The least we can say is that the past couple of weeks are characterized by volatility in the gold price and silver price. Jim Sinclair predicted this price volatility a couple of months ago, when he wrote in an article on February 22nd: “The price of gold rose above the $1764 level which I have repeatedly told you is as important as $524.90 was when gold broke out of its arithmetic up trend and entered its first power up trend. I wish to remind you $1764 is the point where gold moves out of its power up trend and enters into its geometric uptrend. I have also assured you the central banks and especially the US Fed via the BIS and Exchange Stabilization Fund seek not to depress gold, but only to prevent it from running so hard on the upside as to expose the true condition of Western world finance.”
Yes we have clearly seen increased volatility since then. Let’s review the events that moved the precious metals prices in the past few weeks (chronologically) :
- China increased their gold imports to an historic high, becoming the largest gold consumer in the world. That happened at a time when Central Banks worldwide reported again an increase of gold in large volumes.
- On the daily charts, gold and silver tested for the 4th and 5th time their December 2011 lows, to bounce back sharply.
- The gold price went through the worst month of May since 30 years, closing May 2012 with some 6% loss.
- The day after closing May, the gold price rebounded on Friday June 1st in a spectacular fashion, on big volume. The surge came along with an even more spectacular jump in the gold shares and a mini-crash in the equity markets : a decoupling event.
- The US Fed does not announce a new round of QE, sending the precious metals prices sharply lower.
- The “tensions” between the paper gold market in the West and the physical gold market in the East are heating up. It became clear during the trading session of Thursday’s June 7th, as reported by the London Trader.
The boost in the gold price on June 1st was an important event from several points of view. First, technically, the gold price climbed back to it’s 50 day moving average. Moreover, David Morgan from the Morgan Report Newsletter (highly recommended readings) points to the fact the surge came just before the weekend and was driven by commercial buyers, which is atypical. It probably shows a positive perception vis-à-vis gold. Usually those market participants avoid large long positions just before the weekend. Third, on Friday June 1st, dollar gold sore with some 4% on a daily basis. By doing so, it ranked within the top 20 largest daily gains since the inception of the current superbull market. Below is an overview of all daily increases of more than 4% in the gold price, since 2001, both in dollar and euro terms. (courtesy: World Gold Council).
The interesting fact from an historical point of view is that, each time the gold price increased with more than 4% in dollar terms, it came along with a strong rally. Let’s see how this time plays out. The fundamentals seem to be bullish anyway: analysts of COT reports like Ted Butler and Dan Norcini keep on pointing to a bullish setup in the current market structure.
In closing, we quote the London Trader during his latest interview on King World News : ”During all of the chaos of the last couple of months, the Eastern hemisphere has been vacuuming physical metal out of the market. However, supply is very tight out there. As I mentioned earlier, no physical gold was for sale yesterday during the takedown, just paper gold. Gold actually went into backwardation, and silver has actually been in backwardation for weeks. For immediate delivery of gold, in size, we are seeing delays, but silver is extraordinarily backlogged.” Now this could be an historic game changer. If the huge increase for physical gold and silver demand coming from the East would cause a delivery shortage, then the precious metals prices are about to explode and the Western bullion banks will be caught in their shorts. There is a growing evidence this can happen, even in the short run … you need to keep a very close eye on it !