LAWRIE WILLIAMS: Be wary: Gold, Silver, GLD turning down again post Labor Day
We have warned here before, U.S. holidays can seem to be the triggers for some sharp changes in direction for precious metals and initial figures after this year’s Labor Day seem to be making for a worrying trend for precious metals investors. It’s probably too early for us to see a continuing long term trend, but after an initial rise, primarily due to worries developing from the North Korean hydrogen bomb test, precious metals seem to have started moving in a downwards direction.
One of the key indicators to watch, in our view, is purchases into, or sales out of, the big SPDR Gold Shares ETF (GLD) and we have been seeing some liquidations out of this – small so far – after several weeks of increases which had been accompanied by significant rises in gold and silver prices. The GLD liquidations though have been accompanied by a dip in the gold price, which failed, so far, to hold above $1,350, and in silver with its turndown after an initial, but shortlived, breach of $18. Now one may suggest that these failures to overturn specific levels may have been engineered by big paper volumes, and if so they appear to have been successful in their purpose after a series of failures in the weeks leading up to Labor Day when both gold and silver had been beginning to see sharp rises.
Perhaps little will happen now until the next FOMC meeting in a week’s time where the deliberations, and subsequent statements, will be watched closely for any hint of Fed tightening in either managing its huge balance sheet deficit or of a timetable for its next interest rates rise. At the moment the consensus seems to be that there may not be the earlier anticipated rise in interest rates following the Fed’s December meeting. We suspect the impact of the two massive hurricanes, which between them have caused enormous damage – currently estimated at around $300 billion, and still rising – will be used as yet another excuse to kick the interest rate rise can down the road, perhaps to mid-2018, or even indefinitely. The Fed is between a rock and a hard place with the U.S. economy remaining in the doldrums, and the impact of the hurricanes on two of the nation’s richer states will not help here.
Ed Steer – whose newsletter I would strongly recommend as giving a contrarian geopolitical and geo-economic viewpoint compared with the mainstream media – puts the downwards pressures on gold and silver in particular (which seem to occur every time precious metals look like taking off) firmly at the hands of the big bullion banks like JP Morgan, which maintain huge short positions in the metals. We may not agree with all the opinions expressed – very much on the right wing of the political spectrum – but it does often show alternative viewpoints to the mainstream extremely well and certainly raises interesting questions on the direction of U.S. politics and precious metals price performance which do need to be asked, but are seldom raised – or answered!
So where does this observer see precious metals prices headed. On balance we still feel prospects are positive, although any upwards path will not be a smooth one. There will be plenty of hiccups on the way as those with perhaps not so hidden agendas, but huge amounts of funding available, seek to control the markets to their advantage – was it ever thus? But ultimately geopolitics and geo-economics will overwhelm them as physical metal continues to flow from west to east and global gold production plateaus and diminishes – even if at a very slow rate.
The rise of bitcoin, which this writer sees as somewhat akin to a Ponzi scheme equivalent with rises continuing as investment keeps coming in, but could collapse just as fast given there is no physical backing, is in itself a symptom of distrust in the global currency systems and political status quo. However, gold has always been the ultimate insurance against this and we feel it serves the same purpose, but without the inherent potential volatility of bitcoin which currently seems to be in the region of serious bubble territory. Bitcoin may have further yet to run but when it comes down it will collapse hugely – in the writer’s opinion.