Surreal markets
In short supply already, anyone can see that demand for gold and silver will increase substantially. Yet markets are worryingly complacent, and it’s not just in precious metals.
Surreal hardly describes it. Equities are hitting new highs on the back of little more than Truth Social posts. The guys below appear representative of today’s investors.
First, let’s look at last week’s events for gold and silver.
Gold and silver were little changed on the week, with gold at $4785 in European morning trade, up $40 on the week, and silver at $79 was up $3.05. Trade in silver on Comex has picked up to moderate levels, while in gold it remains subdued.
Open interest in both Comex contracts remain very low. This is illustrated next:
Both markets, but particularly silver appear thin with little speculator interest providing liquidity. It has been noticeable this week that both contracts reflect demand in Asian hours with prices firming during Shanghai’s trading. But this demand diminishes while Asia sleeps.
So far, these diurnal influences are relatively minor being against a background of hope triumphing over reality with respect to the war against Iran. Equity markets around the world are hitting new highs despite the inflationary pressures in the pipeline which are bound to drive up bond yields.
On the positive side for gold, France very cleverly sidestepped the issue of whether its earmarked gold at the New York Fed actually existed by selling it to the Fed for printed dollars with which it bought gold to cover in the markets. The message to other holders of the 5,860 metric tonnes of earmarked gold at the NY Fed is that they should do the same. But in these markets, instead of a covered bear operation it would be wiser to buy the gold first, then sell its earmarked position to the Fed. The Fed prints the dollars, and everyone gets their gold.
Meanwhile, there’s a disconnection between physical oil prices, which are as much as $150 while futures trade at $90. And we all thought that markets were anticipatory in nature: clearly not in this case. Gold bugs have long suspected that what we are seeing in oil is what happens or is going to happen in gold and silver.
Such hopes might still be premature. Whatever happens over Iran and Lebanon, one thing is certain: there will be a global inflation-cum-slump shock, particularly if Hormuz doesn’t fully open soon and the Houthis don’t kick off at the Bab al-Mandab straits cutting off Suez and 6m barrels of oil per day from Saudi’s Yanbu terminal.
