ARE WE DUE FOR ANOTHER MASSIVE GOLD AND SILVER PRICE SMASH ? / MINEWEB

GOLD ANALYSIS

Are we due for another massive gold and silver price smash?

A big rise in gold and silver shorts held by the big commercial banks not seen since the 2013 gold price smashdown, could suggest a repeat is in the offing.


Author: Lawrence Williams

Posted: Monday , 14 Jul 2014
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LONDON (Mineweb) - The signs are all there. The big investment banks – JPMorgan in particular – which have the financial clout to move the markets on their own through massive paper sales in the futures markets have, it is reported, been building short positions in gold and silver to a level not seen since just ahead of the big gold price smashdown of April last year.

Is history about to repeat itself? If we get another high profile bank analyst issuing a strong ‘sell short, or ‘slam dunk sell’ gold recommendation in the next few days then it may presage another attempt to knock the gold price, and the silver price, down very sharply. As was shown last April, such a move could negate any gold price gains so far this year – and more.

As Ed Steer commented in his most recent newsletter in an analysis of the latest COT report which showed that the Commercial net short position on COMEX increased by 5,548 contracts, or 554,800 troy ounces. The Commercial net short position now stands at 16.6 million troy ounces. “You'd have to go back to March of 2013 to see the Commercials holding this big a net short position in gold. It was from that point in March of last year where gold got clocked for $400 the ounce by the end of July. One wonders what fate is in store for us in gold going forward? One would have to presume that it would be similar to the fate that awaits silver.” (Silver also showed a big increase in the Commercial net short position at 290 million troy ounces, the highest since since December 2012 when silver was $34 an ounce. “One wonders how low JPMorgan et al will drive the price when they pull the pin on the technical funds this time around?” commented Steer.

Again though, as we commented a little over a month ago, respected chart analysts WaveTrack International predicted that gold will hit a new three year low in August, with a somewhat similar pattern emerging in silver. But this same analysis – based on Elliott Wave theory suggests the precious metals will then surge throughout the remainder of this year and next, peaking around the end of 2016 at new record highs. These seem to support the price shakedown scenario, but do at least offer major hope for the gold investor beyond that.

However, to set against these factors, the price fall off, if this scenario does indeed take place, may not be as severe as in April last year when the gold price fell by around $200 in a matter of days – and then a further $200 over the next three months. A contributing factor here was an initial gold price takedown stimulating major selling out of the gold ETFs which both exacerbated, and prolonged, the fall. This time around there is a possibility that the holdings which have remained in the ETFs are much more tightly held and an initial sharp price fall may not have quite the same knock-on effect.

Interestingly, in a recent interview with Kitco, Doug Casey described the gold price suppression scenario put out so eloquently by organisations like GATA, as ‘ridiculous’, despite GATA’s evidence to the contrary suggesting some Central Banks may indeed be supporting some form of suppression, at least  from time to time, to protect currencies. However, Casey did concede that the big money can manipulate virtually any markets, which could make the position of the smaller investor virtually irrelevant in terms of price movement. Even so, Casey did reckon that gold will, at some time, move substantially higher.

It does look, though, to this observer, that as long as physical metal supply holds up in the West, the big banks can drive gold and silver prices whichever way they want given these markets are relatively small in financial terms. The big money is totally profit oriented so those with it have the power to sell short, drive the price down and then repurchase at far lower prices and allow the prices to rise again and profit on the upside accordingly. 

But with more and more of the world’s stock of physical gold and silver moving to strong hands in the East and Middle East, and the mining companies beginning to cut back, and scrap sales diminishing with the price fall, the next gold and silver price smash may be the last in the current sequence followed by the sharp move upwards in price suggested by WaveTrack International. This would serve to reset markets at a much higher level before the whole scenario repeats itself again. Long term, little changes!