The Phaserl


Market Report: Mirror Reflection of the Dollar

by Alasdair Macleod, Gold Money:

Last Friday (5 August) the US dollar jumped on better than expected payroll figures, and spent the first half of this week easing as the excitement wore off, before rallying again yesterday.

Gold and silver reflected these moves in reverse, falling heavily last Friday, recovering two-thirds of the fall by Wednesday’s US opening, then falling back yesterday. Gold rose only $7 net from Monday’s opening of $1333 to $1340 by early this morning UK time (12 August) and silver by 40 cents from $19.60 to $20.00.

Gold has essentially paused, the moves being a mirror-reflection of the moves that are coming from the dollar side of the price.

The downturn in the yen price of gold reflects the yen’s continuing strength, with the rate having fallen from 120.6 to the US dollar to under 102 since January 1st. There is little sign of this trend ending, and of the psychological 100-yen level looks likely to be breached in time.

This is partly because Japanese insurance and pension funds now find that investing in US Treasuries does not produce a positive return after currency hedges, so there is little point in them doing so. Outward investment flows are therefore diminishing. The upshot is that for Japanese investors, gold is getting cheaper relative to alternatives, which should encourage investment in physical jewellery where price matters, and to a lesser extent perhaps, physical bullion where the trend matters more.

The gold futures market is still overbought, but less than it was, reflected in the fall in Comex open interest from 11th July. This is shown in our next chart.

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