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Metal supplies tighten

About two months ago, after considering the extent of gold and silver prices thus far in 2017, I forecast a more than 50 percent probability that the prices would reach $1,300 and $20 by the end of April. Although I did not make it explicit, I further anticipated that if those levels were attained and held through three trading days, that it would be unlikely that prices would retreat below those levels.

Making relative short-term predictions is treacherous. There are many factors that could impact prices beyond those considered. That was one reason that I only stated the probability at no more than 50 percent. I realized that a lot of things could develop before the end of April that would keep prices from reaching those levels.

By the end of April, neither metal achieved either target, even for a single trade, in U.S. or London markets. It is possible that gold may have topped $1,300 briefly in mid-April on the Shanghai Gold Exchange. If not, it came close.

From the time of my original forecast to mid-April, gold and silver prices did rise more than 5 percent. In a small way, that confirmed my analysis, to the extent I had done it. However, I did not realize that a gold price of about $1,292 would have triggered a major buy signal to technical traders. That was a target where the U.S. government, its primary trading partners and allied central banks would have a strong interest in stopping any advance.

As gold reached that level during intra-day trading on the COMEX in mid-April, massive short sales of paper contracts hit that exchange on April 17, a thin trading day, when most European and some Asian markets were closed for Easter Monday. The pattern of sales indicates it was done for the purpose of suppressing prices rather than on selling gold at the maximum possible realized prices.

In the silver market, the open positions on the COMEX at the close on April 13 stood at 1.19 billion ounces. Before 2016, the open position in this market never exceeded 900 million ounces. In other words, there was also a record number of short sellers in the silver market seeking to push down the price.

At the same time, there developed significant shortages of physical gold and silver inventories. Former central banker James Turk in a May 15 interview on King World News (posted at http://kingworldnews.com/james-turk-gold-silver-shorts-took-a-big-gamble-and-might-lose-their-ass/) thinks that physical supplies of gold are so tight that when the COMEX June 2017 gold options contracts expire next week there could be an extreme short squeeze of supplies. He detected a major surge in cash settlements of gold derivatives contracts where the liable party simply did not have the physical gold to fulfill what they owed.

There are so many ways to rig markets that gold and silver prices may not explode upward within the next few weeks. If they do not, though, the day of reckoning will draw ever nearer where short sellers (those who have sold contracts for future delivery without owning the underlying asset covered by the contract) will suffer massive losses.

Note: another indicator of tightness in bullion-priced physical silver is the continued rise in the retail premium for U.S. 90 percent silver coins. Premiums are up more than 1 percent over the past two weeks.

Patrick A. Heller was the American Numismatic Association 2012 Harry Forman Numismatic Dealer of the Year Award winner. He was also honored by the Numismatic Literary Guild in 2016 for the Best Dealer-Published Magazine/Newspaper and for Best Radio Report. He is the communications officer of Liberty Coin Service in Lansing, Mich., and writes “Liberty’s Outlook,” a monthly newsletter on rare coins and precious metals subjects. Past newsletter issues can be viewed at http://www.libertycoinservice.com. Some of his radio commentaries titled “Things You ‘Know’ That Just Aren’t So, And Important News You Need To Know” can be heard at 8:45 a.m. Wednesday and Friday mornings on 1320-AM WILS in Lansing (which streams live and becomes part of the audio and text archives posted at http://www.1320wils.com).

 

This article was originally printed in Numismatic News. >> Subscribe today.

 

More Collecting Resources

• Keep up to date on prices for Canada, United States and Mexico coinage with the 2017 North American Coins & Prices guide.

• With nearly 24,000 listings and over 14,000 illustrations, the Standard Catalog of World Paper Money, Modern Issues is your go-to guide for modern bank notes.

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