Gold and silver rebounded last week after experiencing a late summer fade. I expected they would begin to turn around as we approach fall, but we are not quite there yet. It is encouraging that the precious metals prices have not floundered this summer despite the lack of very bad financial news. While the economy is not strengthening, we have not seen any more bank failures since the spring. It has been ‘all quiet on the Western front’, so to speak, in the financial markets. I still see this as being a positive sign for gold and silver for the fall.
Gold and Silver Analysis
The gold chart looks pretty solid right now. Gold is back above 1900 and looks to regain some positive momentum. We still have not seen the completion of the triple top formation, which is generally bearish on a chart. The longer gold goes without crashing down to the 1700s, the more I am bullish on what it does next starting in September and October.
Per an article in CBS News earlier this year, the third quarter is generally the best for gold prices, seeing an average rise of 3.6%. The fourth quarter is second best, as prices tend to rise 1.5%. So, it is reasonable to expect that gold prices will rise more as we approach the holiday season. Also note that gold price is trending upward, so simply looking at the 50 and 200-day moving averages and where gold price stands relative to them does not indicate the overall trend. Gold is trending upward, and it is for that reason that I do not think there is a big chance we see the bear market come in 2023. Momentum is clearly headed north.
The traders (COT) report above from the CFTC (regulator) shows two sides of the trade. The producer/merchants and bullion banks are moving long, while the financial houses and family offices are shorting it. A tale of two expectations that indicates who expects gold prices to rise in the fall. Someone needs to tell brokers and hedge funds that gold and silver typically go up in the 3rd and 4th quarter of the year.
Silver has a bit of a different path, as is per usual. This metal is more industrialized as we have discussed many a time in this blog. Therefore, the price cycles tend to follow more international trade and demand for the metal as a product rather than as money. However, I have said many times that silver’s ultimate value will be tied to how much monetary demand comes during the next recessionary cycle.
Silver is pushing back against the critical $25 level again, as seen in the chart above. Each time it does this, it builds a momentum with traders who see this and begin to believe that silver is not going to stay down. Add in shortages from current mine supply, and people are beginning to see the bullish case for silver both as money and an industrial metal in the modern world. This is incredibly beneficial to the price as the case for higher silver prices builds across all segments of the market.
The traders report (COT) provided the CFTC (regulator) shows the bullion banks releasing pressure on their short position, as they now remain net LONG in silver. I point this out because over time, this group of traders has held the highest amount of paper.
This means for their own (house) accounts, and for that of their clients, the outlook was for lower prices. And the sheer amount of short position paper that they collectively held in and of itself set a lower price on the market for the physical metal. Their change of positions is enormously bullish for silver prices when lining up against the traditional trends of higher prices in the fall as discussed earlier.
We see that the managed money also moving long silver, while the ‘non-reportables’ category and the producers are taking the short side of the trade. This is a very bullish report for silver, overall, as the largest parties are recognizing the seasonality of the silver trade.
The Macro View
Looking at the fundamentals, we see some interesting happenings. Existing home sales dropped from 4.15 to 4.06 million units. New home sales, however, rose from 684,000 to 714,000. That is an overall drop in housing demand with a shift in preference to new homes.
Both the services and manufacturing PMI indexes fell, with manufacturing already in negative (shrink) territory and services barely holding on to a small amount of growth. Durable goods orders fell 9% to a negative 5.2% which is a very significant move. The University of Michigan consumer sentiment survey also fell about two points. Overall, I believe this is a strong indicator from purchasing managers that the overall US economy is now pointed towards recession.
Initial jobless claims were down from 240,000 to 230,000. That is not a huge number overall so I do not see too much significance. But given the seasonality adjustments that the government makes to these numbers, we really cannot draw any ironclad conclusions until a few months down the road.
Story of the Week
Two JP Morgan precious metals traders were convicted and sentence to jail time for manipulating the precious metals derivative markets. These are the very same markets which we discuss every week and drive the prices you pay when you order bullion. According to the Department of Justice website, the two defendants were JP Morgan’s former Global Head of Precious Metals Business and the former Head Gold Trader in New York. The DOJ notes the following.
“Two former precious metals traders at JPMorgan Chase & Co. (JPMorgan) were sentenced today for engaging in fraud, attempted price manipulation, and spoofing as part of a market manipulation scheme that spanned over eight years, involved tens of thousands of unlawful trading sequences, and resulted in over $10 million in losses to market participants.
Gregg Smith, 59, of Scarsdale, New York, was sentenced to two years in prison and a $50,000 fine. Michael Nowak, 49, of Montclair, New Jersey, was sentenced to one year and one day in prison and a $35,000 fine.
The defendants used their positions as some of the most powerful traders in the worldwide precious metals markets to engage in an egregious effort to manipulate prices for their benefit,” said Acting Assistant Attorney General Nicole M. Argentieri of the Justice Department’s Criminal Division. “This case reaffirms the Department’s steadfast commitment to hold accountable those who engage in fraud and manipulation that undermines the investing public’s trust in the integrity of our commodities markets.”
This is not the first time that JP Morgan has been fined. A whopping $920 million fine was levied on the firm in 2020 for manipulating both the Treasury and precious metals markets. The DOJ also notes the following.
“In September 2020, JPMorgan admitted to committing wire fraud in connection with: (1) unlawful trading in the markets for precious metals futures contracts; and (2) unlawful trading in the markets for U.S. Treasury futures contracts and in the secondary (cash) market for U.S. Treasury notes and bonds. JPMorgan entered into a three-year deferred prosecution agreement through which it paid more than $920 million in a criminal monetary penalty, criminal disgorgement, and victim compensation, with parallel resolutions by the Commodity Futures Trading Commission (CFTC) and the Securities Exchange Commission announced on the same day.”
Another day, another conviction for the banking giant it seems. I wonder if this will cease the manipulation in the precious metals markets, but I doubt it. It is almost a time-honored tradition at this point that someone is manipulating prices. At least the DOJ and FBI are starting to catch up to the manipulators and bring them to justice.
Executive Summary
Gold and silver, much as they have all summer, have been holding serve price-wise. Excepting a recent mini-swoon in prices, gold and silver headed back up last week as the bullion banks led the charge in dropping short positions on the derivative markets. I have said that these are the “sharp” traders, and price action in the metals does seem to follow their trading patterns often.
The macro view is slightly pessimistic in the last week, with more signs pointing to a deflating economy along with pessimistic views by both consumers and purchasing managers. It looks like views held are just in time for the recession we suspect starts in earnest this year. This will likely pull up precious metal’s prices significantly, and the bullion banks and other market sharps are busy positioning themselves accordingly.
JP Morgan got into trouble for market manipulation again. It bears notice that the markets are not always completely fair, and sometimes bad things happen. Despite that, the bad guys are starting to get caught more and more which will likely work in the favor of precious metals investors going forward.
Coin of the Week
JM Bullion has Sunshine Walking Liberty silver rounds on sale. Get yours while they last.
