Precious Metals Subdued As Panic Over

October 27, 2014
Author & Head of Research @ Goldmoney

For gold and silver it has been a week of two halves: first prices rallied to a peak on Tuesday, then declined to show net losses for the week on Wednesday for silver and Thursday for gold. Broadly these precious metals reflected first weakness then strength in the US dollar. And equities reversed the nervousness of the previous week after a FOMC member suggested QE would be extended, with the S&P 500 closing up 7% on Thursday from its October 15 low.

So it has been panic over for the moment in the markets and back to business as usual for precious metals. However there are signs of good underlying demand for physical gold, with the Shanghai Gold Exchange delivering 68.37 tonnes into public hands over the holiday period (two weeks with only five trading days), and a further 51.5 tonnes last week. The chart below shows gold withdrawn from the SGE this year, totalling 1,547 tonnes so far, on course for a 1,900 tonne total this year, only 300 tonnes short from the 2013 total.

There has been a significant pick-up in deliveries in recent months. Indian demand for gold has recovered as well, with the Diwali festival coming up, coupled with attractive prices. Jewellers reported demand being up about a third on last year.

An opinion poll of voters in next month’s referendum on the Swiss National Bank’s gold policy shows 45% to 39% in favour of requiring the SNB to repatriate its gold held abroad, maintain 20% gold on its balance sheet, and sales of gold prohibited. So far, the gold market is ignoring this startling development, but if the SNB is forced by law to comply with these measures one can imagine chaos ensuing as the SNB attempts to comply while the Russian and Asian central banks are also buying; not to mention the likely political pressure on other European central banks to do the same thing. You never know: the SNB might just be the victim of a protest vote.

Russia continues to add to her reserves, taking them to nearly 1,150 tonnes making her the fifth largest official holder. Ignoring all this positive news of physical gold passing from weak into strong hands, the Managed Money category on Comex still has near-record short positions as shown below.

And silver shorts are even more dramatic, clearly in record territory:

The fact that public speculators are so short is strong evidence that the outlook is for higher prices on a massive bear squeeze, and not the fall in prices universally expected by the talking-heads in capital markets.

******** 

Alasdair Macleod | Head of Research

Net Transactions Limited 

1st Floor | 32 Commercial Street | St. Helier 

Jersey | JE2 3RU | British Channel Islands

Alasdair.macleod@goldmoney.com | www.goldmoney.com

Gold-Eagle provides regular commentary and analysis of gold, precious metals and the economy. Be the first to be informed by signing up for our free email newsletter.

Free Gold-Eagle Newsletter!

  • Fresh weekly insights on gold, precious metals, and the economy
  • Leading authors from around the world
  • Always free, and your email address is never shared
  • Stay informed!

 

Alasdair became a stockbroker in 1970 and a Member of the London Stock Exchange in 1974. His experience encompasses equity and bond markets, fund management, corporate finance and investment strategy. After 27 years in the City, Alasdair moved to Guernsey. He worked as a consultant at many offshore institutions and was an Executive Director at an offshore bank in Guernsey and Jersey.

The volume of all the gold ever mined can occupy a cube 63 feet on each side.

Gold Eagle twitter                Like Gold Eagle on Facebook