This weekend I publish a GoldMoney article with irrefutable evidence that central banks have been supplying gold into the market. Very simply, since the April price-smash gold has been supplied to satisfy the global surge in demand, otherwise the price would have bounced and a bear-squeeze ensued, rapidly taking prices higher. The fact that gold has not recovered significantly leaves three possibilities. Take your pick:
- Central banks are feeding gold into the market.
- A flying saucer loaded with gold from an extra-terrestrial source has landed.
- Global reports of a surge in demand for physical gold, delivery delays from refiners and price premiums from Dubai to Hong Kong are all an elaborate hoax.
Two of these options are conspiracy theories. The one that isn’t is supported by the very different performance of silver, because central banks and their western governments do not have stockpiles to ease the market shortage, while they do have a diminishing stockpile of gold. The difference between gold, where the four largest bullion banks are now net long in the futures market and silver where they are still short, has been reflected at times of quiet trading when gold has frequently been marginally down while silver has been marginally up. The market signal is clear: if there are a few buyers looking to buy on dips, let them buy gold and not silver.
The difference between the positions of the largest four traders (all bullion banks) in gold and silver is shown by comparing the two charts below.
The largest four commercials are net long 26,000 gold contracts, and net short 22,700 silver contracts. In the case of silver, the next four largest traders are actually long. In both cases their risk exposure has not been so low at least since 2006. The message is clear: if the largest bullion banks have de-risked their trading books, logically they must expect prices to increase. And given they have fooled the hedge fund community into taking the shorts, the price move, when it comes, should be explosive as hedge funds wake up and rush to close.
For a change price volatility last week was subdued compared with other markets. Current instability in equity markets is high, with Japanese equities falling 26% in about 21 days, while it has taken 21 months for gold to fall a similar percentage. Welcome to our world, equity fans!
Market instability is an increasing feature, despite exchange stability funds everywhere trying to keep confidence going through interventions. At these times it is important to remember that this is why some gold ownership makes sense. If bond and equity market bubbles get pricked, which may be what’s happening before our eyes, it will be bad for banks, bad for consumer confidence and therefore bad for the economy. Or at least that is how central banks see things, which is what matters.
Next week
Here is the list of next week’s announcements.
Monday: Eurozone Labour Cost Index, Trade Balance. US Empire State Survey.
Tuesday: Japan Capacity Utilisation, Industrial Production (Final). UK CPI, House Prices. US Building Permits, CPI, Housing Starts.
Wednesday: US Fed releases summary of economic projections. FOMC Fed Funds Rate.
Thursday: Eurozone Flash Composite PMI. UK Retail Sales, CBI Industrial Trends. US Initial Claims, Flash Manufacturing PMI, Existing Home Sales, Leading Indicator, Philadelphia Fed Survey.
Friday: Eurozone Current Account. UK Public Sector Borrowing.
