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Gold Lockdown Until Options Expiry - New Singapore Gold Contract Threatens Price Manipulation

Commodities / Gold and Silver 2014 Jul 25, 2014 - 02:44 PM GMT

By: GoldCore

Commodities

Mark O’Byrne writes: Today’s AM fix was USD 1,292.50, EUR 961.18 and GBP 761.64 per ounce. Yesterday’s AM fix was USD 1,300.00, EUR  964.68 and GBP 763.76 per ounce.

Gold fell $12.50 or 0.96% yesterday to $1,292.40/oz and silver slid $0.55 or 2.63% to $20.37/oz.


Singapore - Asia’s Growing Gold Hub

Silver for immediate delivery rose 0.5% to $20.50 an ounce in London. Platinum added 0.3% to $1,472 an ounce. Palladium rose 0.4% to $874.20 an ounce. It remains near the 13-year high of $889.75 reached on July 17.

Gold has moved higher in London this morning after gold in Singapore traded sideways overnight. Futures trading volume has picked up from yesterday’s very low volumes and is just 13% below the average for the past 100 days for this time of day, according to Bloomberg data.

Gold breached the 100 day moving average at $1,301 and closed below the 50 day moving average at $1,294 yesterday. Options expiration and geopolitical tension should support gold at the 200 day moving average at $1,286/oz (see chart).

Gold in U.S. Dollars - 50, 100, 200 SMAs (Thomson Reuters)

Gold was badly impacted by what appears to be high frequency trading (HFT) or programme trading again yesterday with another bout of concentrated selling on two occasions. First, when Asian markets commenced trading and then just as U.S. stock markets started the trading day.

It is estimated that $1 billion worth of gold futures were sold in a matter of seconds yesterday at the U.S. open. The fact that gold remains resilient and only saw marginal losses suggested there are eager buyers at these levels.

Gold may remain in lock down near the $1,300 level into the Comex August gold futures options expiration on Monday. Sharp price falls in the days immediately before expiration have been a common occurrence in the gold and silver markets in recent years.

Zero Hedge

This appears to be happening again as seen in the ongoing unusual trading activity. Yesterday, and in recent weeks, gold has been frequently hammered lower by unknown, large financial entities selling futures contracts in a very sudden and concentrated manner.

Gold and silver are likely to be pinned to these levels until after expiration - providing there is no major breaking news or geopolitical event that rears its head and propels prices higher.

As gold moves East, western institutions are gradually losing their grip on the precious metals markets. The advent of new gold exchanges with physical gold settlement such as the new gold exchanges in Dubai, Shanghai and of course Singapore (more below) will make price discovery more efficient and render price manipulation more difficult. The physical market and the natural forces of supply and demand will likely soon overcome the paper and digital gold markets.

Worries over tougher sanctions on Russia and their potential impact on a fragile London property market and UK and Eurozone growth and the conflicts in Ukraine and the Middle East are leading to some safe haven demand.

Geopolitical tensions in the Middle East threaten oil supplies from key oil producing regions which should also support gold. As will Israel’s invasion and bombing of Gaza - and the resultant death of hundreds of innocent civilians.

After expiration on Monday, we expect prices to move up in August. However, two weeks of losses have resulted in short term technical damage that may take a few days to recover from.

Silver's outperformance of gold this week has taken the gold: silver ratio -- the number of silver ounces needed to buy an ounce of gold -- to its lowest since late late February at 62.25 today. In May it reached a 3-1/2 year high of 67.6 as silver lagged gold.

Silver looks even more bullish than gold from a long term technical perspective.

It is on the verge of a potential breakout from its two year consolidation triangle. A weekly close above $22.00 resistance would be important and could lead to an additional 15% run-up towards the $24.20 level. This is the next level of resistance and where the 100-week moving average is. Above that, next levels of resistance are at the $27 and $28 level.

The New York Times ran an op-ed piece today by British Conservative backbencher Kwasi Kwarteng, suggesting that China could someday peg its currency to gold, as Britain did in 1821.

"China has the reserves to do this, and it could have the political will, if the dollar proved to be unreliable as a store of value in the future," he says. "Having expanded its manufacturing base and captured international markets, China may well find a world hooked on its products. It could eventually — in, say, 20 years — peg the renminbi to gold, considering it preferable to the dollar as a store of value, because of its permanence and longevity. With a balanced budget and a gold-backed currency, China’s economy could be even more formidable than it is today. Such a move would truly mark its return as the “Middle Kingdom.”

Hard as it may be to contemplate today, this scenario would, in many ways, be a more secure basis for an international monetary regime system than the system of floating exchange rates that Nixon inadvertently created in 1971, one that forever overturned the Bretton Woods order."

It is an interesting article and it is interesting that it was published in The NY Times as it is a newspaper that has traditionally been quite hostile towards gold.

Some form of quasi gold standard in China is something we have written about since 2005 and it seems more likely by the year.

The world turns slowly ... and then very fast ...

Singapore’s Drive To Become Global Gold Hub Continues Singapore's plans to become a gold and precious metals hub took a key step forward on Thursday.

Metalor Singapore – a newly created refinery in the Metalor Group – was added to the London Bullion Market Association’s (LBMA) good delivery list.

“Metalor Singapore has also passed the LBMA’s exhaustive testing procedures, under which its gold bars were examined and assayed by independent referees, and its own assaying capabilities were tested,” Metalor said.

The refiner is located in Singapore City. Its primary sources of gold are scrap materials sourced from the jewellery sectors and its refined gold output is in the form of large gold bars for industry and institutional buyers.

Last month Metalor Technologies opened its refining plant in Tuas, Singapore. The facility offers a complete range of refining services, from evaluation of scrap to bullion production and is estimated to have a production capacity of up to 150 tonnes a year.

Speaking at the official opening, Singapore’s Senior Minister of State for Trade and Industry Lee Yi Shyan said the gold industry will contribute significantly to Singapore’s economy. He said that it should create half a billion dollars (US$0.5 billion) extra value to the economy and generate 1,000 good professional, managerial, executive and technical jobs by 2020.

Hubert Angleys, CEO of Metalor Technologies, said: "We want to grow with the Asian market; that is the reason we wanted to be there. We are located in the middle of the two largest gold consumer markets, China and India”.

“We want to take advantage of this geographic location and certainly we are looking forward to getting metal from these two countries but also exporting, through our Singapore customers, metal to these two countries."

Singapore already a banking, financial and wealth management hub in Asia is ramping up its bid to become a center for gold trading that will rival London.

Leading investment experts such as Jim Rogers, Jim Sinclair and Marc Faber have extolled the virtues of owning physical coins and bars in Singapore.

“Individuals are making a mistake if they’re holding all their assets in one country.…I still have the majority of my gold in Switzerland, but I am already moving gold to Asia,” Faber recently said (see Gold bullion stored in Singapore is safest - Marc Faber).

Just three weeks ago, the Southeast Asian city-state unveiled plans to launch a physically deliverable gold contract in September to meet strong demand from Asia – home to the world's biggest gold buyers.

The Singapore Exchange is launching a new gold contract which will be the world's first wholesale 25 kilo bar gold contract and will be made up of a series of six daily contracts.

"This gold contract is a plan two years in the making. The reason is that we have seen a trend of gold moving from West to East and there is actually no market place for market players to buy gold at a wholesale level," Albert Cheng, managing director, Far East at the World Gold Council, told CNBC.

The launch of the gold contract on the Singapore Exchange is supported by the World Gold Council, Singapore Bullion Market Association and four banks that include JP Morgan and Asia-focused bank Standard Chartered.

The launch of a gold contract in Singapore will bring centralized trading and clearing of physically cleared gold and could provide a price benchmark for gold trading in Asia.

At a whopping 25 kilos, the gold bar in this contract is double the size of a typical London Good Delivery gold bar which is around 12 kilobars or 400 ounces. At today’s prices each gold bar would be worth over $1 million.

Singapore is clearly targeting HNW, UHNW and family office gold buyers, not to mention institutional buyers with this contract.

At the moment the benchmark price for gold, known as the London "fix" is set daily in London at times that both fall after the close of Asian markets. Asia still mostly relies on this fixing for the buying and selling of bullion in volume. The London fix is currently under scrutiny for manipulation and is likely to taken over by the CME and Thomson Reuters as the silver fix was.

"This contract is meant for the Asian market," said the World Gold Council's Cheng, explaining why the contract will only be open for trade for three hours each day.

"There is a robust London market, and that comes in later in the day. But in Asian hours – there is no morning market for wholesale trade. Having a structure means the wholesaler can contribute to the market, which then becomes more transparent," he said.

Asia is the largest buyer of gold and one of the largest producers, so price discovery in Singapore makes increasing sense. Also, given growing demand for gold comes from within Asia it makes sense to have benchmark pricing within the region.

In 2010, Singapore set up a high-security storage facility called the Singapore Freeport that subleases storage space to storage providers. Two years ago, the government scrapped a sales tax for investment-grade gold and in the past year banks have set up gold vaults.

The other trend Singapore is trying to take advantage of the growing wealth in the region. Research firm Wealth Insight expects the country to overtake Switzerland as the world's biggest hub of offshore wealth by 2020.

Singapore is already a hub for financial services and wealth management, so it makes sense that it wants to make itself a benchmark for gold trading and storage in Asia.

Singapore is becoming an emerging precious metals hub and a key player in the global bullion market. Against the very uncertain global macroeconomic and geopolitical backdrop, prudent private individuals and institutions are moving their physical bullion to one of the safest jurisdictions in the world.

Read the Essential Guide To Storing Gold In Singapore here

This update can be found on the GoldCore blog here.

Yours sincerely,
Mark O'Byrne
Exective Director

IRL
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FITZWILLIAM SQUARE
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E info@goldcore.com

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