In the latest SD Weekly Metals & Markets, The Doc & Eric Dubin discuss:
- Silver’s 6-week climb isn’t over- Eric Dubin predicts silver to soar nearly 20% in July- and likely reach $25 by the end of the month!
- European banking crisis as Portugal’s Banco Espirito Santo nears collapse & the return of bail-in risk: Why depositor bail-ins can’t stop a derivatives contagion!
- Manipulation won’t die with the London Fix: Thompson-Reuters & CME chosen to run electronic silver fix beginning August 15th
- France joins Russia & China in threatening to dump dollar for international trade- why the dollar is now OUR problem
The Doc & Eric Dubin break down the trading week & discuss what’s in store for the summer below:
June marked a turning point in more ways than one
Gold and silver bottomed as we entered June. During the first part of June, talk of rising inflation expectations and the return of the inflation trade were part of the fundamental forces helping to move precious metals higher. But the second half of the move has come during a period where hedging against the risk of a deflation implosion in the European banking sector proved to be a key force stoking demand.
This seeming contradiction in “macro drivers” has a message for us. While the mainstream financial press fumbles around for short-term, contradictory explanations, most of these reporters are oblivious to the bigger picture. Central banks and their bullion banker buddies have lost the ability to push gold and silver below $1250 and $19 respectively beyond a week or two without resorting to precarious raids on already gravely depleted physical vault supply at the COMEX, LBMA, and vaults backing exchange traded products. Physical demand fluctuates, but it’s running at a rate in excess of annual mine supply even during slack demand periods. We see higher prices now because the cartel is currently in “managed retreat mode” more so than any other fundamental factor. The character of the precious metals market has changed.
To illustrate my argument, it’s interesting to compare how oil has traded versus silver and gold since June 1st. You’ll notice the “inflation trade” expressed in all three commodities. West Texas Intermediate Crude reached a high of nearly $108 on an intraday basis but once the lion’s share of market participants started pondering the European banking sector mess, fears of a deflation crash elevated and oil nosedived — with oil pretty much ignoring Middle East tensions being that have been awful throughout both periods and arguably getting worse. Compare that with the same period in silver and gold — and again, the take-home point is that the message the PMs are sending is that of a change in market character that has much less to do with what the dolts in the financial press point to and far more so the fact that the cartel has been forced into “managed retreat” mode.
Precious Metals Outlook
Mining shares moved to the upside Thursday, only to be viciously attacked and sold down late in the day. The cartel frequently attacks mining shares before acting aggressively on precious metals. Cognizant of the risk we’d see the cartel come out swinging this Friday, I expected the worst but was pleasantly surprised. Friday’s trading is yet another example of the managed retreat mode ruling the day. Cartel patterns remain visible, but the monkey’s are having more difficulty pulling levers and keeping precious metals prices down. Friday’s trading wasn’t noteworthy by itself. But taken in context of trading action in other markets and typical cartel patterns, this week’s trading only adds to my conviction that we’re going to see higher prices faster than most expect. Tune into the show for more analysis.
Dollar still buys “Freedom Fries”
BNP Paribas has been slapped with a hefty $8.9 billion fine for pleading guilty to the facilitation of the movement of capital for the benefit of countries the US has under economic sanctions. French finance minister Michel Sapin took the opportunity to call for “rebalancing” of trade settlement currencies, stating:
“We [Europeans] are selling to ourselves in dollars, for instance when we sell planes.
Is that necessary? I don’t think so. I think a rebalancing is possible and necessary, not just regarding the euro, but also for the big currencies of the emerging countries, which account for more and more of global trade…” (Source and more context, click here)
Some have been quick to dismiss these comments as just a public relations protest. But students of monetary history know better. France demanding gold in exchange for their dollar reserves was a major factor behind the collapse of the London Gold Pool price suppression scheme and ultimate abandonment of the international gold standard in 1971. Mr. Sapin’s comments are significant. It’s one thing to hear Chinese leaders bemoan the reserve status of the dollar. But now, key western US allies are making some of the same arguments. Those pesky, “independent” French.
Nixon’s treasury secretary John Connally famously quipped about the dollar as “…our currency, but your problem.” But unlike 1971, the United States enjoys far less economic power relative to the rest of the world. Truth be told, the dollar is now our problem. This year, the UK and the ECB have negotiated currency swaps with China. France is not alone among European nations casting a jaundiced eye towards the dollar.
Thanks for listening. Have a wonderful weekend! — Eric Dubin