If there is a Bubble in the Gold and Silver Market, it is the Short Position Bubble which could after a point, breakout violently up. The Gold and Silver Futures market has become just a virtual market where prices of these Precious Metals is equal to just the margin cost due to the leveraged trading formats of the Exchanges. This virtual Gold and Silver Futures market bears no resemblance to the real unleveraged, demand / supply oriented physical market. The virtual market was designed to assist the physical market for a better price discovery but of late seems to move against the very fundamentals of its cause. The Bullion Banks take complete advantage of this leveraged trade format to manipulate the markets at will & the daily morning “short sell” hammering carried on without a hitch to create the Perfect Storm. These Banks do realize that they can never control the underlying fundamentals of the physical markets & therefore will be the first to turn buyers after creating the bearish storm & convincing the weaker individuals to be net sellers for some time to come. After all, the markets will need sellers when these manipulators turn buyers. There have to be sellers when one needs to buy something, without which there cannot be a transaction. There will also be a need for a large number of passionate sellers & so the need to totally crush the upside sentiment in Gold & Silver was born. The “Perfect Gold and Silver Market Storm” thus got initiated. Once the masses are completely convinced that Bullion have had a long run up & now need to be sold at each rise to achieve gains, they turn to be passionate sellers. That is then the birth of a seller at each & every rise, who will one day realize that he is doomed by these acts, albeit too late. If not the weak individual, then who would be an easier target to manipulate? The Gold & Silver physical market demand was on fire since December when India rushed to buy Gold to avoid a looming import duty hike. There were severe real-time shortages also (remember the American Eagle Silver Coins sale was stopped for over 10 days due to shortage under excessive demand) & Central Banks in 2012, bought the highest ever record amount of Gold Bullion ever bought in the previous 50 years. Physical demand is the most important factor for prices to rise based on the demand / supply fundamentals. Despite massive demand, the Gold and Silver Market crashed. Have you given a thought to the reasons behind this ridiculously weird outcome? It’s simply Big Time Manipulation – A Bubble.
Moreover, irrespective of what individual governments claim, the global economy is expected to slump. The latest IMF report confirms the same. ECB President Draghi last week said the Eurozone economy may remain weak for the first quarter but is soon expected to pick up. But several reports this week showed conditions in many parts of the Euro area are deteriorating. The US claims its economy is getting back on track, which too will soon prove to be an illusion. The slow bumpy nature of the decline in the economy allows for excuses to be made based on the normalcy bias, which is a state of mind people often enter when facing a Disaster. This bias causes people to underestimate the possibility of the disaster and its impacts, and it typically results in their inadequate preparation for the Disaster. In addition, most people believe that things cannot really be all that bad or that the economy is simply undergoing a downturn within a typical business cycle, which will end soon enough. This thought process occurs not because it is a fact based on knowledge of the happenings, but born out of keen desire for wellness & also out of trust that the nation is in safe, knowledgeable & logical hands. They also tend to believe that governments cannot go broke and that printing money can lead to real economic growth, because it is money what is needed for more growth. The common man does not realize the rise in Inflation because it generally does not shoot up to excessively large proportions in a very narrow time period. The realization comes in very late when money market movements lessen & liquidity gets tightened as an impact of high inflation. Perceiving the need to immediately prepare for a coming or worsening economic crisis needs to be at top priority, especially when things appear good & calm. Times change fast & so do circumstances – more so & even quicker in today’s manipulated times.
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 is doing rounds. 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. The FOMC did discuss possible reasons why they might want to end QE4 earlier. An important clip from the minutes goes like this:
“A few participants expressed concerns that the current highly accommodative stance of monetary policy posed upside risks to inflation in the medium or longer term.”
“In this regard, several participants stressed the economic and social costs of high unemployment, as well as the potential for negative effects on the economy’s longer-term path of a prolonged period of underutilization of resources. However, many participants also expressed some concerns about potential costs and risks arising from further asset purchases. Several participants discussed the possible complications that additional purchases could cause for the eventual withdrawal of policy accommodation, a few mentioned the prospect of inflationary risks, and some noted that further asset purchases could foster market behavior that could undermine financial stability.”
Does this give a clear signal to the market that the quantitative easing will end earlier? No. One important statement which was towards the end may have been completely missed out is:
“One member dissented from the Committee’s policy decision, expressing concern that the continued high level of monetary accommodation increased the risks of future economic and financial imbalances and, over time, could cause an increase in long-term inflation expectations.”
This makes it all the more clear that although several members had expressed concerns in the discussion, when it came down to voting on the actual policy, only a single member dissented. The rest all agreed that QE should continue as agreed earlier till unemployment remains a greave concern & above the expected target of 6%. There are a lot of things that get discussed generally but that does not mean that they will be acted upon immediately without serious thought about the consequences of the actions. The truth is that tapering the QE size would make the US Economy anemic & withdrawing the same would eventually kill the economy as the US is now addicted to the easy money supply & cannot think of life without it. The Fed discussing these problems is certainly significant, but all you know, they could just ignore the issues. The occurrence of the discussion simply means there’s could be just a possibility that at some point the concerns could become more serious and then turn into action & not necessarily happen. And moreover – That action hasn’t taken place yet, nor is the FOMC planning it. So while the discussion in the meeting may warrant a temporary weakening in Gold & Silver Prices, it certainly shouldn’t have resulted in such a major landslide decline. So what may have triggered the slump, but manipulation which had an easy & perfect start in the previous week where global trading volumes were highly thin with most of Asian markets being closed for the entire week?
Anyways, what should have ideally caught the eye are a few line as mentioned below:
“In 2014 and 2015, real GDP was projected to accelerate gradually, supported by an eventual lessening of fiscal policy restraint, increases in consumer and business sentiment, further improvements in credit availability and financial conditions, and accommodative monetary policy.” “The staff continued to project that inflation would be subdued through 2015. That forecast is based on the expectation that crude oil prices will trend down slowly from their current levels, the boost to retail food prices from last summer’s drought will be temporary and relatively small, longer-run inflation expectations will remain stable, and significant resource slack will persist over the forecast period.”
This is amazing analysis & forecast by the Fed. If growth in the economy is actually seen as the Fed expects, then shouldn’t the Fed forecast rising Crude Oil prices to match growing demand? Crude Oil prices will actually rise & so will Inflation – the byproduct of rising oil prices. The Fed expects Inflation to actually remain subdued while economy is rising while being based on excessive monetary infusions? Do all the three points go together?
The Silver Futures Market ceased being a physical market long ago when the overall short position became dominated by just a few bullion banks. Whether these players control 25% or 50% of the net shorts, this concentration influences the paper price of Silver. The price of Silver will ultimately be driven by premiums, which are ultimately determined by demand at the retail level. The recent downward corrections in Silver Prices make it look like the Silver Market is being pushed off a cliff by the concentrated shorts in order to influence the perception spectrum of retail investors. These downward moves do not seem to consist of reality-based corrections, because the price of Silver was never too high. The price was just too high for the concentrated shorts and so it needed to be muscled lower. As confidence is lost in the futures market and shortages develop at physical metal dealers and scrap flows drop because they have already been panned out, an industrial panic will compete for the large (1000 ounce) Silver Bar supply, said Dr. Jeffrey Lewis. When the prevailing Silver Price Manipulation by the relative few shorts is eventually overcome by the common sense of the much larger horde of private investors, the market for Silver will revert back to the fundamental principles that have been driving Silver Prices higher for years. Although the deep-pocketed bullion banks seem unlikely to cover their shorts quickly, a speculative buying panic will move money into each and every physical or derivative form of Silver that exists. Margin raising, coordinated dumping and halting futures trading would not stop the Silver Price Rally, once the market’s perception of Silver shifts along the spectrum from fear, disinterest and disdain towards curiosity, interest, action and finally — Greed.
Greater the movement seen, greater the greed will get. Moreover on an average, Silver rises higher and falls further than Gold & amid much higher volatility, which was a fact & will also remain true. Physical Silver investors may not feel much of an impact but futures market traders must be able to stomach the bigger moves, regardless of the direction. If you have a tendency to get emotional about your trades, you should reduce your exposure to futures, especially in Silver. The soon to be seen movements in Silver can be breathtaking most of the times & one must be prepared emotionally to handle the volatility. Tendency to think in terms of “Too Much” should be avoided. The “Too Much” for you may be ‘Almost Nothing Yet” for someone else. Never forget that you are in a global market & do not have the means or know how to measure the capacities of someone far away & also unknown to you. Set your own realistic goals & abide by it. One thing for sure – the Silver Ride promises a super adrenaline rush.
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