As Gold And Silver Catch Fire, What’s Happening?

Gold & silver have not been on fire in a long time, and the smashes can only contain price for a day or two. Here’s why…

by Chris Powell of the Gold Anti-Trust Action Committee (GATA)

Dear Friend of GATA and Gold:

A friend who has not been paying close attention to the gold market for a while asked your secretary/treasurer this afternoon for a summary of his outlook. With the monetary metals on fire as they have not been for a long, long time, maybe the reply is worth sharing:

1) The gold market has felt very different for months — felt much stronger.

2) The usual central bank-instigated smashdowns, which used to depress the price for weeks or months, now are failing to keep the price down for more than a day or two.

3) The New York Commodities Exchange’s gold market has been operating very differently, with most contracts seeking delivery converted into a formerly rarely used mechanism called “exchange for physicals” whereby they are settled somewhere off the exchange, apparently in London. Until recently this mechanism was said to be used only in emergencies. Now it seems to be settling most Comex gold contracts. The implication is that there is little or no gold available immediately in Comex vaults. Whatever it means, there is a huge change here.

4) The “exchanges for physicals” seem to be rolled over in London every two weeks to escape ordinary reporting requirements. This implies that the sellers are trying to hide something. Of course that the major powers in the gold market are trying to hide things is not new, but that they are using new mechanisms of concealment is new.

5) Of course central banks, if you believe their announcements, have turned into big net buyers of gold in the last couple of years and have let the European Central Bank’s longstanding gold sale agreements lapse. That is, central banks are not selling much if any gold anymore, and sales and leases of central bank gold long have provided a big part of supply.

6) The Bank for International Settlements is the major broker for central bank gold trades and long has been heavily involved with trading, leasing, and swapping gold and trading its derivatives. But the bank’s recent monthly reports show a sharp decline in its gold trading. The implication is that the BIS, like the European central banks, is reducing its gold trading.

7) Many central bankers and President Trump himself are screaming for devaluing their currencies. Of course many European government and private-sector bonds are carrying negative interest rates, which is insane. Essentially it proclaims that government-issued money is hardly worth anything anymore, except for paying taxes.

8) But at least one sovereign, probably the United States, still has been trying to contain the gold price, while the strength in the market suggests that at least one sovereign has been acquiring whatever physical gold and silver are available. This is to be expected as the United States has been weaponizing the dollar and throwing sanctions at anyone who disagrees with U.S. policy. Lately there have been serious defections from the dollar system, and the defectors may have nowhere to go except to gold. But as much as central banks and President Trump want to devalue, they may want to devalue only against each other, not against gold, since — if it is done gradually rather than suddenly, as in an international currency reset — devaluing against gold risks prompting a flight out of all currencies, bonds, and equities. That is, a comprehensive market crash.

9) Ordinarily it would seem that circumstances are hugely favorable to gold and silver. But if governments lose on the market-rigging front, they can always become more openly totalitarian — confiscating gold or outlawing private possession of monetary gold, imposing windfall profits taxes on capital gains in gold, raising royalty requirements on gold-mining companies to prohibitive levels, and so forth. So even as we all may hope for the best — free and transparent markets, and limited and accountable government — your secretary/treasurer’s only prediction is borrowed from Orwell’s “1984”: “If you want a vision of the future, imagine a boot stamping on a human face, forever.”

To prevent that is another reason to press on in the morning.

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
[email protected]

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