Gold and silver march higher

Soaring silver’s upwards march is set to continue, given the ongoing systemic squeeze. Furthermore, gold threatens to make new highs, exacerbating a silver pricing crisis.

The background to a developing market liquidity crisis in derivatives is signalled by higher precious metal prices. It is a combination of liberation from long-term price suppression (silver, platinum, palladium, copper) and a rapidly deteriorating inflation outlook being signalled by gold.

Central bankers have a history of mismanagement of their currencies, so their current guidance that inflation is a receding problem could not be more wrong.

Gold and silver continued to rise this week but at a more moderate pace. In European trade this morning, gold was $4331, up $31 from last Friday, and silver at $66.05 is up $4.10 on the week. Volumes were moderate on Comex, but open interest in silver barely changed, while it increased by about 30,000 contracts in gold on preliminary figures.

The next chart shows gold’s open interest relative to the price:

The level of open interest tells us that whatever chartists might say, gold is far from overbought. Yes, there has been a recent increase in speculative interest, perhaps reflecting dying hopes of a more prolonged and deeper correction after the all-time highs in late-October. But the principal price driver is a realisation in the bullion banks that the outlook is for higher prices and that they must not be short.

While there is some physical liquidity in gold it is not the case with silver, which is our next chart: