Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
Stocks, Bitcoin and Crypto Markets Breaking Bad on Donald Trump Pump - 21st Nov 24
Gold Price To Re-Test $2,700 - 21st Nov 24
Stock Market Sentiment Speaks: This Is My Strong Warning To You - 21st Nov 24
Financial Crisis 2025 - This is Going to Shock People! - 21st Nov 24
Dubai Deluge - AI Tech Stocks Earnings Correction Opportunities - 18th Nov 24
Why President Trump Has NO Real Power - Deep State Military Industrial Complex - 8th Nov 24
Social Grant Increases and Serge Belamant Amid South Africa's New Political Landscape - 8th Nov 24
Is Forex Worth It? - 8th Nov 24
Nvidia Numero Uno in Count Down to President Donald Pump Election Victory - 5th Nov 24
Trump or Harris - Who Wins US Presidential Election 2024 Forecast Prediction - 5th Nov 24
Stock Market Brief in Count Down to US Election Result 2024 - 3rd Nov 24
Gold Stocks’ Winter Rally 2024 - 3rd Nov 24
Why Countdown to U.S. Recession is Underway - 3rd Nov 24
Stock Market Trend Forecast to Jan 2025 - 2nd Nov 24
President Donald PUMP Forecast to Win US Presidential Election 2024 - 1st Nov 24
At These Levels, Buying Silver Is Like Getting It At $5 In 2003 - 28th Oct 24
Nvidia Numero Uno Selling Shovels in the AI Gold Rush - 28th Oct 24
The Future of Online Casinos - 28th Oct 24
Panic in the Air As Stock Market Correction Delivers Deep Opps in AI Tech Stocks - 27th Oct 24
Stocks, Bitcoin, Crypto's Counting Down to President Donald Pump! - 27th Oct 24
UK Budget 2024 - What to do Before 30th Oct - Pensions and ISA's - 27th Oct 24
7 Days of Crypto Opportunities Starts NOW - 27th Oct 24
The Power Law in Venture Capital: How Visionary Investors Like Yuri Milner Have Shaped the Future - 27th Oct 24
This Points To Significantly Higher Silver Prices - 27th Oct 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Gold and Silver Price Underlying Strength

Commodities / Gold and Silver 2014 Jul 04, 2014 - 12:05 PM GMT

By: Alasdair_Macleod

Commodities Gold and silver spent most of the week consolidating recent gains by moving broadly sideways, but their underlying strength was a notable feature. The first chart is of gold and its open interest on Comex.

The increase in open interest tells us that the rise in price was on the back of buying rather than a bear squeeze, which would have seen rising prices on steady-to-declining OI. This is an important development, because it indicates that speculators are beginning to think the downtrend of the last 30 months might be over. Without buying into a new rising trend, any rally would be limited to a bear squeeze.


It appears the bullion banks have increased their short positions, but there is possibly a good reason for this. If they had squeezed the bears and allowed the gold price to run up to, say, $1400, they would have shown larger losses on their short positions at the half-year. In other words, bullion banks dressing up their own profit and loss account took temporary precedent over trading strategy.

The silver chart looks different at first glance, with open interest declining sharply before picking up in the last few trading days. This is shown in the second chart.



The reason for the fall in OI in the second half of June was simply the expiry of the July contract when over 100,000 contracts had to be either closed or rolled into the next active month (September). That process is now complete, with some bulls understandably booking short-term profits. This being the case, we can now expect OI to climb again towards the 160,000+ region.

Base metals have had a new lease of life, partly reflecting dollar weakness and partly a bear squeeze in the wake of wild stories about multiple hypothecations of warehouse metal in Chinese ports. Platinum was a stand-out beneficiary, and gold and silver obviously benefited as well.

Perhaps the most interesting news this week was the House of Commons Treasury Committee called before it senior officials from the Financial Conduct Authority and the CEO of the London International Financial Futures Market to give evidence on the London gold market and the gold fix. The televised version can be found here <http://www.parliamentlive.tv/Main/Player.aspx?meetingId=15681> .

It rapidly becomes apparent that the answers to the Committee’s questions were inadequate. The second session, with Rhona O’Connell of Thompson Reuters and Alberto Thomas a lawyer from Fideres LLP appeared to confirm the Committee’s worst fears about the London bullion market and the gold fix. As the Chairman, Andrew Tyrie summarised, “You’ve told us a pretty depressing story: the market has the potential to be rigged, that’s it’s not remotely competitive enough, that 10-30% of the days traded it’s likely to have been rigged, that up to 40 basis points are likely to have been extracted from customers, and that regulators could and should have acted earlier, particularly after LIBOR. So is there any reason we should not be treating this as an appalling story?”

It is clear that the London gold market faces a radical overhaul, involving closer regulation and greater transparency. In this environment, bullion banks are likely to hold back on aggressive trading activity until the regulatory position clarifies.

Next week
Monday. Japan: Leading Indicator, Bank Lending Data, Current Account. Eurozone: Sentix Indicator
Tuesday. UK: Industrial Production, Manufacturing Production. US: Consumer Credit. Japan: Economy Watchers Survey.
Wednesday. Japan: M2 Money Supply, Key Machinery Orders.
Thursday. Japan: Consumer Confidence. UK: Trade Balance, BoE Interest Rate Decision. US: Initial Claims, Wholesale Inventories.
Friday. US: Budget Deficit

Alasdair Macleod

Head of research, GoldMoney

Alasdair.Macleod@GoldMoney.com

Alasdair Macleod runs FinanceAndEconomics.org, a website dedicated to sound money and demystifying finance and economics. Alasdair has a background as a stockbroker, banker and economist. He is also a contributor to GoldMoney - The best way to buy gold online.

© 2014 Copyright Alasdair Macleod - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Alasdair Macleod Archive

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in