End-month markdowns

Predictably, futures contract expiry is coinciding with precious metals weakness. But it ignores weakness in the dollar, likely to prompt further dollar selling in favour of gold.

Another week of universal apathy. It is the end of the first half of 2025 with book squaring in mind, and the July futures contract running off the board. In Europe this morning, gold was $3285, down $93 on the week, and silver at $35.85 down 20 cents. Interestingly, price weakness featured during Hong Kong and Shanghai trading hours particularly for gold, a pattern which has been noticeable recently.

Nevertheless, it is noticeable how well gold and silver are holding current price levels when Comex shorts would normally wish to see them much lower. Instead, we can assume that it is punters on the Shanghai Futures Exchange who are in a pickle, with their June contract settlement expiring yesterday.

This week, silver has been notably firm relative to gold, despite Comex open interest declining, shown in the chart below:

Meanwhile, Comex warehouse stocks have held up as the Macromicro chart shows. This is next:

This compares with gold stocks, which have declined sharply:

Silver stand for deliveries continue apace at 3,351 tonnes in Q2. Perhaps the difference between silver and gold is that silver remains in Comex warehouses while gold is being withdrawn.

The initial migration of gold into Comex from London, Switzerland, and elsewhere is now being reversed, mainly through stand for deliveries. Since warehouse stocks peaked in early-April, 245.5 tonnes have been stood for delivery while stocks declined a similar 249.3 tonnes. While it cannot be totally ruled out, we can be certain that the bulk of these deliveries are not returning to the arbitrageurs who flew bullion from Europe to trade futures premiums. 

It leaves the question hanging as to how they will find the bullion to close the arbitrage. Some of it is due to be returned to leasing central banks in London, and we can also surmise that some of it was raided from ETF holdings. An assumption in London is that higher prices will produce the sellers to close these arbitrages out, which is presumably why major bullion banks are forecasting higher prices.

But this does not account for the mismatch in ownership. Those standing for deliveries appear to be hoarding gold instead of trading it. And this rationale was justified by the dollar’s weakness in the last few weeks. The dollar’s trade weighted index chart is truly awful:

Pressure is mounting on the Fed to cut interest rates, with President Trump publicly criticising Jay Powell for not doing so. With Powell’s term due to end in 11 months, Trump could announce a dovish successor in September creating a shadow Fed chief, according to the Wall Street Journal. Ramming Trump’s point home was a decline in US GDP of 0.5% in Q1 2025, significantly worse than expected. But price inflation is still well above the 2% target, and the tariff truce ends on 8 July, creating further price uncertainty.

The sharp decline in the dollar’s TWI is bound to bring additional price inflation from imported consumer goods. With these uncertainties, Powell’s caution is understandable. But with Trump seemingly determined to force the pace on monetary policy it is hardly surprising that gold is holding close to its highs. But it is the fiat dollar that’s declining, and that decline is accelerating as our last chart illustrates:

Foreign holders of an estimated $39.6 trillion dollars and underlying financial assets are staring at significant losses as Trump squabbles with the Fed. Their selling is set to weaken the dollar even more, and therefore gold higher.