Gold soars to record highs

In this Easter holiday shortened week, gold soared to new highs, while silver has yet to catch up. At close of play last night in New York, gold was $2233, up $70 and silver traded at $24.94, up a net $28 cents. Volumes on Comex were healthy, rather than spectacular:

Interestingly, gold’s Open Interest has declined on this bullish move when one would expect a stampede of buying. From its peak on 21 March, in five trading sessions Open Interest declined by nearly 38,000 contracts. Clearly, the Swaps category comprised mostly of bullion bank trading desks are running for cover instead of riding it out with a view to taking out flaky speculators at the first sign of profit-taking.

The Swaps must know something to explain this behaviour, and that can only involve physical demand and supply. Further evidence has emerged from London this week, where jumps in the bullion price coincided with the morning fix, while for the rest of the time the price hardly moved. 

This behaviour indicates that overnight and in the early morning London time, bullion banks have seen substantial demand from Asia, demand which is closed out on the fix driving prices sharply higher. With a general lack of physical liquidity, the bullion banks dare not play their normal pump-and-dump activities on Comex. Perhaps on Monday, when London will be closed, there will be an opportunity for the Swaps to hit prices hard.

The fist day of delivery for the Comex April contract was yesterday (28 March), and a massive 5,236 contracts were stood for delivery, representing 523,600 ounces (16.29 tonnes) for a total of 602,400 ounces for the week. It brings the total for the first quarter of 2024 to 37,201 contracts (115.71 tonnes). Silver deliveries this week were also high, amounting to 389 contracts representing 60.5 tonnes.

In previous market reports, I have pointed out the extraordinary situation where gold is going strongly into new high ground and the level of public participation and interest is as if gold was still in a bear market. The bullish position is clearly shown in the technical chart below.

The price and moving averages are in bullish sequence, and we are witnessing a break-out following a major consolidation, lasting 43 months so there is lots of catching up to do. Furthermore, the move into the consolidation is a guide for the extent of the subsequent move out, giving a price target of nearly $3000.

As I have also pointed out, it is not so much gold rising, as the dollar and all dependent currencies falling in their purchasing power. This is the motivation for central banks and sovereign wealth funds to accumulate bullion as a safe haven in their reserves. This leads us to question why is it that this safe-haven trade appears to be accelerating, when the consensus in western markets is that inflation is yesterday’s problem and later this year we should begin to see interest rate cuts.

It would appear that this view is not being shared in the “deep financial establishment”, particularly in Asia which every morning this week has been cleaning London out of bullion on the morning fix. It can only have concluded that there is a looming currency crisis, encouraging them to sell dollars and buy gold, irrespective of price.