Quiet pre-Christmas trading

Dec 22, 2023·Alasdair Macleod

A graph of gold and silver

Description automatically generated

With Comex volumes dwindling to a trickle, traders in gold and silver markets are shutting down ahead of the Christmas break. In quiet markets this week, gold and silver drifted higher in tight liquidity. In European trade this morning, gold was $2053 up $34 from last Friday’s close, and silver $24.47, up 63 cents over the same timescale.

With only four trading sessions left this year, gold is up 12.6% and silver 2.2% from last December’s close. Gold has performed better than its long-term average but has been overshadowed perhaps by equities and bitcoin. Consequently, other than diehard gold bugs who are always a vociferous minority we see gold near to all-time highs with a remarkable lack of investor interest. But then, the investment establishment has increasingly turned its back on gold and physical metals for the last forty years.

Instead of investor demand, it has been central banks adding over 800 tonnes of gold to their reserves this year which has dominated physical markets. Much of it has been supplied by the mines and refiners directly, only referencing market prices. And the addition to reserves does not include buying by sovereign wealth funds, which if known would probably show global statist demand to exceed 1,000 tonnes.

The chart below of China’s central bank dealings illustrates how it is dumping dollars and US Treasuries for gold.

A graph showing the growth of the stock market

Description automatically generated 

The chart is from an article by OMFIF and reveals the dealing strategy of the People’s Bank. And with the US entering a debt trap, China will not be the only nation doing this trade.

If this trend continues into next year, the squeeze will be increasingly on the western bullion bank establishment. Its worst fear must be of a dawning public realisation that it is not gold going up, but the dollar and other currencies, naked in their value other than increasingly fragile faith in them, losing purchasing power.

This year on Comex, 132,269 gold contracts have been stood for delivery. That’s 13,226,900 ounces, or over 411 tonnes. The figure for silver is 135,510,000 ounces, or 4,215 tonnes.

Recently, the Fed’s soft pivot has triggered a relief rally in bonds world-wide but raised fears of a falling dollar. The dollar’s trade weighted index is next. A graph showing the growth of the dollar

Description automatically generated with medium confidence

The widely expected policy pivot has been reflected in a falling dollar since 1 November, since when it has fallen nearly 5%. This is a serious loss for the carry trade selling yen or euros to invest in US T-bills for the yield pickup, which has also narrowed. It could lead to further dollar selling by Japanese and Eurozone institutions which have sought higher yields than offered in their own currencies.

Therefore, the outlook is likely to be for further dollar selling, because of the large bull positions accumulated from earlier this year. But next week, paper markets could see year end window dressing as bullion bank dealers seek lower gold and silver prices for the benefit of their trading books and their year-end bonuses.