There has been some very interesting posturing going on behind the public gaze in the precious metals markets, so let’s start with some headline items.
The outflows on the Comex of physical silver since February 2021 have been significant. Should this trend continue at the same pace, the Comex will be drained by late March 2023 of available physical silver. That is only five months’ away with traditionally strong demand months to come.
Whilst that is both striking and worrying, it is usurped by bigger brother gold, that has stolen the show. In Q3 of 2022, central banks worldwide purchased more gold than any other quarter since 1967.
So why isn’t this reflected in the price of gold and silver? Supply and demand factors should affect the price, shouldn’t they? Well, yes, but put simply, the markets are manipulated by Futures paper contracts created out of thin air with several commercial banks naked shorting, then buying the metal at these manipulated prices right under the nose of the CFTC.
JP Morgan Chase traders were again found guilty recently of spoofing markets whilst making obscene amounts of money. Michael Nowak of JPM, the MD in charge of the trading desk, and Gregg Smith, his top trader, were convicted of fraud, spoofing, and market manipulation. The government alleged the precious metals business at JP Morgan Chase was run as a criminal enterprise. This was not a one-off event.
However, the tables are turning. As reported last month, the commercials – for only the third time in modern history – have covered their shorts and gone long. This may explain the explosive moves we have seen in gold and silver over the last few days. The same goes for platinum.
So we have a situation: gold and silver, in their physical form, are in big demand and becoming more difficult to get hold of with premiums skyrocketing. A 1oz 2022 Britannia silver coin in the UK from well-known bullion dealers sits at over 100% premium. Only six weeks ago, these markups were at around 60%. Some dealers are sold out of several products with no date of restocking. This should be a huge warning sign to investors that physical precious metals could soon become unobtainable.
Gold and silver have been frustrating over the last two years, given the economic climate has presented conditions that should have seen them thrive. Even though gold has tanked in dollar terms by some $400 since April’s Russia/Ukraine spike, in many other currencies, they have hit record highs of late. But don’t be fooled; this is nothing to do with dollar strength. It is merely falling slower than all other fiat currencies that are financially backed by nothing and hammered by government-designed inflation.
They are mistaken if anybody in their right mind thinks Powell has been hawkish. The Fed knows full well that they cannot repeat the Volcker era of rate hikes because since Lehman collapsed, the world has been built on cheap money. Companies formed on 0.5% interest rates, mortgages, loans, and other financial instruments, including stock markets, have become accustomed to low-cost money.
You can’t have elevated rates without a systemic collapse. The Bank of England just printed £20bn with the government having no plan to pay it back. Japan has implemented yield curve control for some time now, such is their worry that the bond market will collapse. The US debt level sits at $31Trillion, and the Fed is losing billions as rates rise and the Government cannot afford the repayments on their debt after borrowing $120bn a month to keep the US afloat. Insolvent country?
The US stock markets, down around 25% on average in 2022, are facing a long and drawn-out bear market. When the Fed does pivot, we should expect one final rally before the realization that the economy is struggling sets in. The Fed will have to resort to printing money to backstop the fallout and inject liquidity into the markets to start the cycle up again. The result? Decade-long inflation likely, and another Fed-sponsored short-lived boom. Stocks have been overvalued since before COVID.
So what does all this mean for gold and silver? Consider the above, and ask yourselves why central banks have been loading up on physical gold for this long. Why purchases in the last quarter are at nearly 60-year highs? Have they looked at Basel III and realized physical gold now sits with cash and treasuries as a Tier 1? Have they realized the bond markets are in trouble, and cash depreciates faster than Biden’s chances of another term? Perhaps they are looking at history and front-running a return to a gold-backed currency.
Scarier prospect? Does gold have a place in backing the upcoming central bank digital currencies being trialed worldwide? Do people realize this barbarous relic that has been sound money for over 5000 years has structural importance in the financial world? The numbers disappearing off exchanges would suggest this.
Rule number one in investing is to follow what the big money does, as it is seldom wrong. That big money is buying gold.