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
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
US House Prices Trend Forecast 2024 to 2026 - 11th Oct 24
US Housing Market Analysis - Immigration Drives House Prices Higher - 30th Sep 24
Stock Market October Correction - 30th Sep 24
The Folly of Tariffs and Trade Wars - 30th Sep 24
Gold: 5 principles to help you stay ahead of price turns - 30th Sep 24
The Everything Rally will Spark multi year Bull Market - 30th Sep 24
US FIXED MORTGAGES LIMITING SUPPLY - 23rd Sep 24
US Housing Market Free Equity - 23rd Sep 24
US Rate Cut FOMO In Stock Market Correction Window - 22nd Sep 24
US State Demographics - 22nd Sep 24
Gold and Silver Shine as the Fed Cuts Rates: What’s Next? - 22nd Sep 24
Stock Market Sentiment Speaks:Nothing Can Topple This Market - 22nd Sep 24
US Population Growth Rate - 17th Sep 24
Are Stocks Overheating? - 17th Sep 24
Sentiment Speaks: Silver Is At A Major Turning Point - 17th Sep 24
If The Stock Market Turn Quickly, How Bad Can Things Get? - 17th Sep 24
IMMIGRATION DRIVES HOUSE PRICES HIGHER - 12th Sep 24
Global Debt Bubble - 12th Sep 24
Gold’s Outlook CPI Data - 12th Sep 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Another Miserable Week for Gold and Silver

Commodities / Gold and Silver 2014 Sep 19, 2014 - 01:32 PM GMT

By: Alasdair_Macleod

Commodities

Gold and silver drifted lower over the course of the week, with a challenge to the $1200 level for gold becoming a distinct possibility. Silver is struggling to hold $18.50. Mainstream opinion has been negative for commodities generally, with a strong dollar undermining them. Brent crude, for example, is now well under $100.


It is important to understand the connectedness between different asset classes in today's markets. Hedge funds, and bank traders sell one asset and hedge it by taking a position in another. Furthermore, the majority of traders rely on technical analysis instead of rational value-based price assessments. Instead of markets correcting anomalies, this often leads to added momentum behind trends, ultimately increasing market instability. We can see this everywhere today, and precious metals are not immune to this problem.

That is the reality of markets, but as I've written before history shows us that the most successful investors are value investors, and those experienced in precious metal markets are currently happy to buy the dips. Meanwhile, with the majority of momentum traders being short of physical gold and silver, it is hardly surprising they talk these metals down.

The long-term chart below of total OTC forwards, swaps and Comex futures quantifies this effect. The OTC numbers are derived from the Bank for International Settlements statistics, and futures are from the Commitment of Traders Reports released by the CFTC. The total shown is half the gross to reflect the paper equivalent of physical demand, the other half being supply. It is in effect the sum total of derivatives on the LBMA and of US futures up to December 2013. Note that these figures do not include options.

Total Gold Derivatives Chart

The tonnage equivalent of outstanding derivatives has fallen dramatically over the last fifteen years. To some extent this was due to the rise in the gold price, but with an accelerated dip in 2008, the year Lehman went bust. But since the peak in the gold price three years ago, these outstanding positions have declined with the price.

At only 3,800 tonnes last December, total derivatives were the lowest they have been with the exception of the Lehman crisis panic. No wonder the average bullion bank is negative on gold: they reflect a decline in investor interest, consistent with an extended bear trend.

The point is these are the market conditions sought by value investors looking to buy into unloved markets.

The other big news this week was the Scottish referendum on independence, the result of which became clear a few hours ago: panic over.

Next week

Monday. Eurozone: Flash Consumer Sentiment. US: Existing Home Sales.

Tuesday. Eurozone: Flash Manufacturing PMI. UK: Mortgage Approvals, Public Sector Borrowing. US: Flash Manufacturing PMI Wednesday. US: New Home Sales.

Thursday. UK: Nationwide House Prices. Eurozone: M3 Money Supply. US: Durable Goods Orders, Initial Claims. Japan: CPI (Core).

Friday. US: GDP (3rd est.), GDP Price Index (3rd est.), Personal Income, Personal Spending

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