Precious metals will they take off before the end of the year?
At the start of 2021, I expected gold and silver prices to close the year significantly above their late 2020 level. As written on Wednesday afternoon September 22, the price of gold is almost 7% lower than last end. year, while silver was down more than 14 percent.
There are many reasons to expect gold and silver prices to be much higher in the long term than they are today:
• Gold and silver are traditional safe havens that protect against the decline and collapse of fiat (paper) currencies. Throughout history, the average lifespan of a fiat currency before it fails is 40 years, while the median lifespan is around 25 years.
• Fiat currencies tend to lose value faster and collapse sooner as governments increase spending, which happened around the world in 2021.
• Governments and central banks have almost all given up on any pretext for fiscal stability.
• The values of other financial assets such as stocks and bonds are supported by massive inflation of the money supply.
There are even new developments this year that “should have” helped push up gold and silver. On July 1, the first of the new Basel III banking regulations came into effect, which had a slight impact on minimizing the amount of paper gold traded by banks that did not hold physical metals to cover their liabilities. . Last week, China’s Evergrande Group, that country’s largest mortgage company, was on the verge of defaulting to pay interest on its $ 100 billion in debt owed to more than 120 banks around the world or its total liabilities of $ 300 billion. The impact of the Chinese government last Friday denying Evergrande access to overnight loans has already resulted in hundreds of billions of inventory losses around the world.
In the current global financial conditions, it would make sense for the prices of gold and silver to have risen sharply since the start of the year. But, decades of watching precious metals and other financial markets make me realize that what “should” happen is not necessarily what is happening.
The reason that common sense does not necessarily correlate with real-world gold and silver price movements is that only a tiny fraction of those metals bought or sold are settled through the delivery of physical metals. . Over 95% of global gold and silver trading takes place in the form of paper contracts.
Even for so-called physical metal contracts, most of them are also settled by paper. For example, on September 16, the New York COMEX settled 10,838 gold futures contracts. Of these, 500 contracts (representing 50,000 ounces of gold) were closed by delivery of physical metal. However, 10,338 contracts (1,033,800 ounces) were settled through the “Exchange For Physical” option. Settlements by EFP typically involve paying a small amount of money and owning a contract in London for the same amount of metal, which could theoretically (or not) lead to the delivery of physical metal in the future. EFP settlements are the most expensive way to settle a COMEX contract, so a party that owes delivery would not choose this option if they could instead offer the physical metal, silver or shares of exchange traded funds. .
The high percentage of gold and silver EFP colonies on COMEX signals a major shortage of physical metals available on the market.
In addition to a high percentage of gold and silver transactions involving paper contracts or settlements in paper form, their prices are also influenced by the trading of derivative contracts. By these various means, it would be possible to show that there are many more stocks of gold and silver on the market than they actually are in physical form. Therefore, prices can be kept lower than they would be if gold and silver were traded only in physical forms.
It’s clear to me now that there has been so much behind-the-scenes suppression of gold and silver prices so far in 2021 that they could both end the year below what it is. ‘they were at the end of 2020. If they do, that just improves the odds that they will increase sharply in 2022.
Patrick A. Heller has been honored as the 2019 FUN Numismatic Ambassador. He is also the recipient of the 2018 Glenn Smedley Memorial Service Award from the American Numismatic Association, the 2017 Exemplary Service Award, the Harry Forman National Dealer Award of the year 2012 and the Presidential Award 2008. Over the years, he has also been honored by the Numismatic Literary Guild (including twice in 2020), the Professional Numismatists Guild, the Industry Council for Tangible Assets and the Michigan State Numismatic Society . He is the communications manager for Liberty Coin Service in Lansing, Michigan, and writes Perspectives of freedom, a monthly newsletter on rare coins and precious metals. Past newsletter issues can be viewed at www.libertycoinservice.com. Some of his radio comments titled “Things You ‘Know’ That Just Aren’t So, And Important News You Need To Know” can be heard at 8:45 a.m. on Wednesday and Friday mornings at 1:20 p.m. WILS in Lansing (which broadcasts live and is part of the audio archive posted at www.1320wils.com).