In my opinion, there is heavy price control pressure being exerted on gold and silver prices in the paper derivative venues of London and New York.
This is occurring in a similar fashion to the summer of 2008 when gold and silver were pushed down until the Federal Reserve signalled that money printing was coming. When the reasons are visible, the precious metals sector will take off, similar to the fourth quarter of 2008. Although, it’s not possible to assign a timing to this unfolding process.
Gold & Silver Prices Pushing Lower
The reasons for aggressively pushing prices lower, particularly when the COMEX is open, are twofold.
First, unless the Fed has specific reasons for letting the economy and financial system implode, it will have to restart the printing press and flood the banking system with liquidity, similar to March 2020 and 2008. The economy is already in a technical recession per the hard, private sector-generated economic data that continues to worsen.
Second, the banks may be quite short on physical gold and silver via the net short positions in COMEX futures.
BIS Gold Swap Activity
According to the recent escalation in BIS gold swap activity, it is likely that major bullion banks have potentially unmanageable “short” positions in physical gold bars due to the various hypothecation activities used to satisfy physical gold delivery requirements to buyers who remove those bars from LBMA vaults.
BIS swaps provide physical liquidity to central banks storing allocated and unallocated gold bars in LBMA vaults, who in turn provide that liquidity to the bullion banks operating under the LBMA.
The price control effort is designed to encourage the holders of futures and forwards to sell their positions rather than stand for delivery, which would lead to further tightening of the physical condition of the market.
Market Action Affecting Mining Stocks
The market action in gold and silver is weighing heavily on the mining stocks, especially the junior micro-cap development stocks. I’ve seen this type of market environment in the sector several times over the last 22 years – June and July also tend to be the seasonally weakest period for the sector.
The good news is that India’s strongest seasonal gold buying begins in late September. In some years the sector starts to perk up by late July, as wholesalers and dealers in India begin to stock gold and jewellery inventory ahead of the Indian festival and wedding season in the fall.
HGNSI Shows Low to Negative Sentiment
Investor sentiment toward the sector is digging for China. The HGNSI (Hulbert Gold Newsletter Sentiment Index) hit negative 17%, which means that, in the aggregate, 17% of the newsletters that offer a trading opinion on the sector are net short the sector. Since 2000, the sentiment has been this low for just 9% of all daily readings. Typically when the HGNSI goes negative, it is an indicator that a bottom is forming in the precious metals sector that will be followed by a move higher. However, it does not offer insight into timing.
I have not sold any positions but I am not putting any cash to work. That said, I believe that a big move for the sector will begin to develop before Labor Day and will extend, minimally, through the fourth quarter this year.
Bullish Silver Predictions
I am particularly bullish on silver right now. I’d like to return to the narrative of the big supply deficit building, which eventually can only be resolved by a much higher price. Silver has the benefit of being both an industrial metal and a monetary metal. China and India have large-scale ongoing solar energy installation programs. Add to that the silver demand for electrification of the global automobile fleet.
I’m looking for gold to move toward $2,300 per ounce and silver to move toward $30 per ounce by year-end. With the uncertainty of central bank monetary policy going forward, particularly the Federal Reserve’s policy, I think gold and silver will experience two-way volatility through trade in an uptrend for the foreseeable future.
Dave Kranzler is a hedge fund manager, precious metals analyst and author. After years of trading expertise build-up on Wall Street, Dave now co-manages a Denver-based, precious metals and mining stock investment fund. This publication is for informational purposes only and is not intended to be a solicitation, offering or recommendation of any security, commodity, derivative, investment management service or advisory service and is not commodity trading advice. This publication does not intend to provide investment, tax or legal advice on either a general or specific basis. The opinions expressed in this article, do not purport to reflect the official policy or position of Kinesis.