The gold and silver selloff intensified on Friday but who is selling?
Alasdair Macleod’s audio interview discussing the massive takedown in the gold and silver markets this week as well as what to expect next has just been released (link at bottom)!
March 21 (King World News) – Alasdair Macleod: Paper gold and silver have sold down in very light trade. The bullion establishment is scrambling to close its shorts and go long as the outlook for gold gets increasingly bullish.
The chart below shows that gold could be described as consolidating nicely giving it a firm platform for its next leg up against the dollar. Meanwhile, the war in Iran is destabilising the world’s exporter of investment capital — Japan. The consequences are bound to speed up the collapse of bond and equity prices, and therefore the life of all fiat currencies. Despite its current volatility, physical gold remains the true safe haven.
This week, gold and silver were marked down heavily in financial markets awakening to the reality of a prolonged conflict against Iran. Yesterday (Thursday) was particularly challenging though there has been some recovery from the lows. At the time of writing, gold this morning is $4670 down $345 over the week, and silver at $71.90 is down $8.60. On the sharp selloff, gold’s volume on Comex has picked up sharply indicating a possible bottom, while silver’s less so.
For investment managers the playbook replicates that of the 2008—2009 financial crisis, when gold fell from $1,000 to $680 while equities crashed and the dollar’s trade weighted rose from 72 to 88. The highly liquid dollar is perceived as safety at times of extreme crisis and this time is no different, with the dollar’s rally taking it back up from 96.30 to test the 100 level:
Following the 2008—2009 30% decline in the gold price, the consequences of the financial crisis led to gold tripling to $1920, and the dollar’s TWI declining from 88 to 75. This is the pattern being followed today —so far.
Whether bullion bank traders and market makers understand this is not an issue. They take each day as it comes, using every opportunity to level their books while trading profitably. When they perceive speculators are long and their buying pauses, they will mark down prices to take out long stops. And vice-versa for the shorts. However, the difference today is that speculators have minimal long positions to shake out. This is particularly noticeable in silver, where on this morning’s preliminary estimate Comex open interest is the lowest it has been for over 20 years:
Clearly, the current markdown in silver is paper vapour, meaningless in terms of its physical value. The same can be said of gold despite its increased marketability compared with silver. While bullion banks in the West play their paper games, such is the demand for physical gold in China that their banks are rationing customers, with daily allocations reportedly sold out within minutes. This is sucking gold out of other centres.
Chinese and Asian savers have a better grasp of the implications of the war on Iran than their western counterparts, since they are more reliant on energy from the Persian Gulf. Nowhere is this more economically destructive than for Japan which depends on the Gulf for 70% of her oil and 90% from the whole region. This explains why the Nikkie index has been the worst casualty of the war so far. But this is only the start of Japan’s problems, and therefore of all credit markets.
Lau Vegys of Doug Casey’s Crisis Investing (dougcasey@substack.com) points out that as a consequence of the 1973 oil crisis, Japan’s inflation rate rose 20% and panic buying emptied store shelves. He goes on to point out that the problem today is compounded by the dire state of Japan’s finances with debt to GDP of 255%.
Clearly, inflation of prices will be a major problem for Japan in the coming months. Not only will the Bank of Japan be forced to raise interest rates sharply if it is to prevent the yen collapsing. Equities will crash and bond yields soar. As the chart below illustrates, these bond yields are already the highest they have been for decades:
Current JGB yields are nowhere near discounting an inflation surge and they should be on their way to 10% or even more. Not only would that collapse the entire Japanese financial system and its currency, but Japan’s institutions are the world’s largest exporters of investment capital, and the yen is the basis of the carry trade into dollar debt — both of which are bound to cease and reverse.
Today, this is the obvious source of future global credit instability. And along with Japan, other G7 nations seeing their 10-year bond yields challenging new high ground are the UK, Germany, and France. We are entering falling-dominoes territory, where the only safety is to get out of all forms of credit including currencies and equity markets.
In conclusion, a global financial credit crises in being brought forward in time. Today’s markdowns in gold and silver are simply sucker-plays designed to deceive amateur investors who will come to regret being hoodwinked into selling by professional traders. To listen to Alasdair Macleod discuss the massive takedown in the gold and silver markets this week as well as what to expect next CLICK HERE OR ON THE IMAGE BELOW.
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