Commodity Trade Mantra

The Great Gold & Silver Irony Story

The Great Gold & Silver Irony Story

The Great Gold & Silver Irony Story

Gold & Silver Futures prices have been on a steady decline since sometime now. But ironically at the same time physical demand for Gold & Silver Bullion has been on a steady rise ever since the Q4 of 2012 & has picked up momentum in Jan when the US Mint had to actually stop sales in the American Eagles Silver Coins due to lack of inventory. If the need for Gold & Silver was actually weaning off, then why in the world were such large number of people in a mad rush to accumulate the metals? Movement points clearly to a manipulation in the Futures market, doesn’t it? Because only the futures market can be manipulated & no way can the physical market demand be controlled out of vested interests, except when in national interest. It would not be surprising in the least manner if some smart players (Manipulators) have been accumulating Gold & Silver after initiating the sell offs. While Indian consumers & Bullion dealers rushed to buy & accumulate Gold before import duty hikes & other curbs were imposed, Russia and Turkey were significantly adding to their bullion reserves. Another ironic development in the Gold & Silver Market has been a series of reactions on a single debatable Economic point. Ever since the minutes of the Jan FOMC meeting have been announced, Gold & Silver Futures have been hammered notably on a daily basis. The meaning (not the content) of the FOMC minutes of the Jan meeting also has been twisted, manipulated & broadcasted in a major way to serve the Sellers intent & after the crash, the other meaning of the minutes started doing the rounds. Gold & Silver Futures prices have been declining earlier & are now seen rising on the same debatable point, only serving the manipulators in the bargain. The FOMC minutes did not spell doom for Gold & Silver, as some people manipulated the meaning for the masses to think. The focus earlier was that the Fed can withdraw the Quantitative Easing (QE) in the very near future & this shook up the bullion market as the QE was a major reason for its fascinating rise in the last 4 years. The reasoning’s now doing rounds explain why the QE would yet go around for at least a year & that the US Federal Reserve cannot afford to withdraw it anytime soon. But by now the damage is already done & the blame of being responsible for the sharp negative movements too is squarely put on the FOMC minutes. For more clarification on the same read YES, Gold & Silver Market in a Bubble – The Short Sell Bubble

The Economy angle on Gold & Silver:

No Inflation? Is there anyone out there not paying more for energy, gasoline, health insurance, etc than just 6 months ago? Improving economy?  Government-reported GDP for Q4, 2013 was negative. Housing is better? There are 133 million housing units in the US. 75 million are owner occupied and 40 million occupied on rent.  That means there are 18 million vacant homes.  4.3 million are considered vacation homes and 3.9 million are available for rent.  That means 9.8 million homes are vacant (data is from the Census Bureau).  Is that a healthy housing market?  Every month more people move onto Social Security disability and food stamps.  Over 100 million people in this country receive Government entitlement payments.  Healthy economy – is it? The Fed’s Balance sheet has a debt of over 4 Trillion & the National Debt of the US? The less spoken, the better. The illusion of Economy improvement may get stretched for some more time but then Inflation is bound to rise along. With spending cuts coming in sooner or later, the US Economy will go for a toss & so will risk assets like equities. Do you have any hedge option other than Gold & Silver?

High Gold & Silver Physical Demand:

The US Mint has recently implemented a series price increases for Gold, Silver, and Platinum numismatic products. Collectors who may have been hoping for the same at lower prices due to the price slides in the Precious Metals will surely be dismayed by this unusual situation. Prices for 21 products had remained unchanged, while the prices for three silver products were increased compared to the prior year. Specifically, the price for the America the Beautiful Five Ounce Silver Coins was increased by $15.00 to $244.95, the Proof Silver Eagle was increased by $3.00 to $62.95, and the Un-circulated Silver Eagles was increased by $3.00 to $53.95.

Earlier This Month, pricing was announced for the silver and clad composition 2013 commemorative coins. Price increases were included for each of the silver options and for one of the clad options. The proof silver dollars saw increases of $5 per coin compared to the prior year, and the un-circulated silver dollars saw increases of $6 per coin. Effective Today, the US Mint has adopted revised pricing grids for gold and platinum numismatic products. These products are priced under a flexible policy which results in adjustments as frequently as weekly based on the average market prices of the metals. The newly adopted grids reflect increases in the premium component for numismatic Gold Coins of as much as $80 for the Proof Gold Buffalo. The premium component for the Proof Platinum Eagle was increased by $108, reported coinupdate.

During the United States Mint’s most recently completed fiscal year, numismatic program revenue had fallen by 33.32%. Much of the decline could be attributed to lower sales for gold and platinum proof coins, which were down by 56.34% compared to the prior year. Despite the sales decline, the segment had remained steadily profitable with net margin of 12.01%. For the same fiscal year, silver product revenue had shown an increase of 16.49%. Net margin for this segment was rather robust at 32.69%. Silver product segment had generated more net income than any other numismatic segment. According to the United States Mint, a main objective of the numismatic program is to increase their customer base and foster sales while controlling costs and keeping prices as low as practicable.

Silver Prices will breakout after Consolidation Phase:

Silver Prices have now traded sideways for around 16 months. The lower end of this trading range is $27.00/oz and the higher end is $35.00/oz. As of today the price stands at $29.33 having bottomed at $28.50, it’s taken 4 trading sessions of small but positive gains to reverse the downward spiral from $32.00/oz. Not much to write home about here, but it is encouraging that the carnage is showing signs that it might be over, for now at least. It could of course be a relief rally with more downside selling pressure waiting in the wings a little further down the track. Either way we are still a long way down from the heady days of $48.00/oz. On the positive side the latest pronouncements from Ben Bernanke helped both gold and silver to rally along with the stock market in general.

We have also had elections in Italy which appear to have resulted in gridlock with no political party able to govern without forming a coalition. The emergence of a clown known as Beppe Grillo has stunned everyone by capturing 25% of the vote. As we see it Italy will be back to the polling stations within 3 months in another attempt to resolve this situation. Also worthy of note was that the technocrat from Europe, Super Mario Monti, only managed to get 10% of the vote. This is a real blow to the policies of austerity and puts a question mark over Italy’s appetite to stay the course of reform and hardship. With debts 10 times the size of that of Greece it is difficult to see how a bailout for Italy could materialize and so the possibility of a default casts its dark shadow over the Eurozone.

Over in the UK we see that, not before time, their AAA status has been reduced which in turn will make borrowing a tad more expensive in future. This is something that the UK could do without as it is shouldering so much debt at the moment and it too continues to print more money. Back in the States the question of whether to impose sequestration or not has to be resolved by Friday, so all eyes will be focused on the outcome. However, even if it is implemented in full, it only slows the rate of spending; it does nothing to prevent the debt from climbing, said Bob Kirtley. In conclusion we can say that our political masters and administrators will continue to try and print their way out of trouble and sooner or later inflation will follow. Once it raises its ugly head paper currency will be recognized for what it is and the herd mentality will kick in via a rapid charge to the exit. At that point Gold and Silver Prices will be at new all-time highs and heading north. Technically the RSI and the STO in Silver charts have turned and are heading north from a very low level, so they have plenty of room to move to the upside. For now it is a case of sweating it out, doing the work and proceeding with great caution once you have identified an opportunity that fits your unique investment criteria.

Interesting read:

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