Best of the Week
Most Popular
1.Will UK Interest Rate Rises Crash House Prices? - Nadeem_Walayat
2.Full on Crash Alert for Major World Stock Markets... - Clive_Maund
3.Gold And Silver Market Bottoming? Big Rally Imminent? Reality Check Says NO - Michael_Noonan
4.The Coming Silver Price Rally Will Outperform All Previous Ones - Hubert_Moolman
5.The Trigger For The Upcoming Stock Crash - Harry_Dent
6.Imploding Department Store Results - James_Quinn
7.Dr. Copper is Speaking, are you Listening? ... - Rambus_Chartology
8.Pandemonium in the Stock Market, Dow falls 1,000 points in a week - EWI
9.Asia's Whirling Dervish of Devaluations Has Encircled China's Exports - Keith_Hilden
10.China Weakens the Yuan; Rattles Global Stock and Financial Markets - Gary_Dorsch
Last 5 days
The Ultimate Cash-Management Guide - 27th Aug 15
Why a Fed Rate Hike Could Be a Blessing for Gold Prices - 27th Aug 15
Why Devaluing the Yuan Won't Help China's Economy - 27th Aug 15
Stock Market Trend & Trade Signal Of the Decade - 27th Aug 15
Keep Your Eye On the Gold and Silver Bear - 27th Aug 15
Refugees Expose Europe’s Lack Of Decency - 27th Aug 15
How to Profit from China's Currency War - 27th Aug 15
How China's Currency Policies Will Change the World - 27th Aug 15
Chinese Medicine not Impressing Dr Copper - 27th Aug 15
Novel Biotech Novel Technology Platforms with Dramatic Growth Potential - 27th Aug 15
China Stocks Bear Market Crash, Are We Near the Bottom Yet? - 27th Aug 15
Stock Market Crash Black Wednesday Rally Crushes the Bears - 26th Aug 15
VIX Shorts Being Squeezed While SPX Prepares for Another Decline - 26th Aug 15
Why China's Economy is Deteriorating - 26th Aug 15
Citizenship as a Weapon: Travel Controls and What You Can Do About It - 26th Aug 15
Gold and Silver - How To Manipulate a Market - 26th Aug 15
How to Make a Quick 20% When the Stock Market Crashes - 26th Aug 15
Why We Can’t Handle A Stocks Bear Market - State Budgets Will Implode - 26th Aug 15
Stocks Bear Market, Is This 1929 All Over Again? - 26th Aug 15
The One Trading Strategy You Needed for Stock Market Crash - 26th Aug 15
Second Chance To Buy Cheap Gold Mining Stocks - 25th Aug 15
Gold Facts and Gold Speculations - 25th Aug 15
The Stock Market Crash Season is Here… - 25th Aug 15
Liftoff Setback Leads to U.S. Dollar Pullback - 25th Aug 15
The Stock Markets Are Extraordinarily Volatile, Here's What to Do - 25th Aug 15
Israel: The Case Against Attacking Iran - 25th Aug 15
Saudis Could Face An Open Revolt At Next OPEC Oil Meeting - 25th Aug 15
How to Calmly Weather This Stock Market Downturn - 25th Aug 15
Stock Market Sound the Alarm - 25th Aug 15
Stock Market Meltdown - Dow Monday 1000 Point Crash then Rebound, What's Next? - 25th Aug 15
El-Erian: Stock Market Sell off Is Not 1998 or 2008 - 25th Aug 15
Gold the Ultimate Financial Crisis Insurance - 25th Aug 15
Stock Market Black Monday Crash Fizzles Out, Next Black Tuesday? - 25th Aug 15
Black Monday - Rolling A Wheelbarrow Of Dynamite Into A Crowd Of Fire Jugglers - 24th Aug 15
Playing the Chinese Trump Card - 24th Aug 15
Gold and Silver: Heading for a “Blue Screen of Death” Event? - 24th Aug 15
Japan Economy Clear Conclusions Concerning QE - 24th Aug 15
Stock Market Blockbuster Right From the Open... - 24th Aug 15
Silver And The Petrodollar - 24th Aug 15
Why the Stock Market Sell-Off Happened – and How to Make Money on It - 24th Aug 15
Stocks Correct, Panic Ensues. The End Of The World? - 24th Aug 15
Stock Market - The Sky IS Falling - 24th Aug 15
SP500, DAX, FTSE - When Stock Markets Talk, Pay Attention - 24th Aug 15
Stock Market Black Monday - Full Crash Alert! - 24th Aug 15
Stock Markets Implode as China Literally Explodes - 23rd Aug 15
Stock Market Bloodbath - The Feds Gonna Need A Bigger Balance Sheet - 23rd Aug 15
Stock Market Due For A Breather (But More To Go) - 23rd Aug 15
Stock Market 20% Bear Market in the Works - 23rd Aug 15
Ankara: the New Capital of Jihad, U.S. Policy for Strengthening ISIS - 23rd Aug 15
Will Rising Interest Rates Crash UK House Prices? - Video - 23rd Aug 15
Stock Market Primary IV Underway? - 22nd Aug 15
Gold And Silver – NWO In Its Element: Problem, Reaction, Solution. Beware - 22nd Aug 15
Stock Market Nirvana Has Been Broken - 22nd Aug 15
Three Ways to Profit from the Stock Market Correction - 22nd Aug 15
S&P 2040 Breaks Down... Stock Market Turns Bearish - 22nd Aug 15
Storm Clouds Are Gathering Around Peer-to-Peer Lending Sector - 22nd Aug 15
Crude Oil Price Crash Continues: West Texas Crude Below $40, Brent Near $45 - 22nd Aug 15
Pandemonium in the Stock Market, Dow falls 1,000 points in a week - 22nd Aug 15

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

Global Stocks Slide

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

Biggest Debt Bomb in History