Over the past week, the gold and silver prices have held up rather well compared to the overall markets. While precious metals investors still fear that a huge sell-off in the gold and silver prices will take place during the next market crash, it seems that the metals continue to be very resilient during large market corrections.
Now, I am not saying that the metals prices cannot fall any lower, but a lot of the leverage in the gold and silver market has already been removed and is now at a near all-time low. So, even though we could see weaker precious metals prices, the overwhelming leverage and bubble asset prices are in the stock and real estate markets.
Furthermore, one of the reasons precious metals investors still fear that a major selloff is imminent is that they are using the 2007-2008 economic market meltdown as a guideline. However, when gold and silver prices were plummeting from their highs in 2008, along with the rest of the market, speculators held huge long positions while the commercials controlled an enormous number of short contracts.
If we look at the following Gold Hedgers Chart, we can clearly see that the market setup today is the exact opposite of what it was in 2008:
When gold was trading near $1,000 in early 2008, the commercial banks held a record high of 252,000 net short contracts compared to the present gold price of $1,222 (time of chart), with the commercials only holding 16,000 net short contracts. The commercial short positions are shown by the blue line. Thus, the higher the commercial short positions, the lower the line goes and the lower the number, the higher the line moves. Currently, the gold price and commercial net short positions are both at the near lows. Also, the speculator net long positions are close to their lows as well
So, when PUSH COMES TO SHOVE, we won’t see a large number of speculators forced to cover their long gold positions if the gold price falls lower because there isn’t that much leverage in the market.
Gold & Silver Prices Increase As The Market Sells Off
Over the past week, as the markets fell, the gold and silver prices did quite the opposite. If we look at the next three charts, the Dow Jones fell by more than 1,600 points since Dec 3rd, while gold increased $26 and silver gained $0.45:
So, as we can see, both gold and silver increased while the Dow Jones Index sold off from its peak on Dec 3rd. If we focus on the gold and Dow Jones charts, we can clearly see that the gold price, on many days, moves in the opposite direction of Dow. This tells me that traders are already practicing SAFE ASSET INVESTING during market selloffs. What happens when FEAR really enters the market?
Moreover, the notion that the gold and silver prices are tied to the oil price doesn’t seem to be the case lately. Since the oil price peaked at $77 at the beginning of October, the silver price over the same period is about the same while gold is $40 higher:
And, even as the gold and silver prices jumped since Dec 3rd, the oil price is actually lower. Again, the precious metals are holding up rather well compared to the markets and the oil price. I believe precious metals investors will be surprised how well the gold and silver prices will do when the highly leveraged markets crash over the next few years.
Lastly, I will be publishing a new short video shortly on some very interesting charts on how technical levels have played a role in the broader markets, precious metals and energy prices.
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Gold Cannot Default.
Gold relies on nothing other than itself to have value.
Which has more long term economic utility? Gold or Debt?
On a real inflation adjusted GDP basis, the economy never recovered from 2008 but has been covered up by the extreme amount of money printed and credit created. The phantom wealth that has been created since the 2008 financial crises is going to basically evaporate.
Empirical evidence overwhelmingly supports the commonly held assumption that when interest rates rise, the US dollar also rises in value. This widely held belief will lead many to financial ruin in the near future. We are already witnessing the early stages in this reversal of linked behavior between rates and the dollar. As rates rise the dollar remains stagnant or lower. It will not be a safe haven during this currently unfolding economic collapse.
For a truthful, no nonsense market view :-
Michael Oliver of Momentum Structural Analysis. “A Sea Change In Market Momentum”.
http://www.olivermsa.com
Awesome comment! Thank you
Which more economic utility? It could be debt, when you can buy assets with debt and they rise in value whilst the debt falls in value and possibly never has to be repaid. The debt in those circumstances like between 1950 and 2015 has been the best investment for speculators.
The question being:
Which has more LONG TERM economic utility?
Since 1920 there have been 10 market crashes greater than 25% with an average crash loss of 43.4%
If you unlucky enough to be holding debt (especially on margin) during one of these events you will be wiped out.
Again, what has more LONG TERM utility?
You do realize that in 1950 Gold was $40 an ounce. Now Gold is trading at $1248. That’s a 3100% move.
You do realize that you could buy MUCH MUCH MUCH more with $40 in 1950 than now in 2018
Each and every asset has value which is directly related to the confidence folks have in it’s utility.
For example I value my stored food more than stored PMS because of uncertainty of future availability for exchange.
Over the past many years many assets have been exchanged for debt instruments, when confidence is lost in debt, the gig is up.
“when confidence is lost in debt, the gig is up”.
BINGO!
Literally everything has value. That is not the point. The point being;
Which has more LONG TERM utility?
The gold/silver ratio is currently bumping the high of the ten year average 86 from the low of 31 in 2011. Silver can’t be a bad bet, but go figure. There has to be more potential for highs against lows now. Investors buying the dollar but the US debt can ONLY balloon now, no turning back. The FED in Catch 22 during December: Maybe don’t wanna raise rates once more in 2018 as promised, BUT not doing so will show considerable weakness and doubt.
I’m wondering if and when bond yield rise instead of fall during a recession that precious metals will get a real move up.. but this situations always occurs during recessions, so its hard to figure out if this situation will stop occuring – http://danielamerman.com/va/ccc/YieCurArb.html
Steve,
Yes, I believe that the DOW and oil will crash and metals will rise. The process is starting now.
Gotta hand in to you! This is what you predicted and it’s coming true.
Wait for a trend! Otherwise you will be killed by the markets! AGAIN!!!
Yes, but on what time-scale? When a macro-trend becomes obvious on the charts, the sheeple start moving in and get killed by the imminent reversal of the trend. Buy what is unloved and undervalued, sell what is seemingly in a bubble / overvalued. It’s a crazy world these days and trading against the algos is also dangerous… I simply have no faith in any of these (paper) *markets” that are just derivatives of fraudulent fiat of all colors and debts. So I stack real, honest money. Time will prove me (and my fellow stackers) right.
Wait for gold >=$1360! From there new all time highs. If gold fails again this time it could go below $1000.
Why not insert the entire Martin Armstrong piece, instead of posing like you picked that number all by yourself…
Of course gold has been trading off of interest rates regardless of how stupid that may be since lower interest rates reflection deflation. Nonetheless, as we can see, technically, gold held the former uptrend channel last year when it fell to 1146 and so far 2018 has just been an inside trading event.
Just from a technical perspective, gold must exceed the previous year’s high of 1362.40 and close above that to be impressive. At the very minimum gold would need to close above 1309 to show some strength. It just may be too early just yet for any real solid move. That still requires a crack in the monetary system to get people on board.
A closing below 1267 will still leave the market vulnerable, although we see a turning point and Directional Change due in January 2019. Caution would be advisable with a January reaction high.
The first Monthly Bullish is at the 1330 level. We did elect one Weekly Bullish which has given us the immediate bounce. However, we clearly need a weekly closing above 1267 to see a text of that Monthly level.
Of course, the prospect of a crack of the $1,000 has not been negated as long as we remain below 1362 on a monthly closing basis. That would create a HUGE bear trap and that may be what is needed for a slingshot to the upside into the next ECM target.
https://www.armstrongeconomics.com/markets-by-sector/precious-metals/gold/private-blog-the-gold-bounce/
So that is what Armstrong has to say?
What a fantastical mental construct. I wonder what is in his vape pen.
I don’t read article by Martin Armstrong. He’s an idiot! He thinks he’s got some very refined models which he programmed in BASIC. What a moron!
It’s not safe to board a train that is already moving.
Rumors of my (second) death have been greatly exaggerated.
Rates are coming down as indicated by partial yield curve inversion give it time. If rates go up shit hits the fan.
Food for thought. https://www.youtube.com/watch?v=l74Pzql5W3Q
A gallon of diesel fuel will run a given piece of equipment X amount of hours. Equipment variations and fuel efficiencies notwithstanding, the horsepower value of the gallon of diesel is a constant; diesel is diesel. Whether the EROI is 100/1, 10/1, or 5/1, the hp value of the diesel would remain the same even as the hp value of the feedstock (oil) drops. There may even be an inverse correlation between the price of oil and the price of silver.
…last sentence corrected/completed – Going forward, there may be an inverse correlation with oil and silver prices, until the dollar snaps. Then, who knows.
Another important article, thanks Steve.
Wow, what a genius analysis stemmed from a professional perspective! :))
Gold and silver will fall deeply : horrible COTs report today with commercial increasing their net short position by 50 000 contracts in one week only.
After piling into silver for years on end, I no longer see it as a precious metal, I see it more as a base metal, and it’s in glut pushing a billion ounces pulled out of the ground yearly. Metal prices are held up by growing incomes that can stack coin/bar into hoards just as fast as they can pull it out of the ground. Gold price is held up by central banks that can print their own fiat, and massive demand from the asian markets whose economies are running flat out. And, they are big savers, more people, more savers. Two choices, protect what you got, or earn more than you need, they do both. I’ve switched more to gold buying, seeing less premium losses, shipping costs, storage costs, spot spread, etc. so am just buying 1 oz. pieces at a time. Gold futures are flat for years on end, which is fine, that’s why people buy it for, it’s a stable tangible.
C,
I understand some of the sentiment. A couple comments:
“Metal prices are held up by growing incomes that can stack coin/bar into hoards just as fast as they can pull it out of the ground.”
Actually the silver price bottom [which is what is is close to] is held up by the cost of production & refining to dore bars. Gold does have higher demand [over silver we hear] holding up the price, but as Steve has pointed out in previous articles, the gold price is not way above average mine & refine to dore bars either.