What Happened To Gold & Silver Prices?

 

By Clint Siegner, Money Metals Exchange

Gold and silver prices charged higher during the first 6 months of the year. They fell into a rut over the summer, and then hit the skids last Tuesday. Lots of bullion investors are wondering what in the world happened. There are three primary factors driving this price correction.

The first is the strength in the U.S. dollar. The DXY index, which measures the dollar against other major world currencies, hit its highest levels since July. This surge, however, is not driven by safe-haven buying as it was immediately following Brexit. That sort of fear driven buying would almost certainly be boosting precious metals as well. Rather, investors are looking forward to the Federal Reserve tightening monetary policy, which helps the dollar but hamstrings precious metals.

The gold bug’s old nemesis – the Fed – just keeps coming back. It seems nothing can kill the market’s expectations of higher interest rates. Despite years of meaningless threats to hike, slowing GDP growth, and other weak economic data, the consensus for a rate hike by year’s end is growing once again.

The second factor is related to the first. Longer-term interest rates are rising. The yield on 10-year Treasury bonds recently hit the highest levels since June. The bond markets largely ignored Fed jawboning in regards to higher rates during the late spring and summer, but now they are behaving as if a rate hike is a certainty. Rising real interest rates create headwinds for gold, which does not offer a yield.

The last factor is (or was) the extraordinarily high speculative interest in metals. Open interest in both gold and silver futures soared as metals ran higher and then peaked following Brexit. That speculative interest fell slightly as prices stalled during the summer, but less than expected. The markets entered October with lots of traders still willing to hold out for higher prices as long as prices weren’t breaking down.

old Market Price Roller Coster

Across the table from them sat the bullion banks, heavily short and pushing for prices to fall. The impasse broke when the stronger dollar and higher rates pushed metals below technical support. Weak-handed speculators ran for the exits.

The good news, if any, is that flushing weak hands and reducing open interest will put markets in a better position to bottom and start a new leg higher. Of course, much will depend on what happens in the dollar and in interest rates.

Our view remains unchanged. The Fed is going to find it difficult to normalize interest rates and eventually markets will figure that out. Stimulus addicted stock and real estate markets achieved their current highs based on the flood of cheap money.

And the federal debt would take roughly a trillion dollars a year to service if the cost of funds heads north to 5%, which is closer to “normal.” That would mean debt service consumes more than 25% of the entire federal budget. Given the projections for rising deficits in the years ahead, it is safe to say normal rates cannot be tolerated and therefore the Fed will not allow them to occur.

The biggest question is whether officials will be able to make even one or two token hikes before having to reverse course and re-open the stimulus floodgates.

The last rate hike, a measly quarter percent in December of 2015, cratered the stock markets and immediately had officials back pedaling. Gold and silver prices soared. Investors should expect history to repeat this next time around.

Clint Siegner is a Director at Money Metals Exchange, the national precious metals company named 2015 “Dealer of the Year” in the United States by an independent global ratings group. A graduate of Linfield College in Oregon, Siegner puts his experience in business management along with his passion for personal liberty, limited government, and honest money into the development of Money Metals’ brand and reach. This includes writing extensively on the bullion markets and their intersection with policy and world affairs.

 

Thanks to Clint Siegner from Money Metals Exchange

 

Gary Christenson

The Deviant Investor

15 thoughts on “What Happened To Gold & Silver Prices?

  1. In response to this article’s title, “What happened to gold and silver prices?” my own answer is sure and simple: They just became better bargains. As background, most of the buying of gold by our family office was done in the time period of 2004 through 2009, at prices ranging from under $400 per ounce to just under $900 per ounce. Afterward, none sold and only trivial amounts bought since. I had resolved to add a meaningful amount of gold when the price dropped below $1300 per ounce. The drop occurred, and we bought. The price has dropped another $20 or so per ounce since then, and we are looking to add (with ever greater enthusiasm) at successively lower levels, should those materialize.

    If you buy with cash and take delivery of the physical metal, you simply cannot be stopped out by downward fluctuations, whether those are natural or rigged. That is the position of someone who is not a philosopher, or an economist, or a trader; it is the typical stance of a value investor, who looks to capitalizes on misplaced asset values by buying them at prices below intrinsic value. If the price drops further from one’s entry point, the successive bargain prices only become better.

    None of what I have written is to say that at this time all of the choices are easy. In physical metals one has to decide between gold and silver (not to mention palladium, platinum, etc.), and whether selected mining shares offer better appreciation potential (though at somewhat higher risk of price fluctuation or operational problems).

    This is an environment in which all of us should understand and try to share Nassim Taleb’s admonition to position ourselves not merely as secure or resilient, but as antifragile. I see a serious, steadily increasing allocation of capital to precious metals as an integral part of such preparation.

    Robert B. Eckhardt


  2. Thank you for this article. It describes all the usual suspects but is nevertheless interesting to read. It is pointless to rant about manipulation.
    A couple of questions that come to mind. “The Fed is going to find it difficult to normalize interest rates and eventually markets will figure that out.” After eight years the markets still haven’t figured it out? It would seem more likely that they have, but are happy to play musical chairs using other peoples money.
    With regard to servicing Federal debt I should like to see a matrix showing the escalating amount required to service the debt over a range of interest rates from the present ridiculous to the 5% more normal. Somebody must have done this. Can you tell me where to find it?



    • Yes, they “figured it out” long ago; but Human Nature being what it is, “everyone” thinks THEY’RE smart enough to be the first one out the door when the inevitable “FIRE!” gets yelled in the Theatre Of The Absurd. And THAT is why this incarnation of “The Emperor’s New Clothes” has lasted as long as it has.


  3. Let’s be honest here. If the gold price would not be regulated (“manipulated”), our Dollars would not be able to buy any gold at all. The price of gold is kept artificially low in order to maintain the confidence in the US-Dollar, especially its international reserve currency status. That confidence allows us to live beyond our means by consuming more than we produce. In particular, it allows us to buy gold at relatively low prices.

    The gold price manipulation is not immoral. Consuming more than we produce is immoral. There would be no need for a gold price manipulation if the US would produce more than it consumes. The gold price manipulation is a strategic consequence of our decision to produce less than we consume.


    • I disagree… The gold price is kept reasonably low because bankers hate the popular application for gold these days , which is as a store of value or an investment. The common denominator here is that the bullion is in a static application for the most part.

      Bankers hate static gold.

      Bankers love gold in the application of its movement to grease the wheels of real economy , but are helpless to bring it in now that we have a real-time price environment and don’t relish or welcome a debt crash. Rate of market transition is critical.

      Bullion must be monetized and enter circulation by the organic means of the marketplace (bottom-up) with its natural market stealth. That cannot be accomplished in a top-down manner from the apex of power.

      Gold is now a real-time currency.

      Look at the facts


      • You keep using that word. (currency). I don’t think that word means what you think it means.

        The local gas station refuses to take my gram of gold for gas, chocolate bars, or chips. The grocery store won’t take it either.

        In fact, the only person who will take it is the currency trader who gives me dollars well below the posted worth of that gram of gold.

        So…um…right now – gold is not currency. NOBODY WILL ACCEPT IT.


  4. The reality is that “paper” silver & gold shorts flooded the market with ETF/ Fiat “PM” products & made a stand in the market to purchase Physical Metals @ a discount to the paper values – Strategy is crush the market with paper sales & buy back physical: It is exactly as it appears. QMAMBO13


  5. So this was all simply “normal market action” we’re to believe? No “meddling” by the Fed-controlled bullion banks with out-of-the-blue, or middle of night, or deadzone (no buyers around), drive-by PM shootings, right? Yes, lots of speculators jumped on board, but those with a bottomless purse (money for nothin’ and your chits for free) very obviously once again new how, when, where to run all their stops and keep on running them…down to an RSI of 10!! Pretty profit for them.

    This was political. This was criminal…well, for we peons who believe that there is a rule of law in this country…we for sure are under the thumb of it…but not for the criminals…CFTC says so. And we know that the CFTC has the retail investor in mind, right? Yeah, right. This was market manipulation at its finest…same as for the past several decades.


  6. What a load of fluff.

    First, there is absolutely no mention whatsoever as to the deliberate intervention and manipulation of Gold’s “price” (as measured by a fiat currency metric) by the Central Banksters in their attempt to cover their tracks of debasing currency worldwide.

    It didn’t work with their London Gold Pool Scam in the Sixties, and it definitely will not work in the long run now either.

    Second, Mr. Seigner would like everyone to focus on the false meme known as the “strength in the U.S. dollar”, when in fact what is at issue is NOT actually a “U.S. dollar” (since those are actually defined in U.S. Statutory Law as a Silver Coin, minted with a specifically expressed weight and fineness) but in fact,
    a worthless fiat, ponzied currency accounting unit, the federal reserve note (FRN aka Federal Reserve Accounting Unit Device / F.R.A.U.D.),
    whereby its illusion of “strength” only appears in terms of measuring such against other such fiat, ponzied accounting currency units, again all of which are legally “worthless securities” and only maintain their illusion of value because they are still accepted by complicit corrupt governments and corporations as a form of payment for goods, services and taxes.
    Another false meme repeatedly perpetrated, is that raising “interest rates” are gold negative, when in fact, when interest rates were rising into double digits back in the late Seventies/ early Eighties, gold was soaring.

    The fact that every Central Bank on the planet is currently debasing their currency, (whether overtly or covertly) in the race to the bottom, plus the fact that most of which of which is simply created digitally with a click of a button to create a computer entry/ deposit entry, versus actual physical precious metals of gold and silver which are a finite supply, and take real effort and energy to mine, process and mint into Coins or Bars, when the rest of the world wakes up to this massive fraud and ripoff by the Banksters, the phony fiat currency prices of gold and silver will skyrocket along with the premiums on same, as no one will have any clue whatsoever as to how much worthless fiat currency and ex nihilo credit lines are outstanding at that moment.

    Ignore the day to day noise /chatter and stack the physical Hard, Honest, Lawful Money of gold and silver while there is any slim chance still available, or suffer the consequences.


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