Best of the Week
Most Popular
1.SNP Offers Labour Deadly Death Embrace Alliance, Holding England to Ransom, Destroy UK From Within - Nadeem_Walayat
2.Gold And Silver – Most Widely Used Currency In Western World? Stupidity - Michael_Noonan
3.Election Forecast 2015 - Coalition Economic Recovery vs Labour Collapse - Nadeem_Walayat
4.Election Forecast 2015 - Debates Boost Labour Into Opinion Polls Seats Lead - Nadeem_Walayat
5.Why are Interest Rates So Low? Ben Bernanke, Confused as Ever, Starts His Own Blog to Prove It - Mike_Shedlock
6.Leaders Debate Election 2015 - Natalie Bennett Green Party Convincing Anti-Austerity More Debt Argument - Nadeem_Walayat
7.Labour Economic Collapse vs Coalition Recovery - UK Election Forecast 2015 - Video - Nadeem_Walayat
8.China’s Stock Market Mania; How High can Red-chips Fly? - Gary_Dorsch
9.Gold and Misery, Strange Bedfellows - 31st Mar 15 - Dan_Norcini
10.Ed Miliband Debate Election 2015 Analysis - Labour Spending, Debt and Economic Collapse - Nadeem_Walayat
Last 5 days
Sheffield Hallam Election Battle 2015, School Places Crisis, Can Nick Clegg Win? - 26th Apr 15
Stocks Bull Market Looks to Resume - 25th Apr 15
Gold And Silver - The U.S. Is A Corporation. Precious Metals Stand In The Way - 25th Apr 15
When the Nuclear Money Option Fails - 25th Apr 15
The War on Cash Special Report - 25th Apr 15
China Economic Slowdown Story - Why “Didi Dache” Is a Phrase You Need to Know - 25th Apr 15
The Trans-Pacific Partnership and the Death of the Republic - 25th Apr 15
Stock Splitting Caused the Stock Market Crash - 25th Apr 15
China Stock Market Parabolic Mania’s Global Risk - 24th Apr 15
What Will Happen to You When the U.S. Dollar Collapses? - 24th Apr 15
Why 2 of U.S. Dollar's Recent Bottoms Have 1 Thing In Common - 24th Apr 15
UK Economy Debt Timebomb Will Explode After Election - 24th Apr 15
Are Gold Stocks the Cheapest Ever? - 24th Apr 15
God, the Stock Market and Pascal's Wager - 24th Apr 15
Greedy Insurers Are in for a Nasty Surprise – Positioning You for Big Profits - 24th Apr 15
Four Things Missing From Obama’s First-Ever Energy Review - 24th Apr 15
How to Grow a Regenerative Medicine Industry - 23rd Apr 15
Stocks and Bonds Seven Year of Negative Returns; Fraudulent Promises - 23rd Apr 15
The Existential Danger To The Euro Is Elections - 23rd Apr 15
Stock Market No Clear Direction As Investors React To Quarterly Earnings Releases - 23rd Apr 15
Is China The Next United States? - 23rd Apr 15
U.S. Oil Glut: How High Can It Go? - 23rd Apr 15
Distorted Financial System Expect Deflation, Inflation And Hyperinflation - 23rd Apr 15
What McDonald’s Corporate Earnings Report Is Really Telling You - 23rd Apr 15
Gold Price Forecast to Become Priceless - 23rd Apr 15
FDIC Plots a Bank Heist Involving YOUR Accounts - 23rd Apr 15
$GOLD Price Year 2007 Again - 23rd Apr 15
Stocks Bubble - The Spread between Stock Prices and GDP is Blowing Out - 23rd Apr 15
Ukraine War - When Did We All Become Murderers? - 23rd Apr 15
Libya Crisis - EU Leaders Are Indicted for Nazi-Style Crimes against Humanity - 22nd Apr 15
Why Alternative Energy Isn’t Taking It on the Chin Despite Low Oil Prices - 22nd Apr 15
Bill Gross - German 10-Year Bunds Short of a Life Time - 22nd Apr 15
How to Profit from the Drop in the Oil Price - 22nd Apr 15
The U.S. Dollar's Move Is More Dangerous than You Think - 22nd Apr 15
Apple Watch Means Apple Will Become Worlds First $1 Trillion Stock - 22nd Apr 15
Half a Stocks Bubble Off Dead Center - 22nd Apr 15
They Said Go to College - Learning to become Debt Slaves - 22nd Apr 15
Best Cash ISA 2015/16, Instant and Fixed Savings Interest Rates, New Flexible Withdrawal / Deposit Rule - 22nd Apr 15
Unsound Banking: Why Most of the World's Banks Are Headed for Collapse - 21st Apr 15
Bitcoin Recent Low Price Volatility Might Be Deceptive - 21st Apr 15
Currency Wars Back As Russia Buys Gold - One Million Ounces in March Alone - 21st Apr 15
The Greece 'Grexit' Issue and the Problem of Free Trade - 21st Apr 15
Why Europe Lets People Drown - 21st Apr 15
Wealth Destruction for the 99.9 Percent - 21st Apr 15
SNP Publish England's Suicide Note as Pollsters Still Forecast Labour-SNP Election Disaster - 21st Apr 15
Characteristics of Extremely Over-Indebted Economies - 21st Apr 15
Trader Education Week -- a Free Event to Help You Learn to Spot Trading Opportunities - 21st Apr 15
Gold & Silver Alert: Silver Stocks’ Signal - 20th Apr 15
Now is the Time to Buy Resource Stocks, Especially Gold Equities - 20th Apr 15
DJ Transportation & Utility Averages Suggest Stocks Bull Market Is Over - 20th Apr 15
Crude Oil Price Bull Market Hope - 20th Apr 15
Stock Market Bears Get Slaughtered Despite Greece Counting Down to Grexit Financial Armageddon - 20th Apr 15
The Rise of the Paper Machines - 20th Apr 15
Gold and Silver Inflection Point - 20th Apr 15
SP500: A Butcher's Stock Market (Chop Chop Chop) - 20th Apr 15
Are Stock Market Bears Slowly Gaining Control? - 20th Apr 15
Sugar Commodity Price Bear Rally - 19th Apr 15
Avoid the Spread of the Stock Market "China Syndrome" - 19th Apr 15
Stock Market Going Nowhere Fast - 19th Apr 15
An Easy Way to Profit From the Two Biggest Trends in the Stock Market - 19th Apr 15
No Scripture Is Divine, Authentic and Beyond the Creation of the Human Brain - 19th Apr 15

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

US Historic Bubble

Gold and Silver Off to the Races

Commodities / Gold and Silver 2013 Sep 03, 2013 - 07:06 PM GMT

By: Peter_Schiff

Commodities

Summer is traditionally a slow season for precious metals, but this summer started with a rout. In the last week of June, gold and silver hit 2-year lows of $1,192 and $18.61 respectively.

Fortunately, after staggering along the lows, the precious metals are off to the races once more - with gold rallying more than 18% and silver 31%. This remarkable performance continues even in the face of the Fed's sustained tapering threats.



The exhaustion of short-sellers paired with insatiable global physical demand has positioned gold for an exciting conclusion to a volatile year.

Back to the Futures

In last month's Gold Letter, I explored the likelihood of a dramatic short squeeze in the gold futures market. With record short positions facing a rising gold price, I anticipated that short sellers would have to cover their bets by buying back the contracts they sold short, and in so doing, drive the yellow metal higher.

While a full-scale short squeeze has yet to develop, speculators have abandoned their record short positions in gold. In each of the first three weeks of August, futures speculators increased their net-long positions, and by August 20th, money management accounts had grown their net-long positions to the highest since February. The futures market reversed course so much that by the third week of the month, gross short positions were at their lowest since April.

That's quite a turnaround during a season usually ruled by the bears. Just as I forecast, this about-face in the futures market was likely a big factor in gold's resurgence.

However, even more important than the action in the futures market is the sustained demand for physical gold worldwide.

Staggering Physical Demand

As Western investors flip-flop on whether or not gold remains a good buy, Eastern and emerging market investors have jumped on these low prices as an unprecedented buying opportunity. At this point, the data supporting physical precious metals demand is so great that it's easier to just list a few highlights from the second quarter of 2013:
  • 53% more bullion was purchased worldwide this quarter than in 2012 year-over-year (YoY).

  • Demand for gold jewelry worldwide grew 37% YoY.

  • Global coin and bar demand hit a quarterly record of more than 500 metric tons.

  • For the 10th consecutive quarter, global central banks increased their net gold reserves.

These figures should come as no surprise to anyone who has been following the economies of developing nations. The Indian rupee hit a record low in the last week of August, and South American countries are experiencing tragically high inflation. In particular, the foundering Brazilian currency has hit a four-year low on the back of an official inflation rate of 6.15%.

Maybe these facts are part of the reason short positions are unraveling, or perhaps it was the news of record foreign selling of US Treasuries in June, totaling $40.8 billion.

Treasuries aren't the only US asset being dumped - the Indian, Indonesian, and South African central banks have all been selling dollar reserves this summer as well.

False Headwinds

The biggest headwinds countering robust physical demand are the ridiculous narrative of economic recovery and the Federal Reserve's threats to begin tapering its quantitative easing program. I'm astounded that after so many years, the financial media continues to swallow this story hook, line, and sinker.

The media conveniently ignores the data that undermines the government's talk of recovery. For instance, orders for durable goods in July plummeted 7.3%, the largest drop since August of 2012. Durable goods are the manufactured products that last for at least three years - like airplanes, cars, and refrigerators - which are considered a good measure of prosperity.

Rather than come to terms with this disturbing trend, the media focuses on supposedly improving employment statistics. These only make sense if you ignore the fact that part-time jobs are increasing while full-time positions are disappearing. Not to mention the under-reported inflation statistics and overinflated headline GDP I debunk in another recent commentary.

Waving around these artificial statistics, the "experts" anticipate that the Fed has every reason to begin tapering this very month. And that fact is supposed to be extremely bearish for gold.

A Win-Win for Gold

What media analysts are missing is that gold stands to benefit no matter what the Fed does.

If quantitative easing continues - which is where I'm placing my bets - then inflation will continue to rise and investors will need hard assets as a safe haven.

Even if the Fed does taper before year-end, the ensuing carnage in the bond market will cripple the housing market and the broader economy, forcing the Fed to reverse course. An about-face on tapering will cause the Fed to lose face with the markets, as the fragility of the phony recover will finally be laid bare.

Western economies balance precariously on global confidence in the dollar. But the dollar is now structured like a Ponzi scheme - investor confidence is being abused to print dollars to paper over economic problems, thus perpetuating investor confidence. Just as with Bernie Madoff, once the new outside money stops coming in - and it is slowing right now - the whole scheme will collapse spectacularly.

Gold has a very strong outlook as it heads toward the last quarter of the year. Physical demand is traditionally very good in the fall season, which will bolster the already astounding demand statistics for 2013.

More importantly, the economic balancing act supported by misplaced trust in the dollar is beginning to lose its footing. Before long, the current bargain prices of physical precious metals will be remembered like a long-lost dream. Those who refuse to join the race will be left in the dust.

Peter Schiff is CEO of Euro Pacific Precious Metals, a gold and silver dealer selling reputable, well-known bullion coins and bars at competitive prices.

Click here for a free subscription to Peter Schiff's Gold Letter, a monthly newsletter featuring the latest gold and silver market analysis from Peter Schiff, Casey Research, and other leading experts.

And now, investors can stay up-to-the-minute on precious metals news and Peter's latest thoughts by visiting Peter Schiff's Official Gold Blog.

Peter Schiff Archive

© 2005-2015 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

Free Report - Financial Markets 2014