Three Experts About The Gold & Silver Price Drops

Latest updates:

(Update February 21st Read our latest articles about the gold and silver price drops: Gold & Silver Prices Drop Into Severely Oversold Area  |  Gold & Silver Price Takedown Feb 15th: Noise vs Facts)

We all remember the gold price and silver price smash of exactly a year ago. Between Christmas and New Year, in a thinly traded market, both metals had been “attacked” without a fundamental reason. It looks like this year we are experiencing a similar type of price action. It remains to be seen if the worse has passed.

Gold and silver are in a waterfall decline for four weeks now. In the week from December 17th till December 21st, gold lost $40 or 2.4% while silver went down $2.30 which is 7.1% on the week. The metals currently stand at their levels of August of this year.

To help our readers put things into perspective, we collected in this article the view of three true experts. The key takeaways: do not worry about the short term price evolution, some market participants have had their day but the primary trend is still intact

David Morgan

David Morgan, with four decades of experience in the precious metals markets, commented on the recent price action in two different interviews (sources are here and here). In his regular updates and monthly newsletter, Mr Morgan provides more in-depth insights. Recommended reading:

“We see a very similar pattern as a year ago when the market sold off into the latter part of December. It doesn’t concer me when it comes to the fundamentals. Trading volume was light but not as light as you would expect this time of the year. Thin markets are not traded heavily at the end of the year, so they can easily move around one way or another.

The other thing has to do with the tax law changes that are taking place in the US. A lot of savvy investors (including pension funds, managed hedge funds) are looking at a new cost basis. What actually behoves them, tax wise, is to sell out silver at $31 / $33 (gold at $1700) and rebuy in 2013 at a new cost basis.

The fiscal cliff is not the real cause, it’s an excuse. We have gone over the fiscal cliff a long time ago. It seems so ridiculous to think that out of a sudden investors are so concerned about these problems.

I have seen it again and again. When you have the most bullish news for the precious metals, the gold price gets whacked down. Part of it is related to psychology. Most gold and silver bulls look at this [QE] news as bullish for the metals. It is indeed bullish news long and intermediate term. Believe it or not, there are people that have the authority by law to intervene in the markets. It’s called the Working Group on Financial Markets. They can enter any market they chose and basically manipulate them. It is ridiculous that people panic on two or three down days. This is just some sort of a psychological warfare. One day does not make the market.

Ted Butler

On a deeper level, Ted Butler wrote the following paragraphs in his latest commentary to this paid subscribers. We were granted the permission to publish Mr Butler’s view. He keeps on repeating that [short and intermediate term] prices are determined in the COMEX markets. Ted Butler’s premium newsletter explains into detail how these markets work and give a weekly update on the evolution. Recommended reading:

The one good thing about this week’s price smash in silver (and gold) is that it should have removed any doubt that it had nothing to do with anything except COMEX price manipulation. By anything I mean the smash had nothing to do with physical market fundamentals or the trading of metals in any other market; this was a COMEX production pure and simple. It was actually refreshing that it was so clearly a COMEX generated smash, as it made any attempt at alternative explanation look silly. If one doesn’t see that paper COMEX trading was the cause of this week’s sharp price declines, it can only be because of a refusal to see the clear facts.

The fact is that paper positioning on the COMEX silver futures derivatives market is overwhelming the price influence emanating from the host world market for physical silver, or in other words, the tail is wagging the dog.  Real supply and demand go out the window and artificial and manipulative pricing have replaced it. The commercial paper traders, led by JPMorgan, are involved in a private big money speculative trading war with other speculative traders called technical funds and that war, because it is so much larger at times, is dictating the price of silver to everyone else in the real world – miners, users and physical investors. That’s why so many are scratching their heads trying to explain the price swoon this week – it made no sense from a real world perspective. While I was quite upset with the circumstances of this week’s smash, I certainly was not scratching my head as to how it occurred. Hopefully, that goes for you as well. I’ll have much more to say after the usual review.

As I have been reporting, the signals from the real world of physical silver have been unusually bullish in that they all point towards tightness. The signals from the paper market have been bearish, mainly in the form of JPMorgan’s large concentrated short position. This remains the one negative in silver against a wide array of positives. It came down to which was going to dominate the other in the short term, as in the long term the physical world will win out. It still comes down to paper versus physical to my mind. Clearly, the crooks at JPMorgan and the CME had their way with the price this week, with the wimps and incompetents at the CFTC looking on. It is entirely possible that the crooks may succeed in inducing more technical fund selling with lower prices from here. But there are also increasingly strong signals from the physical silver market that the crooks won’t prevail for much longer.

Jim Sinclair

Jim Sinclair shared his view in an e-mail sent out earlier in the week to subscribers of JSMineset. He also admits that price manipulation has been going but confirms once again his long term target.

You cannot fix the problems of the Western Economic system by breaking the telltale thermometer, which is the price of gold.

There is not one professional who does not know sales in extreme volume at a time of low activity internationally have but one purpose, and that is to reduce the price of gold.

Charts and TA in such a manipulated, manufactured market, as understood by you, are totally useless. This is a move of desperation by the Fed via the gold banks based on the false premise that attacking symptoms without meaningful economic intervention is going to cure the problem.

Gold is going to $3500 and above. The US dollar is headed to .7200 and lower.

We are once again giving away greatness by driving gold into the coffers of Asia at bargain process that a powerful academic bureaucrat has selected. It is just that simple.

Nobody said survival from the onslaught of the demons would be easy, but it will be successful.

The physical market

Clearly the paper based market is at the epicenter of the recent price drop(s). A quick glance at the physical market reassures gold and silver bulls. There is no reason to panic, as the solid growth of the physical market is counterbalancing the “interventions” in the paper market. Bloomberg reported the following figures with respect to physical gold buying:

  • Economic powerhouse Brazil has added 14.7 tons in November to their gold holdings which total 67.2 tons now.
  • Turkey bought 5.9 tons in the last month.
  • Russia increased their gold holdings with 2.9 tons in November.
  • Belarus bought 1.4 ton in November.

Moreover, GoldCore wrote that Iraq quadrupled its gold holdings to 31.07 tonnes between August and October.

And what about consumer demand? Well, we couldn’t summarize it better than Tim Iacono who wrote on SeekingAlpha: “In Asia, tumbling gold prices have spurred consumer demand and there is now concern of a supply shortage in the holiday-shortened weeks ahead as, last week, gold bar premiums in Hong Kong rose to their highest level since August. Silver premiums have also reportedly surged in recent days as the price has plunged.”

The primary trend is intact, the physical market is in great shape proven by non-Western central bank buying and Asian consumer demand. So here you have another end of year gift to add to your positions.

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