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Over the past week, the gold and silver prices have held up rather well
compared to the overall markets. While precious metals investors still
fear that a huge sell-off in the gold and silver prices will take place
during the next market crash, it seems that the metals continue to be very
resilient during large market corrections.
Now, I am not saying that the metals prices cannot fall any lower, but a
lot of the leverage in the gold and silver market has already been removed
and is now at a near all-time low. So, even though we could see weaker
precious metals prices, the overwhelming leverage and bubble asset prices are
in the stock and real estate markets.
Furthermore, one of the reasons precious metals investors still fear that
a major selloff is imminent is that they are using the 2007-2008
economic market meltdown as a guideline. However, when gold and silver
prices were plummeting from their highs in 2008, along with the rest of the
market, speculators held huge long positions while the commercials controlled
an enormous number of short contracts.
If we look at the following Gold Hedgers Chart, we can clearly see
that the market setup today is the exact opposite of what it was in 2008:
When gold was trading near $1,000 in early 2008, the commercial banks held
a record high of 252,000 net short contracts compared to the present
gold price of $1,222 (time of chart), with the commercials only holding
16,000 net short contracts. The commercial short positions are shown by
the blue line. Thus, the higher the commercial short positions, the
lower the line goes and the lower the number, the higher the line moves.
Currently, the gold price and commercial net short positions are both at the
near lows. Also, the speculator net long positions are close to their
lows as well
So, when PUSH COMES TO SHOVE, we won’t see a large number of
speculators forced to cover their long gold positions if the gold price falls
lower because there isn’t that much leverage in the market.
Gold & Silver Prices Increase As The Market Sells Off
Over the past week, as the markets fell, the gold and silver prices did
quite the opposite. If we look at the next three charts, the
Dow Jones fell by more than 1,600 points since Dec 3rd, while gold increased
$26 and silver gained $0.45:
So, as we can see, both gold and silver increased while the Dow Jones
Index sold off from its peak on Dec 3rd. If we focus on the gold and
Dow Jones charts, we can clearly see that the gold price, on many days, moves
in the opposite direction of Dow. This tells me that traders are
already practicing SAFE ASSET INVESTING during market selloffs. What
happens when FEAR really enters the market?
Moreover, the notion that the gold and silver prices are tied to the oil
price doesn’t seem to be the case lately. Since the oil price
peaked at $77 at the beginning of October, the silver price over the same
period is about the same while gold is $40 higher:
And, even as the gold and silver prices jumped since Dec 3rd, the oil
price is actually lower. Again, the precious metals are holding up
rather well compared to the markets and the oil price. I believe
precious metals investors will be surprised how well the gold and silver
prices will do when the highly leveraged markets crash over the next few
years.
Lastly, I will be publishing a new short video shortly on some very
interesting charts on how technical levels have played a role in the broader
markets, precious metals and energy prices.
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