LAWRIE WILLIAMS: Gold takes a bit of breather while silver ETF flows enormous

It is all too easy for we gold proponents to get carried away in the gold bug euphoria when the yellow metal appears to breach key resistance and psychological levels as it did in the past week.  Readers of my articles will be aware, though, that I’m not a believer of the predictions of the more optimistic gold commentators forecasting a rapid rise to $5,000 gold, $10,000 gold or higher, although such levels may be achieved in the mists of time.  Many of these forecasters have a vested interest in convincing their followers of the likelihood of such targets being reached sooner rather than later. 

Meanwhile we are happy to stick to our more recent projections of $1,800 gold in the northern summer (already achieved) and maybe a foray to $2,000 gold, perhaps a brief one, in the second half of the year.  There’s just too much big money out there seeking, for various mixed reasons, to keep a rising gold price in check to perhaps prevent it from rising further in the short term.

The past week has indeed seen gold breach the $1,800 level, seemingly convincingly so early on, but some substantial resistance to the maintenance of such a level appeared again in the past couple of days, with the gold price seeing a fall to below the $1,800 level on several occasions.  But inbuilt price momentum tended to see a recovery whenever this happened, although it tended to hit a brick wall at around the $1,800 level itself.  In the event the closing price for the week, according to Kitco, was $1,798.60, spot – only a little up over the full week, despite being above $1,800 for most of it.  In other words gold was not allowed by the anti-gold faction to close the week above the psychologically important $1,800 level.  But for how long it will stay there may well be shortlived.  The force does appear to be with gold.

What should be apparent though is that gold equities – where the ups and downs have very much been following the bullion price - should, in reality be more attuned to the respective gold stocks’ profit potentials which should be running high at the moment.  With gold at around the $1,800 mark this profit potential should be elevated given that most of the major gold stocks are seeing all-in-costs at around the $1,000 mark (lower in some cases) and the higher gold prices should be generating earnings leveraged upwards accordingly.  Q2 earnings figures for many of these are due any day soon, and these should give a better idea of the true earnings figures that lie ahead at $1,800 gold or above.

So much for gold and gold stocks, but how about the other major precious metal – silver?  A number of commentators are hugely bullish on gold’s less pricey sibling – not least Ted Butler who probably follows the goings-on in the silver markets closer than anyone – See: The Silver pressure cooker. Is it about to blow?.  We’re not so sure, although we do feel that silver may continue to see price increase percentages a little higher than those for gold, so it could still be a highly positive investment for those prepared to take the risk in what has always been a volatilely-priced metal.  Butler points, inter alia, to the recent enormous silver flows into the silver ETFs – notably into SLV in the U.S. - he puts the global total of inflows into all silver ETFs as being in the order of 220 million ounces plus over the past few months! That is an enormous amount and Butler points also to the massive stranglehold that he calculates that the JP Morgan bank has on the silver market.  Butler reckons that JP Morgan is no longer short silver on COMEX, as it has been in the past, and may be about to let the price rip which, as Butler reckons, would mean that the bank’s huge accumulation of silver bullion would generate almost unbelievable profits were it to do so.

Other commentators are more sanguine about the metal’s prospects, although most do see the silver price rising at least pari-passu with a rising gold price. But maybe prefer investment in gold as a safer option.  For example, one of the most conservative, and consistently accurate, pro-gold price-forecasting economists, Canada-based Martin Murenbeeld, is sticking with gold as his primary precious metals investment recommendation, but does reckon this view could change if reports are correct that silver supply is contracting. Murenbeeld doesn’t follow silver closely so has no opinion as to whether this view is correct.

Murenbeeld’s consultancy is due to come up with its much followed revised price forecast for gold within the next couple of weeks.

11 Jul 2020

About the author

Lawrence Williams

Lawrence (Lawrie) Williams is a well known London-based writer and commentator on financial and political subjects, but specialising in precious metals news and commentary. He is a qualified and experienced mining engineer having graduated in mining engineering from The Royal School of Mines, a constituent college of Imperial College, London - recently described as the World’s No. 2 University (after MIT).

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