The struggle is real: from the most intellectual people I speak to, to the people I listen to, the age-old precious metals struggle for real price discovery is relentless.
Gold falling well below $1,500 and silver at $17, it’s been quite the freefall. An ugly week for gold and an even uglier week for silver.
By the end of the week, gold futures had settled at three-month lows and long-side traders suffered gold’s worst weekly percentage-based decline since May of 2017. Silver, meanwhile, settled at its lowest price since August 19.
Silver has been the hardest hit as it’s unfavored not only against the U.S. dollar, but also against gold at the moment. As I’m writing this, the gold-to-silver ratio stands at a lofty 86.72, indicating that precious-metals investors and/or futures traders have been unloading silver faster than gold.
Fueling the fear, some analysts have noted the spike in trading volume and open interest in gold and silver futures contracts. This is how rumors get started: is it manipulation that caused the price decline? Are the big-money whales suppressing the price?
’m not going to deny the existence of manipulation in the COMEX markets; let’s not forget that only a year ago, John Edmonds (formerly of JPMorgan Chase) pled guilty to charges of manipulating the precious-metals markets from 2009 to 2015.
And just last week, the CFTC today issued an order filing and settling charges against Tower Research Capital LLC for spoofing the markets with fines to the tune of $67.4 million.
So yes, there is always some form of manipulation going on.
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However, consider the entirety of the situation based on recent events: market sentiment was decidedly risk-on in the past week as sources from the U.S. and China provided hints of progress towards a trade deal. U.S. Treasury yields shot up, the dollar strengthened, and American large-cap stocks climbed – all metals-bearish events, unfortunately.
Not that a trade deal is assured by any means, as White House Advisor Peter Navarro has admitted that the U.S. hadn’t actually agreed to roll back tariffs yet. In other words, we could be facing a “buy the rumor, sell the news” setup – and if the presumed “phase-one” agreement doesn’t pan out, gold and silver could spike sharply to the upside.
The next move in the tariff battle is the current Chess game that is driving the stock market as well as the metals. But certainly, I’m much more interested in long-term cycles and trends, and what’s happening now in the precious-metals markets is a natural and fully expected part of a much bigger trend that will inevitably include shakeouts and retracements.
The markets have already priced in a trade deal, while manipulator JPMorgan dumped its gold position because they see “signs of a cyclical recovery, easing geopolitical tensions, synchronized monetary easing.” We’ve seen this movie before, and it always ends badly for expensive stocks as all possible future good news is baked into equities prices and unwary investors let down their guard.
This is the worst possible time to let down your guard. Index-fund investors who let down their guard in 2011 got hammered; gold and silver holders, meanwhile, were rewarded with remarkable profits. Anybody who bought precious metals in early 2001 also enjoyed tremendous gains – and they can thank the manipulators for providing the low prices in gold and silver, which sophisticated investors view as prime buying opportunities.
And of course JPMorgan knows full well that the “synchronized monetary easing” they cited as a reason to unwind their gold and silver positions are the exact reason why precious metals prices will rise in the coming years: central banks will inevitably push bond yields to zero or negative and governments will cheapen their fiat money, making gold and silver highly attractive in comparison.
In light of this, it’s not a question of whether to own gold and silver, but how much. A moderate allocation in both metals is a smart move when big-bank manipulators tell you to sell gold and silver: they know exactly what they’re doing, and as an investor who knows their game, so do I.
Chief Editor, CrushTheStreet.com
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