A Turn May Finally Be At Hand

James Turk:  “I’d like to begin, Eric, by noting that based on their Comex closing price in New York, spot gold and silver last week rose by a spectacular $29.10 and 49.6 cents, for gains of 2.2% and 2.9% respectively. Jumps of this magnitude over such a short period of time are rare, so these results from last week are important events that deserve our attention…

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…also from King World:

ALERT: Big Money Just Made A Massive Short Bet Against The U.S. Stock Market

The precious metals complex enjoyed a strong week mostly due to a post-Fed explosion on Wednesday. Although gold stocks sold off to end the week, they finished up almost 5% for the week. Gold gained 2.4% on the week while Silver gained 2.9%. The miners enjoyed massive gains following the previous two rate hikes and that has some optimistic about a repeat scenario. However, the miners and metals need to prove they can recapture their 200-day moving averages before we become optimistic.

Precious metals should trend higher in the short-term if the current macro technical landscape does not change. The US Dollar index has fallen below its 50-day moving average and could fall another 2% to moving average support. Also, despite the Fed rate hike, the 10-year yield did not make a new high. Bonds could rebound and the huge speculative short position, if unwound could add to the rebound. A rally in Bonds coupled with a weak US Dollar would help precious metals.

Precious metals could rebound farther but resistance in the form of the 200-day moving average looms large. In the chart below we plot Gold, Silver, GDXJ and GDX along with their 200-day moving averages. In addition to the 200-day moving average, the February highs will also provide resistance. We should note, while the metals remained above their late January lows, the miners did not. It would not be a good sign to see a continued rally led by the metals rather than the miners.

We should see some upside follow through in precious metals if our read on the US Dollar and Bonds is correct but take note of February highs and 200-day moving averages as resistance. I would not be chasing any strength until the sector proves itself. The first step would be a return to the February highs. If this rally fades below those levels then miners are again at risk for a retest of the recent December lows. We continue to look for bargains that we can buy on weakness and hold into 2018.

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Is silver underpriced compared to gold? Let’s take a look at the facts. Silver currently is $17.28 a troy ounce and gold currently is $1225.66 a troy ounce, meaning the gold: silver price ratio is 71:1. Of course these are spot prices, which don’t match up with actual physical prices, so let’s take a look at the prices of real gold and silver, not paper gold and silver.

This morning, the lowest price of a 10-oz gold bar I could find on one dealer’s site per 1-oz of gold was $1,251.29. For silver, the lowest price of a 10-oz silver bar per 1-oz of silver was $18.16. This ratio of gold: silver price still is an enormous 69:1, meaning that you can choose to either buy 10 troy ounces of gold, or for the same dollar amount, purchase 690 ounces of silver.

Some people state that Central Bankers don’t care about the price of silver and they only care about controlling the price of gold, but this statement is just flat out wrong, in my opinion. If Central Bankers didn’t care so much about controlling the price of silver, then they wouldn’t flood the market with boatloads of silvers futures contracts to suppress the price of silver as they do with gold, during the periods they create rapid declines in the prices of these two precious metals. Since we know the mechanisms by which they create these waterfall declines in paper markets (as I’ve discussed these mechanisms extensively in the past and provided documented proof with Nanex provided data), there is no argument that Central Bankers are concerned with controlling the price of silver as well as the price of gold.

Most people look at the paper price of silver and if it is falling, they mistakenly believe that physical silver is not a good buy because a falling price means too much supply and not enough demand. The supply and demand assumption is true, but only true of the paper market where hundreds more paper silver weight is traded than actually physically exists. So then people turn to physical silver prices, and if physical silver prices are falling, they assume this also means too much physical supply and not enough demand, and conclude that physical silver is not a good buy either. However, physical silver prices only fall when paper silver prices are raided by bankers, because bankers have set up a false system that ties physical prices to paper prices that works spectacularly well for them for now. However, there will come a time when physical silver prices actually reflect what is happening with physical supply of silver and physical demand of silver versus the supply and demand determinants of paper silver markets.

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