Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
Gold, Silver and Copper - The 3 Metallic Amigos and Their Messages - 5th Dec 20
TESCO Christmas Decorations Festive Shop 2020 - How to Beat the Coronavirus Economic Depression - 5th Dec 20
Premium Bonds Good, Bad or Ugly Investment? Here's What Return (Prize Wins) to Expect - 5th Dec 20
How to accomplish a technical analysis with the Forex - 5th Dec 20
What is life insurance and what are the benefits of having it? - 5th Dec 20
Pre-COVID US Economy Wasn’t All That Great Either - 4th Dec 20
Bitcoin Breath Taking Surge - Crypto Trading Event - 4th Dec 20
Platinum Begins A New Rally – Gold & Silver Will Follow - 4th Dec 20
Don't Let the Silver (and Gold) Bull Shake You Off! - 4th Dec 20
Stronger Risk Appetite Sends Gold below $1,800 - 4th Dec 20
A new “miracle compound” is set to take over the biotech market - 4th Dec 20
Eiro-group Review –The power of trading education - 4th Dec 20
Early Investors set to win big as FDA fast-tracks this ancient medicine - 3rd Dec 20
New PC System Switch On, Where's Windows 10 Licence Key? Overclockers UK OEM Review (5) - 3rd Dec 20
Poundland Budget Christmas Decorations Shopping 2020 to Beat the Corona Economic Depression - 3rd Dec 20
What is the right type of insurance for you, and how do you find it? - 3rd Dec 20
What Are the 3 Stocks That Will Benefit from Covid-19? - 3rd Dec 20
Gold & the USDX: Correlations - 2nd Dec 20
How An Ancient Medicine Is Taking On The $16 Trillion Pharmaceutical Industry - 2nd Dec 20
Amazon Black Friday vs Prime Day vs Cyber Monday, Which are Real or Fake Sales - 1st Dec 20
The No.1 Biotech Stock for 2021 - 1st Dec 20
Stocks Bears Last Chance Before Market Rally To SPX 4200 In 2021 - 1st Dec 20
Globalists Poised for a “Great Reset” – Any Role for Gold? - 1st Dec 20
How to Get FREE REAL Christmas Tree 2020! Easy DIY Money Saving - 1st Dec 20
The Truth About “6G” - 30th Nov 20
Ancient Aztec Secret Could Lead To A $6.9 Billion Biotech Breakthrough - 30th Nov 20
AMD Ryzen Zen 3 NO UK MSRP Stock - 5600x, 5800x, 5900x 5950x Selling at DOUBLE FAKE MSRP Prices - 29th Nov 20
Stock Market Short-term Decision Time - 29th Nov 20
Look at These 2 Big Warning Signs for the U.S. Economy - 29th Nov 20
Dow Stock Market Short-term and Long-term Trend Analysis - 28th Nov 20
How To Spot The End Of An Excess Market Trend Phase – Part II - 28th Nov 20
The Gold Stocks Correction is Maturing - 28th Nov 20
Biden and Yellen Pushed Gold Price Down to $1,800 - 28th Nov 20
Sheffield Christmas Lights 2020 - Peace Gardens vs 2019 and 2018 - 28th Nov 20

Market Oracle FREE Newsletter

FIRST ACCESS to Nadeem Walayat’s Analysis and Trend Forecasts

Gold and Silver Prices Counterintuitive Behavior To Continue

Commodities / Gold and Silver 2013 Jan 31, 2013 - 01:52 PM GMT

By: GoldSilverWorlds


Grant Williams writes: The gold and silver price have been trading in a quite counterintuitive way lately. It became very obvious after the US Fed announcement on December 13th which was a fundamentally bullish event for precious metals. Gold was trading above $1,700 an ounce but has been trading lower since then. The gold price tried only once to break above $1,700 but did not succeed. Which leaves a lot of believers and investors with the question how that is possible and if more of the same can be expected in the foreseeable future.

Grant Williams confirmed that both gold and silver have been trading in a counterintuitive way. However, the same “behavior” is detected in a lot of other markets for a long time. The reason seems obvious: government involvement. The greater the involvement, the greater the counterintuitive behavior. “The government is never a pure market force,” says Williams. “If you think about normally-functioning markets, they have minimal (and ideally zero) government involvement. The fact that we have the government as the biggest participant most notably in the bond market means that natural market forces are being corrupted.”

The government is not particularly a market participant that will be out of the markets short to medium term. Counterintuitive price behavior can be expected to continue, throughout (and very likely beyond) 2013.

Gold and silver are very thin markets, so it does not take too much effort and resources to control their direction (at least not for large investors). However, this is a double-edged sword. Because of their scale, these markets can easily reach a tipping point after which it becomes very easy for market forces to overwhelm intervention of any kind. Right now investors’ portfolio allocations in precious metals are approximately 0.5%. If that allocation would rise to 0.6% (a 20% increase) or 1% (a 100% increase), the markets would not be able to absorb those significant inflows of money without a significant upside move. “It is a question of being patient and waiting for the reality of the current situation to assert itself,” says Williams.

“You cannot expect markets always to go your way or, in fact, the way common sense or circumstance would dictate. Whether their action feels legitimate or illegitimate is besides the point. You have to check your logic for being long gold or silver and act accordingly. In my view, the case for being long precious metals has never been stronger. People should not let themselves get affected by the shadow of intervention and make the wrong decision regarding their investment holdings during periods of weakness.”

Central bank and Asia drive physical gold demand

Williams points to the importance of central bank buying. They were the biggest sellers during the first 7 years of the current bull run. Only the IMF sold more bullion, with numerous announcements of future sales in the past decade leading to sharp price drops. Nevertheless the price of gold has been rising steadily during that period. The biggest supplier of gold has, since 2009, turned into the biggest buyer and that is a hugely significant shift for any market.. “While things can look somewhat shaky in the COMEX markets at times, it’s important to understand that these prices are based on paper contracts – not physical bullion. Looking at the demand for physical metal would suggest that over time, these markets are poised to go a lot higher.” The premiums for gold and especially silver bars and coins in Asia (where Grant Williams lives) are at an all-time high.

In addition, readers should be aware that Western central banks hold between 70% and 80% of their reserves in gold. In contrast, Eastern central banks have much lower allocations. They are buying both continuously andaggressively in order to increase those allocations and decrease their exposure to fiat currency.

As discussed, small markets have difficulties in absorbing significant inflows. The supply of physical silver is already very tight, and it will not take a lot of inflows of money to cause delivery problems. Eric Sprott has witnessed this first-hand when he encountered significant delays in getting the silver delivered that he bought for his Physical Silver Trust (PSLV). In some cases, bars delivered were actually cast AFTER they were purchased. Looking at the stocks in the COMEX warehouses, it is fairly easy to see that any meaningful buying of silver futures which then stood for physical delivery would have a significant impact.

The trigger for a collapse in the confidence game

The level of government debt has become so huge that it is mathematically impossible to pay it back as we all know. Governments are desperately seeking to create inflation in order to “inflate their debts away.” Growth is absent in the economic powerhouses (Europe, UK, US). Even Asia has seen slowing growth over the past few years. Genuine growth has become a case of paying debts back through inflation.

Williams has a hard time to find positive economic statistics. Given these dire economic fundamentals, he sees many potential triggers for an economic breakdown. Such a trigger is likely to come from the bond market. Japan couldpotentially provide the tipping point, as early as 2013. With demographic imbalances, a debt to GDP ratio at an all-time high, increasing money printing from the new government, bond rates cannot go higher. The government is spending nearly 25% of all national revenue on debt service payments despite very low interest rates. With an interest rate rise to 2%, Japan would be paying roughly 50% of all government revenue on their interest alone.

The global bond market is so big and, currently, so overpriced that any kind of shift in sentiment will have ramifications across the entire investment spectrum. It will simply be a matter of time until the investment community realizes that all sovereigns are truly insolvent. “It is a confidence game in the true sense of the phrase,” says Williams. “At some point, however, confidence is going to be more inclined to look at the balance sheet.”

Suppose the Japanese bond market breaks down. The initial reaction from investors will probably be a quick move towards “safer” bond markets (like the German, UK or US). From that point, it would not require a huge leap of logic for investors to realize that Japan the canary in the coalmine. Precious metals will be positively impacted by any loss of confidence in the bond market as they are the only true safe havens left.

Since QE4, yields in the US and in Japan have started creeping higher, and the new year rally in equities has seen previous safe havens such as Germany and (surprisingly) France see sell-offs in their government bond markets as investors’ fear dissipates. These are the first signs that investors have begun adjusting their bond positions. However, as Grant Williams notes, “we are one panic away from getting everyone back in the bond market. From the governments’ perspective, should they start losing control over sovereign bond markets, all they have to do is engineer some kind of crisis of confidence and instantly people will jump back into the perceived safety of government bonds.” The political willpower is enormous and the head of the European Central Bank has explicitly stated that he will do “whatever it takes” to save the single currency and continue this confidence game.”

Subscribe for free to Grant Williams his weekly newsletter Things That Make You Go Hmm.

Source -

© 2012 Copyright goldsilverworlds - 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.

© 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

6 Critical Money Making Rules