutive days of outflows this week. These paused yesterday, most likely due to the FOMC’s announcement. Reuters and Bloomberg report that these holdings are near a five-year low and reportedly show bearish sentiment in the market.

Having looked at the movement of gold from East to West, we would argue that it does not reflect such sentiment. Instead, there is a change in the nature of gold demand and the East is very much beginning to control how gold will be held.

Precious metals fixes

Yesterday, the World Gold Council announced it will be hosting a discussion with members of the gold industry about the London Gold Fix. In a press release, the lobby group for gold miners said the age-old fix was in desperate need of modernization; we wonder if it’s just in need of annihilation.

“The fixing process was established almost a century ago, so it is not surprising that it needs to change to meet today’s market expectations for enhanced regulation, transparency and technology,” said Natalie Dempster, managing director of central banks and public policy at the council.

Tomorrow, LBMA members will listen to firms’ proposals for the London Silver Fix. It will be abolished on Aug. 14 due to Deutsche Bank’s resignation from the process. In a lengthy article discussing the fix, precious metals markets academic Brian Lucey noted how archaic both fixes are.

“When the gold and silver fixes were first set, they were pretty much the only game in town,” Lucey said. “Now we have the data which allows us to get a really good handle on the market. A mechanism that gives more information about more of the market is better for all.”

About the Author

Jan Skoyles is Head of Research at The Real Asset Company, a platform for secure and efficient gold investment.