Gold and silver suffered a sell-off, repeating what we saw in late November in both the last two years. The attack on precious metals is futures-driven, and occurs during New York trading hours. Gold fell $12 from last Friday’s close to $1275 in early European trade this morning, and silver was hammered, falling 60 cents to $16.40. Last year, gold fell between the last week of November and 15 December from $1184 to $1128. And in 2015, gold fell from $1075 to $1050 on 17 December. In both these cases, the December lows marked the end of significant declines, and were followed by strong rallies. In both these cases, the Fed signalled a rise in the Fed funds rate, well in advance. They were classic cases of sell the story, buy the fact.
The actions in Comex futures are a replay of these events. The shorts, backed by being too big to fail, use the opportunity to drive the narrative and close their positions, at least on Comex. Comex though, is only part of the story, with positions in London’s forward market and other off-market supply agreements. However, unlike 2015-16 and 2016-17, 2017-18 will be different in a crucial aspect: the outlook for the dollar is bearish, and therefore the outlook for gold is bullish. The previous two rallies were from very oversold conditions, which clearly undervalued gold, without the prospect of a weakening dollar.
This post was published at GoldMoney on December 01, 2017.