Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
Stock Market Trend Forecast Early 2022 - Tech Growth Value Stocks Rotation - 18th Jan 22
Stock Market Sentiment Speaks: Are We Setting Up For A 'Mini-Crash'? - 18th Jan 22
Mobile Sports Betting is on a rise: Here’s why - 18th Jan 22
Exponential AI Stocks Mega-trend - 17th Jan 22
THE NEXT BITCOIN - 17th Jan 22
Gold Price Predictions for 2022 - 17th Jan 22
How Do Debt Relief Services Work To Reduce The Amount You Owe? - 17th Jan 22
RIVIAN IPO Illustrates We are in the Mother of all Stock Market Bubbles - 16th Jan 22
All Market Eyes on Copper - 16th Jan 22
The US Dollar Had a Slip-Up, but Gold Turned a Blind Eye to It - 16th Jan 22
A Stock Market Top for the Ages - 16th Jan 22
FREETRADE - Stock Investing Platform, the Good, Bad and Ugly Review, Free Shares, Cancelled Orders - 15th Jan 22
WD 14tb My Book External Drive Unboxing, Testing and Benchmark Performance Amazon Buy Review - 15th Jan 22
Toyland Ferris Wheel Birthday Fun at Gulliver's Rother Valley UK Theme Park 2022 - 15th Jan 22
What You Should Know About a TailoredPay High Risk Merchant Account - 15th Jan 22
Best Metaverse Tech Stocks Investing for 2022 and Beyond - 14th Jan 22
Gold Price Lagging Inflation - 14th Jan 22
Get Your Startup Idea Up And Running With These 7 Tips - 14th Jan 22
What Happens When Your Flight Gets Cancelled in the UK? - 14th Jan 22
How to Profit from 2022’s Biggest Trend Reversal - 11th Jan 22
Stock Market Sentiment Speaks: Are We Ready To Drop To 4400SPX? - 11th Jan 22
What's the Role of an Affiliate Marketer? - 11th Jan 22
Essential Things To Know Before You Set Up A Limited Liability Company - 11th Jan 22
Fiscal and Monetary Cliffs Have Arrived - 10th Jan 22
The Meteoric Rise of Investing in Trading Cards - 10th Jan 22
IBM The REAL Quantum Metaverse STOCK! - 9th Jan 22
WARNING Failing NVME2 M2 SSD Drives Can Prevent Systems From Booting - Corsair MP600 - 9th Jan 22
The Fed’s inflated cake and a ‘quant’ of history - 9th Jan 22
NVME M2 SSD FAILURE WARNING Signs - Corsair MP600 1tb Drive - 9th Jan 22
Meadowhall Sheffield Christmas Lights 2021 Shopping - Before the Switch on - 9th Jan 22
How Does Insurance Work In Europe? Find Out Here - 9th Jan 22
Effect of Deflation On The Gold Price - 7th Jan 22
Stock Market 2022 Requires Different Strategies For Traders/Investors - 7th Jan 22
Old Man Winter Will Stimulate Natural Gas and Heating Oil Demand - 7th Jan 22
Is The Lazy Stock Market Bull Strategy Worth Considering? - 7th Jan 22
What Elliott Waves Show for Asia Pacific Stock and Financial Markets 2022 - 6th Jan 2022
Why You Should Register Your Company - 6th Jan 2022
4 Ways to Invest in Silver for 2022 - 6th Jan 2022
UNITY (U) - Metaverse Stock Analysis Investing for 2022 and Beyond - 5th Jan 2022
Stock Market Staving Off Risk-Off - 5th Jan 2022
Gold and Silver Still Hungover After New Year’s Eve - 5th Jan 2022
S&P 500 In an Uncharted Territory, But Is Sky the Limit? - 5th Jan 2022

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Gold and Silver Price Continue to Drift

Commodities / Gold and Silver 2014 May 02, 2014 - 03:06 PM GMT

By: Alasdair_Macleod

Commodities Gold kicked off the week at just over $1300 before declining to a low of $1278 yesterday. Most of the time prices just moved sideways, drifting lower from time to time to test support. And when support materialised, the price quickly reacted upwards, because no bullion bank really wants to sell; instead they are trying to close short positions as profitably as possible.

Underlying physical supply is very tight, and GOFO (“The Gold Forward Offered Rate”) in London has now been negative every day since 3rd April 2014. Chinese demand measured through Shanghai Gold Exchange deliveries appears to have slackened after a very strong start to the New Year. However, it is not clear whether it is because of lower demand, or alternatively a reluctance among the large Chinese banks to bid up for physical in London. I suspect the latter may be the case, because the Chinese have always bought gold when bullion is available and have never chased the price up.

While on the subject of China, the IMF (“International Monetary Fund”) announced this week that on a purchasing power basis China is overtaking the US as the largest economy. Her latent power to purchase more precious metals is now far greater than for any single other nation, given a savings rate in excess of 40%; so any concerns about her dwindling demand are essentially short-term.

Meanwhile silver has been very weak, as can be seen in the introductory chart, giving up all this year’s gains and taking the gold/silver ratio to an exceptionally high 67 times. Interestingly, it appears that silver bullion has been disappearing from the markets at an extraordinary rate <> , with stocks at the Shanghai Futures Exchange falling from 1,123 tonnes a year ago to 258 tonnes today. Comex stocks have also declined by 218 tonnes since the end of February. Nobody seems to know why this is so, but the most likely explanation is that industrial users are stockpiling the metal as inventory at these ultra-low prices. It is also possible the Chinese government is adding silver to its own strategic reserves.

The broader market background to precious metals is extremely unusual. The Federal Open Market Committee (“FOMC”) statement was accompanied by the biggest GDP miss in a long time: first quarter GDP consensus was forecast to have slowed to 1.2% annualised, but actually came in at only 0.1%. Furthermore, it is becoming clear that subsequent revisions, particularly from disappointing construction orders in March, will take the GDP number firmly into negative territory. Yet the FOMC stated “Information received since the Federal Open Market Committee met in March indicates that growth in economic activity has picked up recently……”

While the Fed is whistling to keep its spirits up low, US Treasury yields are signalling a financial system awash with liquidity and a reluctance to invest in production. The ten-year Treasury bond yields only 2.63%, and even more extraordinary, Spanish 10-yr sovereigns are at 2.99%, Italian 3.05% and Ireland’s only 2.81%. Bearing in mind that government indebtedness everywhere has escalated at the fastest rate in history excluding during major war, there should be a substantial risk premium for this debt.

The logical explanation for a flight into financial assets and cash can only be a stalling US economy. Corporates are very active in bond markets, but they are only refinancing existing debt.

It really feels like the money bubble is poised on the edge of an economic chasm. Not falling into it involves throwing yet more money at the problem, which will eventually persuade western investors to buy gold and silver.

Next week’s announcements
Monday. Eurozone: Sentix Indicator, PPI. US: ISM Non-Manufacturing Index.
Tuesday. Eurozone: Composite PMI, Services PMI, Retail Trade. US: Trade Balance, IBD Consumer Optimism. Japan: BoJ releases minutes.
Wednesday. US: Non-Farm Productivity (prelim.) Unit Labour Costs (prelim.), Consumer Credit.
Thursday. UK: BoE Base Rate. Eurozone: ECB Deposit Rate. US: Initial Claims
Friday. Japan: Leading Indicator. UK: Industrial Production, Manufacturing Production, Trade Balance. NIESR GDP Estimate. US: Wholesale Inventories.

Alasdair Macleod

Head of research, GoldMoney

Alasdair Macleod runs, 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

© 2005-2019 - 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