Clive Maund: gold is about to pop
"So what’s going on? – why has gold withstood the torrent of selling in pretty much all other commodities and even rallied and succeeded in achieving net gains in recent weeks? Conversely some might ask why gold hasn’t rallied even more given the acute crisis in the financial system. The answer to the first question as to why gold has held up so well and even rallied is that there has been a big increase in investment demand for it across the board, and most importantly there has been a massive increase in demand from buyers demanding physical delivery – so much so that supplies of gold available in physical form, such as ingots and coins, are rapidly becoming depleted. This takeup of slack has not been fully reflected in the paper Comex market so that a widening and increasingly untenable gap is opening up between the paper and physical price of gold, which if it gets much larger will trigger an arbitrage market that must drive up the price on the paper market. The surge of demand for gold coins has inevitably resulted in increased premiums, as this intelligence recently received illustrates…
Now, here is a very important point. People have been writing to me for years concerned about manipulation either muting the advance of gold or forcing or exaggerating selloffs. I have always responded by pointing out that whatever manipulation exists will be swept away once demand shifts substantially from the paper to the physical market – AND THAT IS EXACTLY WHAT WE HAVE BEEN SEEING IN RECENT WEEKS. This massive increase in physical demand is very bullish, and if it continues as is to be expected, any attempts to rig the price lower on the paper market will become futile, as buyers will simply outflank them by demanding physical delivery from whatever source will supply it."
Yes – and the “basis” is even more exaggerated on the silver markets – currently the physical is at about a 40% premium to the COMEX price! (if you can find it…).
What I am wondering is –
Are long silver and gold futures contract holders ready to start asking for physical deliveries?
They could certainly arbitrage on it (but at the paper price and sell at the physical price).
If this begins to happen as Clivee mentions, COMEX may be flirting with defaulting on futures contracts!
I’m sorry, but if there is any further proof of the futures market being manipulated, today’s opening has proved it.
Three minutes after opening, Gold dropped $36 in less than 4 minutes and now continues to fall. What is going on here? I don’t believe in the Elliott theory – it ignores fundamentals. I do believe – if the anecdotal eveidence is true – that Gold is going to pop, particularly if the Chinese, with their dollar reserves,desire to change them into something more tangible.
BUT other than manipulation, what explains these VERY odd recent moves in Gold – it hasn’t responded at all to the wild gyrations of the stock markets recently . It’s NOT behaving ike other commodities, the precious metals ARE being hit although, for example, Copper has hardly moved today, neither has oil. And if one looks at when these odd moves started, it seems to have occurred after the $90 plus move up on the 17th of September, with a ‘capping’ effect at $920 to $930.
Something is going on.
I agree that it is very strange and somewhat disconcerting. Personally, though, I’m not that concerned because I am holding gold for the long term and I am quite confident that over the next five to ten years it will at least maintain its value and very likely appreciate.
If I ask myself the question "what else would I do with my money if not buy physical gold and silver?", I can’t come up with an answer that feels as safe as precious metals over the next ten years. Buying productive land might be a better investment, but I think land and real estate is still overpriced and I can’t really afford the mortgage payments yet anyways.
My hope/plan is to buy a home in 5 – 10 years when real estate prices come back in line with median incomes. At that point if gold and silver are still down from when I bought it (a month ago), I guess I’ll have to wait to buy a house. But I tend to think that in 5 or 10 years gold and silver will both be up – rather than down.
The CTFC reported that in August 2008, "2 Large Holders" of silver futures contracts, were short nearly 25% of the total above-ground world supply!
Is that manipulation? If not intentional, it certainly would suffice to push the paper-market around…
This level of concentrated futures market participation is absolutely unheard of in any other commodity. Can you imagine only 2 "players" holding 25% of the world’s wheat? 25% of the world’s sugar? 25% of the world’s copper?
Amazing that nobody at the SEC or CFTC is interested in "who" or "how" this is occuring.
It is this concentrated paper-trading in the gold and silver futures markets which is pushing the paper-price way lower than the physical.
AND, it is this concentrated market (manipulation?), that makes Technical Trading systems somewhat spurious, in my opinion.
Would it be hard to believe, that with this much "market-making" concentration in precious metals futures positions, that the price/volume/open interest couldn’t be made to "fit" and "trigger" technical systems?
I agree with others, that fundamentals drive precious metals value, and this is a long-term valuation.
As a view into these fundamentals, the current "average" costs just to mine silver are now between $8.50 and $10.50 per ounce. Silver miners are being shut-down at current levels.
That, plus the lowest "above-ground" world stock supplies in a very long time (on silver), makes one question the sustainability of the price at these levels, particularly for the physical.
I’ll be the deflation contrarian here again. I’m never very popular on these boards for it 🙂
Gold and silver are going to be good long term, but in the short term you could be in for a world of hurt. Especially if you are paying outrageous premiums for physical bullion. You are just throwing away good money that could be used to purchase a lot more gold later.
Silver has crashed along with the rest of commodities. Down more then 50% from its peak, 7% today alone. Stop pretending because it is also used in jewlery – It is not viewed as a store of money! Gold has held up well relative to the rest of commodities, sliding about 20%, but it’s still way over what it was at the middle, let alone the beginning, of the decade.
In a deflationary environment that is long and pronounced – we are talking one that will rival the 30’s here folks – I don’t want to be buying any commodities in any significant quantities. Cash is what wins here and the dollar will get a lot stronger before it gets weaker. When we start to make our way out of this depression I’ll start buying commodities again, but that isn’t anytime soon.
As to 2 entities being short 25% of the physical silver, a sensible explanation is that these entities are in fact mining companies that sold short to lock in favorable prices a few months ago, and they actually will deliver at the price they locked in guaranteeing their profit and the loss of the buyers of those contracts.
My own suspicion is that the FED may have started selling to hold the price down recently to help stem panic, but in reality it may be just hedge funds forced to close positions due to margin squeeze and redemption pressures.
High leverage when it collapeses can lead to all kinds of irrational behavior just because there is no option left.
Whilst I acknowledge all the comments I’ve read about the current gold prices, nonetheless with the panic in the markets over the last week and every attempt (thus far) by the authorities to keep the stock market up resulting in the stock falling, I would have thought that the ‘safe haven’ aspect of Gold (notwithstanding the continued strength of the dollar) would have provoked a move into it with a resultant large move up, and this hasn’t happened.
I, too, am extremely bullish Gold medium to long term (I am NOT a Gold ‘bug’, lest anyone thinks so given my posts), but I still remain mystified by the recent moves.
I don’t see any problem in getting in, so just for you because you’re such a great guy, I’ll sell it to you at only a 30% premium to spot. If you’d like more information just let me know, we can get lawyers involved to ensure delivery but I have no problem in getting physical from my good old Canadian bank. I won’t be surprised if I don’t see any reply… those people with soncpiracy theories don’t seem to want to see the truth but I look forward to hearing from you.
Oh, and I’ve posted on this before too… deflation is very bad for silver and gold, in fact I had a long silver, short gold trade on until I saw what happened to this relationship during deflation and it’s no longer correlated and both drop. If there is deflation first, then you’ll see gold fall and then maybe rise when they try and hyperinflate the economy out of depression. It’s a lot easier to see if you just open your eyes.
Hey, I am a gold bug, I have played bullion markets in the mid 1970s. One thing I learned is not to get hyped into "the train is leaving" stories. Buy gold, certainly, just do not pay too much for it. Consider buying the dips, and dollar cost averaging your bullion if you have a large amount in mind.
Gold hit its high on March 17th, the same day that the USD Index
bottomed and major currencies took a reversal. It completed a 5 wave
run from 1999 to 2007 in 5 waves large cycle waves, it is now digesting
that through a retracement, and is about half way complete. The bottom
has a confluence of levels around $600-650 that includes the bottom of
the trend channel, the 38.2% Fibo, and the prior wave 4 low are all
The next move will be down again, while USD is gaining and commodities
and assets are falling. It is because of deflation, credit contraction,
and the liquidation of gold by banks and hedge funds under margin call. My retired Swiss banker wrote a book called Gold Wars, detailing the Fed need to desparage private bullion and hold prices down, but the market always wins over manipulations.
Clive sells gold, what do you expect him to say? Gold dealers say the same thing decade in and out, buy, buy, buy – not much better than stock cheerleaders. If you look at the silver chart for the 1920-40 period, bullion and shares all fell together for 3 years, there was a false rally at the bottom, and in 1933 it started to recover quickly. Copper moved higher first, as it does. Few had any savings after the collapse in stocks and real estate.Then of course, gold was confiscated by the US Government in 1933 during a ‘bank holiday’, and gold was pegged about 40% higher once America fleeced the population.
Personally, I’ll be patient and wait.