Gold and silver prices were hammered this morning, gold down $20 at its low, silver down $.60. Both recovered only slightly.
It is no coincidence that the metals dropped in what is one of the slowest commodities trading days of the year, tomorrow being the 4th of July with most bullion house traders in the Hamptons. With today’s electronic platforms, traders don’t have to interrupt their vacations to drive down the price of gold and silver.
They can place their orders before leaving and watch the havoc on their mobile devices. Actually, they can place orders on their mobile devices, but why disrupt beach time? Perhaps they watch their handiwork on CMI’s Mobile App.
Heavy selling on light trading days is a pattern we’ve seen for decades. Still, the CFTC has repeatedly said it has uncovered no manipulations. Not the same in Europe, where regulators have charged traders with manipulations. So, if the news media don’t cover it, it didn’t happen.
Precious metals investors have come to live with price manipulations. When gold was below $300 and silver below $5, the manipulators were there. Eventually the market wins out, but in the interim the pain is real. Further, there’s the question: when will the market win?
Nowadays there are multiple reasons for owning the metals, a major reason being that the world is awash in debt. Illinois owes nearly $15 billion in unpaid bills plus an estimated gargantuan $250 billion in unfunded pension liabilities. Illinois may be the first state ever to have its bond rated junk.
Other states struggling to pay their bills are Connecticut, Maine and New Jersey. In addition to the $75 billion in debt that Puerto Rico can’t pay, the territory owes $49 billion in unpaid pensions.
Venezuela is in chaos and paying its debt is secondary to halting the rioting. Japan’s debt load is staggering, at 250% of GDP. Pensions across the country–government and private–are grossly underfunded. Central banks, to keep the financial system afloat are pumping some $2 trillion a year into the world’s money supply, and they are buying equities, which props up stock markets.
Further, let’s not forget that the federal government cannot pay its debts without selling more bonds, a classic sign of bankruptcy. If you couldn’t pay your debts without borrowing money to do so, you’d be bankrupt, right?
This is the perfect climate for investing in gold and silver, or so it would seem. But, when will the markets win out, when will the metals make a prolonged move upward?
Probably not until there is a greater recognition of the financial problems the world faces. Judging by the US stock markets, that day is not here. The Dow Industrials hit a new high today.
Only a few analysts are bearish on stocks. Most Wall Street firms continue to tell Main Street investors to buy. When Main Street buys, who is selling? Could a major distribution be going on at a major stock market top? David Stockman, who served as Budget Director under Ronald Reagan, thinks so. He compares Wall Street to a casino, telling investors to run for the exit.
These are painful times for metals investors. I would like to be able to predict that prices will rebound tomorrow, but I can’t. The bears seem to have their way until prices reach such lows that even stock investors can’t resist buying gold and silver.
When will that be? Perhaps today. The best time to enter any market has always been when the fear was the greatest. The best time to exit markets is when optimism is the greatest. Now appears to be a time to move money from stocks to gold and silver.
