Stop thief!

They want your gold and silver, and they use every psychological trick to get you to hand them over!

The sell-off in gold and silver continued this week, doubtless with the establishment’s paper shorts eying up the 4,121 tons held in gold ETFs: shake the trees and some is bound to come out.

The point is that bullion banks and market makers understand how to manipulate investor psychology — after all, that’s their business. It’s what makes people buy high and sell low.

Their success is illustrated in the World Gold Council’s chart above. Record investor demand for ETFs was in January, when gold peaked, followed by a massive North American liquidation (the black bars) when the price fell by $1,400 from the all-time high on 29^th January to $4,100 on 23^rd March. Liquidation of North American ETFs in March took out all the bulls of the two previous months combined.

This leaves the prices of gold and silver down on the year so far.

This week, at $4166 gold is down $50 from last Friday’s close in generally light trade on Comex, while silver at $65.10 was down $2.80 on the week in reasonable turnover. Stand-for-deliveries continue at pace this month with buyers for the expired June gold contract evident, presumably with a view to taking delivery. So far this year, 437 tonnes of gold have been stood for delivery, and 5,899 tonnes of silver.

Peace agreement uncertainties

Late last week, President Trump announced a peace agreement with Iran which turned out to be a Memorandum of Understanding merely setting out points for discussion. Following its signing this week, peace talks due to commence in Switzerland were cancelled this morning due to ongoing Israeli strikes in Lebanon which Iran insists must cease. 

While a few oil tankers have been able to leave both the Persian Gulf and Iran’s port of Chabahar in East Iran, it is clear that the situation is far from resolved. Nevertheless, WTI oil has declined this month so far from $96 to $76 this morning, fuelling hopes that the inflation spike for the dollar and G7 currencies will not be as bad as earlier feared. 

However, at its Wednesday meeting the Fed held its funds rate steady, citing inflation uncertainties. Furthermore, nine of the 18 committee members indicated that they expected a rate rise later this year.

This should not have been a surprise, but it was an excuse for market makers to mark down gold and silver on the tired basis that higher rates are bad for gold and silver. This is 180 degrees wrong: higher rates being talked about still amount to interest rate suppression, leading to falls in the dollar’s purchasing power relative to that of gold. In other words, gold priced in dollars should be going higher, not lower.

Nowhere is this better understood than in China which also sees the US in geopolitical retreat making holding dollars doubly undesirable. Her export surpluses are higher than ever leading her to be continual sellers of dollars. And in selling dollars, her preferred alternative is gold and commodities, especially silver. The message from China’s authorities is understood by her banks which offer gold accumulation accounts to their $21 trillion-equivalent depositors.

The Chinese flight out of dollars is also driving the renminbi higher:

For China’s banks, this makes gold even cheaper priced in yuan and the marking down of dollar prices represents an opportunity to build physical gold reserves to back their gold accumulation accounts.

Paid subscribers to MacleodFinance.com received a detailed analysis of these factors driving the gold price this week. A second analysis covering silver is planned in the coming days.