There are some weeks when there are stronger incentives for the US government to work with its trading partners to hold down gold and silver prices. Precious metals prices took a tumble as soon as the US markets opened on Monday this week. The trading pattern on the COMEX shows that the prices have been forced down rather experienced a genuine bout of profit-taking.
There are more reasons than usual why the US government would want gold and silver prices to be in the dumps this week:
- Saudi Arabia’s central bank revealed that gold reserves have more than doubled! The World Gold Council’s (WGC) June 2010 report on official gold holdings shows that Saudi Arabia’s gold reserves have jumped since the first quarter of 2008 from 143 to 322.9 tons. The WGC describes the change as an adjustment, which implies that there really may not be that large and sudden of an increase in reserves, but rather a reclassification of assets that were already owned. Several media reports on June 22 were trying to play up the angle that Saudi Arabia had not really doubled its reserves in the past 2+ years. The implication of the Saudi increase in reserves, if not blunted, is that there are governments around the globe adding to gold reserves who are not disclosing the acquisitions until later. This would mean that gold demand is higher than most analysts are projecting, leading to higher gold prices.
- Over the weekend, China announced that it would allow the value of the yuan to float. The specific implication of this step is that the yuan is bound to rise against the US dollar, meaning that the price of gold would also rise as the dollar drops.
- The Federal Reserve Open Market Committee is meeting Tuesday and Wednesday this week. At the conclusion of the meeting, the Committee will issue a statement that will hopefully show that they are doing a competent job tinkering with the economy. It just would not do for the price of gold to rise as a signal that the results of the meeting were a failure.
- The next COMEX silver options expiration date is Thursday this week. According to the COMEX report for Friday, June 18, there are so many more call than put contracts at the strike price of $19.00, that it would create an instant demand for more than nine million ounces of physical silver if they were all exercised. To prevent this, the price of silver needs to close on the COMEX on June 24 at about $19.10 or lower. The extraordinary volume of naked short selling of silver on the COMEX on Monday, June 21 accomplished this goal thus far. It won’t take so much further shorting of the market to keep the price down until after 1:30 PM Eastern time Thursday.
- This weekend, the G-20 Group of Nations will be meeting in Toronto. It would not look good for the Obama administration to have gold set another all-time high record price at the Friday close just before the meeting. In fact, the gold price needs to be held well below last Friday’s prices (where the intraday peak in the US was more than $1,260) to try to give the impression that the US government is doing a competent job and the US dollar won’t be crashing any time soon.
Next week, the US government will have much less incentive to suppress prices before the jobs report is released at 8:30 AM on July 2. With the price suppression tactics often used over a 3-day holiday weekend, it may take until July 6 or later before the price of gold again breaks it all-time high record again (again, ignoring inflation). Stay tuned.
Patrick A. Heller owns Liberty Coin Service in Lansing, Michigan and writes “Liberty’s Outlook,” a monthly newsletter covering rare coins and precious metals. Past issues can be found online at http://www.libertycoinservice.com/ Pat Heller is also the gold market commentator for Numismatic News. Past columns online at http://numismaster.com/ under “News & Articles”. His periodic radio interviews can be heard on WILS 1320 AM in Lansing, www.talkLansing.net, and on www.yourcontrarian.com.