Amid global market turmoil, gold’s parabolic run-up from $1500 per ounce to $1800, about a 15% rise in price, spells a clear shift for the global economy. Firstly, anybody shorting the gold price leading into such a parabolic move upwards has lost much. They will not be participating in gold shorts any longer. Presumably, many of them have transferred their shorts to the smaller PM market, silver. As they try and convince the world silver is not a monetary instrument, they will trade all the paper they can to keep the price of silver below $40. Recently, they’ve had no trouble doing so. That these shorts have been moved to the silver market, thus keeping silver below $40, therefore leaves gold looking vulnerable, taking some of the steam out of its historic, 1982-esque, price run. JP Morgan, HSBC, and other keystone financial institutions cannot keep silver down for much longer, as traders of gold and silver, worried about buying gold near its top, will look to the quiet silver for potentially quick returns.
One possible effect of these shorts being shaken out of the market is that we might not see gold dip $150, retracing half of its recent run-up as bull-market stocks tend to do (not to say that gold is a stock, but just to compare). Rather, as volatility picks up in the currency markets, as suggested by the Swiss Franc’s drop of 5% compared when compared with the Dollar and the Euro, gold might head towards $2,000 in the near-term.
Supply is being squeezed as the rush continues in the gold market, as 24K gold bars were delayed this last week for delivery. Further evidence of financial panic, rumor has it that Swiss 20 francs and Rooster French 20 Francs in Europe are being sold at premiums of 8.5% and 10.7%, respectively. The French are withdrawing money from banks, nervous that the instability plaguing Greece, Portugal, Ireland, Spain and Italy will soon come to France.
As for silver, as an industrial metal as well as a monetary metal, it is prone to wild fluctuations. Over the past couple of weeks, though, the price of silver has traded between the $38 and $40 range. Considering the wild fluctuations in global markets, this betokens a surprisingly quiet silver market. Not only ought the fear that has gripped the global market spur safehaven buying into the metal, but so too should the violent crashes in the markets spur serious moves to the downside for the silver. Instead, silver has moved up-and-down only 2% in either direction, representing a schizophrenic couple of weeks. The take-home point of such a steady silver price is that silver has broken the chains, if not from the paper manipulators, from its status as an industrial metal. Instead, increasingly so, the white metal is being viewed as tangible money.
History shows that political volatility and financial crisis drive silver up. Consumer confidence today has reached its lowest point since 1980, that year in which silver ran to $50 per ounce. In 2008, the DOW crashed 1,874 points over the course of one week, and the silver price was cut by more than half. These past two weeks, the DOW has crashed 2,000 points, but, instead falling to $20 per ounce, silver has held in the high $30’s, a price which it has tested now seven or eight times. Expect silver to takeoff in the near future.
The volatility, as CNN reports, is here to stay. “Massive volatility and headline-to-headline driven trading are now just part of the average day.” Firms with high-frequency trading technologies benefit most from such wild swings. Thus, panic will drive average investors away from paper assets into tangible assets, such as gold and silver.
*the aforementioned is not financial advice by which to trade, but a look at possible outcomes in the ongoing, long-term silver and gold PM market.
Friday, August 12, 2011
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