As Silver continues to trade in an ever tight range between about 19.10 and 19.90 an ounce, I am sure many would rather watch paint dry than follow this market.
However, the kind of coiling going on right now in the silver market reminds me of prior periods where the bears get exhausted and a major counter-trend rally to the upside develops. We are a long way away from knowing whether or not any rally is the resumption of a new bull market that can take the price of silver to new all time highs. Still, and as anyone who had the courage to buy at cyclical bottoms in the last bear market in silver can tell you, silver can make strong returns even in the context of a secular bear market.
The biggest news in the precious metals markets this week came from the World Gold Council, when they confirmed that the first quarter saw strong central bank gold buying continue. The WGC estimated that roughly 122 tons of gold was purchased globally by central banks. As I never tire of asking, if central banks are buying precious metal, why aren’t you? The disconnect between fundamentals and price could go on for a while, as a lot of people have quickly forgotten the broad based diversification away from the US dollar that is an important driver of the precious metals markets. The fact that Russia signed what is estimated to be at least 400 billion dollars in trade deals outside the dollar system with China this week is just one more example that, at the margins, currency diversification is in the air.
Finally, news came this week the Barclay’s bank was fined roughly 30 million dollars for rigging the gold market. Of course, the amount of the fine is a complete joke, but the larger point is that where there is smoke there is likely fire. There have long been complaints that large paper players in the gold and silver market carpet bomb the paper price so as to avoid paying out on large bets (usually long) taken by other traders in the options markets. The fact that Barclays is being fined for actions many of us had long suspected confirms that some big players are standing on the prices of these metals. Of course, they might be invincible, and it may be the case that paper trading can trump physical demand forever.