Precious Metals Price and Real Markets

We posed the question on Monday “When will ‘real’ win?”.  In just a few days this question has become even more prevalent.  Today’s front page of the Australian Financial Review asks “China shares are in crisis, commodity prices are crashing and Europe is split over another Greece bailout.  Then why did Australian shares yesterday experience their biggest rally in five months?”.  Good question…

The Chinese government has tried every trick in the book to artificially stem the huge losses on their sharemarket - from rate cuts, liquidity injections, banning IPO’s, lowering reserve requirements, loosening rules for pension funds, reducing costs of trade etc etc.  The US Fed’s well documented markets intervention team (affectionately called the plunge protection team) does a similar (albeit more effective) job of stimulating markets at critical times.  Not real.

Overnight we learn that the US Mint has simply sold out of Silver Eagle coins (the world’s biggest selling silver bullion coin) with no more available until August after another record run of sales.  They have sold more gold Eagles so far in July than all of May.  Real.

Indeed the answer to the AFR’s question may well be the growing trust amongst investors that central banks and governments will always be there to put out the various fires fuelled by unsustainable debt with, well, more debt.  Somehow people think that debt is not ‘real’.  Greece is just a little example of how real it is as we discussed yesterday.

Finally the following is another quote from analyst Ted Butler after the belated release of last week’s COMEX Commitment of Traders report which showed another huge drop in the commercial’s short positions and corresponding increase in the managed money’s shorts. Read here if you miss the significance.

“It would not be an understatement to say that gold looks locked and loaded to the upside. There have been some times when the net long position of the managed money traders has been slightly lower than it is currently in gold, but only by very small amounts and there’s a lot about the current setup that makes it look like the best ever. And based upon the price action in gold (and silver) since the Tuesday cut-off, it may have gotten better thru today.

But I will say that the concentrated net short position of the 8 largest shorts has grown again to 81,444 contracts (more than 407 million oz) an obscenely large and unprecedented market share that is manipulative to price on its face. The offset, of course, is that there are a number of managed money traders in the ranks of the big 8 and for the purposes of inflaming a short covering rally or panic, these are the very best arsonists possible.

In a nutshell, the new COT report was all aces and underscores the remarkably bullish market structure. And there was certainly no deterioration thru today in trading since the Tuesday cut-off. I don’t know what the spark will be that sets off the silver rocket, as much as I know whatever the spark turns out to be, it really doesn’t matter. Not when the fuel tanks are loaded like they are.”