Market report Gold and silver consolidated this week

Backwardation still persists in London, with negative gold forward rates in their eighth week. This indicates a continuing shortage of physical, and is confirmed by anecdotal evidence of long delays for 400 ounce bars in quantity. The blame is being put on excessive demand for recasting into smaller bars, in turn confirmed by UK gold export figures to Switzerland where the refiners are also known to be very busy recasting into smaller bars.

The attitude of the London bullion banks appears to be extraordinarily complacent. There is little if any evidence of forward covering of their short positions, including those arising from the disposal of leased gold as well as their unallocated account liabilities. Reading their commentary is instructive, with analysts citing bear closing (only a temporary phenomenon), Asian demand slowing above $1400 (So Indians and Chinese only deal and think in USD, ignoring the realities of their own currencies!), and mysterious Fibonacci retracements (this goat’s entrails are telling us something). It seems they are myopically grasping at straws.

Meanwhile in US futures markets the short positions continue to be unwound, and investors have been badly wrong-footed by this rally.

Commentators predictably tie gold in with Syria and therefore oil prices. Until the botched House of Commons vote yesterday it became a racing certainty that the West would take aggressive action. The mystery is why this should be deemed necessary: do we believe the politicians’ righteous indignation over chemical weapons that requires us to teach Assad a sharp lesson, or is there another agenda being pursued? The evidence suggests the latter.

While the US’s immediate reaction to the UK Parliamentary vote has been to threaten to go it alone we can expect later today to hear Obama backing off intervention while the UK and US regroups and rethinks. This might lead to greater support for the rebels and an intensification of the civil war.

Elsewhere, emerging market currencies are being crushed in the slipstream of the tapering debate. The Indian rupee fell sharply against the US dollar this week, and has now lost over 20% against it so far this year. Other emerging market currencies from Turkey to Brazil have similarly been undermined by higher US bond yields. If you are a mainstream analyst for a London bank you probably conclude Asians will be put off by higher gold prices in rupees/yuan/reals etc.

Next Week

The focus is on GDP-related information, while there is unlikely to be any change in UK and eurozone interest rates.

Monday: UK: Halifax House Price Index, Markit Manufacturing PMI. Eurozone: Manufacturing PMI. Germany: Manufacturing PMI. France: Manufacturing PMI.

Tuesday: Eurozone: PPI. US: Manufacturing PMI, Construction Spending.

Tuesday: Eurozone: Composite PMI, Manufacturing PMI, GDP (2nd est.), Retail Trade. US: Trade Balance.

Thursday: UK: BoE Base Rate. Eurozone: ECB Interest rate. US: Initial Claims, Non-Farm Productivity, Unit Labour Costs, Factory Orders, ISM Non-Manufacturing Survey. All countries: G20 summit in St Petersburg.

Friday: Japan: Leading Indicator. UK: Industrial Production, Manufacturing Production, Trade Balance. US: Non-farm Payrolls, Unemployment.