Gold and silver trading activity this week revealed that the US government and its trading partners are currently working to keep gold from exceeding $1,260 and silver from topping $20.
On two days this week, the price of gold reached intraday highs above $1,260 in US markets. On all four trading days, silver traded above $20. However, at the COMEX close every day, both metals closed just below those levels.
When the precious metals prices have increased as much as they have, with silver today up more than 10% since August 20 and gold 7.5% higher than it closed on July 27, you typically will see significant retrenchment. That just hasn’t happened yet. For each day that passes without a notable decline, the odds of it occurring become less and less.
In the past couple weeks, the most obvious signs of price suppression activity have occurred in European markets just before the London PM fixes and also in successive waves during US trading hours. There have also been some suppression efforts in the ACCESS markets which trade after the COMEX closes (though that did not happen today).
Three to four years ago, this high level of price suppression activity would easily drive down the prices of gold and silver by at least 10% and keep them down for a month or two.
That isn’t working any more. Just as there are one or more sellers currently standing ready to sell gold at $1,260 and silver at $20 per ounce, there are now deep pockets buyers willing to quickly step up to make purchases on any pull back, even if it is only 1-2%.
The battle lines at $1,260 gold and $20 silver are significant. If they don’t hold, then gold looks good to quickly rise to at least $1,350 and silver could get to $25 without much resistance.
Unfortunately for the US government, with all the continuing horrible news that continues to be reported in the US and from elsewhere, I just can’t see gold and silver prices being held down for long. At the outside, I expect both metals to break above current levels within one to two weeks.
Here are just a couple of late-breaking news notes that demonstrate why I soon expect much higher precious metals prices.
The Swiss bank UBS reported late this week that the current higher prices are not bringing out any surge in scrap gold and silver liquidation.
It was announced today after the close of European markets that the government of Greece had been approved to receive a second round of bailouts next week, with about $3.2 billion coming from the International Monetary Fund and approximately $8.3 billion due from the European Central Bank. European and Greek officials are trying to portray this bailout in the best light possible, but the news is really one more indicator of the depths of the global financial crisis.
Franklin Sanders, who writes The Moneychanger, recently analyzed the trends of lower and higher gold and silver prices by the months of the year over the past decade. Most of the annual lows hit in January or February, while most of the annual peaks were in the last few months of the year. Past events are not a guarantee of future results, but you can be sure that the technical traders are sure taking notice.
A Speculation: When the US Silver Eagle bullion coins first went on sale in the fall of 1986, the US Mint charged its primary distributors $1.00 above spot per coin. A number of years later, the Mint raised that formula to $1.25. Not long after that, the US Mint kept the $1.25 over spot formula but changed the pricing venue from the COMEX to London. Typically the London market trades at a premium to the COMEX, partly because a good delivery bar in London must be at least .9999 fine while the COMEX purity need only be at least .999 purity. The current formula has been in place for a number of years now, which generally has worked out to about $1.30 an ounce above the COMEX price.
At some times since 1986, the US Mint’s formula meant that it was charging primary distributors as much as 25-30% above silver value. At today’s silver spot, the primary distributors are only paying about 6.5% above intrinsic metal value.
I’m going to stick my neck out and predict that the Mint will change its pricing formula for Silver Eagles by no later than the start of release of the 2011-dated coins. There is a good chance that the formula will be converted to a percentage above spot, which is the methodology the US Mint uses to price its Gold and Platinum Eagle and Gold Buffalo bullion issues. I would not be surprised to see the premium be raised to at least 10%. If the Mint does not switch to a percentage formula, I still would expect the premium above spot to be increased significantly.
Ever since the US Mint began issuing Silver Eagles I have not recommended them as a low-premium form of silver. However, if my speculation plays out, there is some prospect that the premium on prior year Silver Eagles could rise along with the current issues. Do you feel lucky?
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 radio show “Things You ‘Know’ That Just Aren’t So, And Important News You Need To Know” can be heard at 8:45 AM Wednesday mornings on 1320-AM WILS in Lansing (which streams live and becomes part of the audio and text archives posted at http://www.1320wils.com.