It was a better week for precious metals, with gold and silver hitting new highs for 2016.
The performance for 2016 so far represents a rise of 9% for gold, and 7.75% for silver.
Normally silver is roughly twice as volatile as gold, which suggests that silver is relatively under-priced in current market conditions.
The bears in precious metals markets were caught off guard by the Bank of Japan’s introduction of negative interest rates earlier this week.
Ahead of the fix, silver was trading at $14.42, and the fix itself, which took fourteen minutes, was finally settled at $13.58. The circumstantial evidence behind this extraordinary price behavior was there were over-the-counter market options expiring on the fix price.
Only once before, in the history of Comex’s disaggregated data, have the speculators in the investment management industry been net short, and that was on 28th July last. Today’s position is even more extreme. Doubtless, similar positions exist in other commodity contracts. History tells that when any trade, in this case long-dollar and short-everything-else gets this one-sided, the reversal will be swift, unexpected and brutal.
The next financial crisis could manifest itself in the coming months.
When something as epochal as this happens, we can expect the macroeconomic establishment to be clueless with respect to the problem itself and its scale.
Central banks will naturally revert to the Lehman remedy of further monetary expansion to cover the losses, whose enormous scale will not be apparent at the outset. This time, not only will the fiat money quantity accelerate into hyper-drive, it will be impossible to maintain the purchasing-power of the world’s reserve currency, therefore threatening that of all the others.
Gold and silver prices continued to drift along close to recently established lows this week, showing some support at current levels.
Whether or not there is further weakness to come appears to be a reflection of dollar strength, and it should be noted that the dollar has recently broken into new high ground on a trade-weighted index of other currencies.
After a few months of slower growth, FMQ has picked up again.
- Metals SMASHED- Are Gold and Silver Headed to NEW LOWS?
- Would An Interest Rate Hike By the Fed Ignite the Next BULL Market in Gold & Silver?
- We Already Have HYPERINFLATION! (of the fiat currency quantity- & We’ll Have Currency Collapse Within 2-3 Years!)
- Can the Banks Talk Gold Down to $900?
- Alasdair is Ready for the Collapse: Lets Get On With It!
The SD Weekly Metals & Markets With The Doc, Eric Dubin, and Alasdair Macleod is Below:
There is a line drawn in the sand. At the LBMA conference in Vienna this week, analysts’ consensus was for lower gold prices, with some major houses even talking gold down as far as $900 (BNP Paribas – 2017 average). This suggests that they are prepared to ride short positions, though they will obviously trade round them. Given that their shorts are not excessive at the moment, there is unlikely to be a concerted effort to move prices lower – yet.
The danger to the bullion banks is either their shorts become worryingly large from here, or alternatively they change their mind about the bearish outlook.
With the benefit of hindsight, the two-day devaluation of the yuan in mid-August might have been a masterstroke of strategy.
Precious metal prices rose strongly from the low points of last Friday, with silver performing particularly well.
Silver is now up 3% on the year…
The effect on commodities:
If NIRP looks like becoming a reality, commodity markets should begin to adjust to a general state of backwardation, reflecting the anticipated cost of holding cash deposits compared with owning physical commodities. Speculators holding short positions and therefor long of dollars will expect a cost arising from negative interest rates to replace the positive interest rate return normally reflected in futures pricing.
In other words, all market participants would be better off being long instead of short.
The effect could be dramatic…
If the Bank of England is looking at ways to overcome the zero bound on a permanent basis, it is a fair bet that it is being looked at by other central banks in private as well.
And if NIRP gains traction at the Top Table, the life-expectancy of all fiat currencies could become dramatically shortened.