In my column at the end of last week, I described how the battle lines between buyers and sellers had been drawn at $1,260 for gold and $20 for silver.
Since then, it has been almost a full retreat for those trying to suppress precious metals prices.
A major obstacle in holding down gold and silver prices has been the decline in the value of the US dollar. Last Thursday, the US Treasury’s auction of 30-year bonds failed. Instead of finding bidders willing to take up to double or triple the amount of bonds offered for sale at the winning interest rate, only 38% was purchased by bidders. The Wall Street banks who were underwriters for the auction had to purchase the other 62% at the rate they had guaranteed to the Treasury.
The failure of this auction has significant ramifications. It means that the Chinese and Japanese central banks, other foreign investors, and large investment funds now consider there to be a higher risk of further decline in the value of the dollar. To offset that risk, they are demanding a higher interest rate. If they cannot get the higher interest rate, their purse strings are closed.
From the time that Asian markets started trading Monday morning until they closed in New York that day, the value of the US dollar fell by more than 1%. When you put this news item with the failure of the Treasury bond auction last Thursday, they indicate that same direction for the future value of the US dollar—down.
All day Monday there were repeated waves of gold sold onto the COMEX, to be followed almost instantly by large numbers of buy orders. The price closed with little change from Friday at $1,245.00. The price of silver traded above $20 almost all day, closing on the COMEX at $20.11. That was a 30-month high for silver.
At one point in the ACCESS market, which begins trading 30 minutes after the COMEX close, the price of silver was knocked down 18 cents in a matter of minutes to $19.93. As best can be determined, this was probably an effort by JPMorgan Chase (reputed to hold the largest silver short positions) to try to stem the advance. This suppression tactic was overcome almost immediately by a new wave of buying.
On Tuesday, silver opened in the US significantly higher, threatening to surpass the 30-year high price set back in March 2008. The COMEX close at $20.40 was within 1% of the March 14, 2008 high of $20.57.
Almost all day long gold traded at record high levels (ignoring inflation, of course). The last trade reported on the COMEX was at $1,271.00. However, the official settlement was at $1,269.90, which was a surprise as no prices under $1,270.00 had been observed for a few hours.
There might be an explanation for the close at $1,269.90. For the past several years, the price of gold has almost never risen more than 2% in one day on the COMEX. If it did rise that much in one day, it almost never rose by more than 1% on the following day. This pattern isn’t a coincidence, it is evidence of market manipulation. On Tuesday, it looked like gold’s price might actually rise by more than 2%. But the official close of $1,269.90 is exactly 2% above Monday’s $1,245.00 close.
Don’t be surprised if the price of gold is not allowed to rise beyond $1,282.60 on Wednesday, keeping the years-long pattern of a maximum 1% rise on the second day intact.
My forecast six weeks ago that gold would be at least $1,300 by the end of September and silver well above $20.00 is still on target. A falling dollar will continue to help the rise of precious metals.
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.