Metals Ready to Jump?

March 30, 2017

Pat Heller

Through Monday night, the prices of gold and silver had, year to date, outperformed all major American and foreign stock market indices and the US Dollar Index. Here is a list of some of the financial data I track:

2017 Year To Date Results December 31, 2015-March 27, 2017 Results
Palladium +17.1% +41.3%
Silver +13.9% +31.2%
Gold +9.2% +18.4%
NASDAQ +8.5% +16.6%
Dow Jones World (ex-US) +7.7% +7.5%

Platinum +7.6% +8.5%
Dow Jones Industrial Average +7.5% +17.9%
Sao Paulo Bovespa +6.8% +48.4%
Shanghai Composite +5.3% -7.7%
Standard & Poors 500 +4.6% +14.6%

Frankfurt DAX +4.5% +11.7%
London FTSE 100 +2.1% +16.8%
Australia S&P/ASX 200 +1.4% +8.5%
Russell 2000 +0.0% +19.5%

Nikkei 225 -0.7% -0.3%
US Dollar Index -3.0% +0.6%
10 Year Treasury Note Interest Rate -3.1% +1.0%

Last year the silver price rose more than all other except the main exchange in Brazil. The price of gold beat out most of them.

Yet, if you only consulted the regular business media, you probably weren’t aware how relatively poorly paper asset values have performed over the past fifteen months when compared to gold and silver.

Did you know, for instance, that the dollar has fallen against every major foreign currency this year?

As much as gold and silver prices have outperformed stocks, bonds, and currencies for some time, I think this trend may accelerate in the coming weeks.

Recent physical gold and silver demand in China and India, the world’s two largest consumer nations of gold and silver, are up strong, much higher than so-called experts were forecasting earlier this year.

In addition, the European Central Bank last week announced a massive quarter trillion dollar interest-free loan subsidy to Eurozone banks to support the euro currency! With European residents alarmed that the euro or the European Union might collapse, they are buying large quantities of physical gold.

Last week’s failure of Congress to pass new health care legislation sent a signal that the awaited economic policies advocated by President Trump may happen much slower or not at all. US stock prices and the dollar have, overall, since tumbled.

Then, on March 28, the New York COMEX April gold options contracts expired. There were almost two hundred ninety thousand ounces of call contracts that could be exercised at prices below the closing COMEX price. When exercised, these contracts call for immediate delivery of physical gold.

That is a problem. As of last Friday, COMEX bonded warehouses had barely one million ounces of registered gold inventories to cover forty-seven million ounces of open future contracts. If thirty percent of those inventories were used this week to cover option contract deliveries, a major supply squeeze could develop. While it is true that some “eligible” inventories in COMEX warehouses could be reclassified as registered and that the COMEX consistently operates with only fractional physical gold inventories compared to outstanding contracts, the point is that the demand for delivery of this quantity of physical gold could spark some covering of short contracts.

Beyond everything else happening worldwide to spark higher gold and silver demand, trading in the New York futures and options markets this week could further boost precious metals prices.

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