AU/AG Fundamentals and Manipulation

What a week!

Seeing the greenback climb this week was interesting, even as other markets struggled. It seemed a fitting result of euro troubles as confidence in one fiat empty promise became lower than confidence in another, resulting in some moving out of euros and into US dollars, or stocks or just about any place else. And, of course, the headlines lit up, the blogosphere became saturated with supposition, postulation, disinformation, inquisition, irritation, indigestion and even some information.

Then something happened Thursday. It seemed to surprise everyone. Beginning early in London, gold began to be dumped on the market. This is nothing new, but with what appears to be flight from the euro this proved more effective than usual. I don’t pretend to understand all the gyrations involved in this incident. I wish I did because I could probably get very rich very fast if I did. But suffice it to say that gold haters successfully pounded gold on Thursday. For the naysayers out there let me provide a few facts.

By the close of the US markets on Wednesday gold was down $24.30 for the day. Volume was in the 170,000 neighborhood. This is a fairly typical day. Compare that to Thursday’s 260,000 contracts that beat the price down $44.30 for the day, closing at $1743.40. This drop came from heavy selling in London for about two hours between 9:30 and 11:30. But this was just the prelude to what happened Friday. Performing fairly normally in overnight trading, London once again brought the club out, dropping the price by half a C-note before New York opened. As New York warmed up the sucker punch came mid-day, beating the shiny yellow metal down another $70 at one point. It was a merciless persecution of the true world money. Look at this number closely though, in case you are one of those who don’t think the metals’ markets are manipulated. How many contracts were sold in the gold markets? Volume was around 340,000. That’s twice what they were on Wednesday, and 80,000 more than Thursday. When the dust settled in the US, gold regained a little before resting, in the west at least, at $1657.

Oh, but we’re not done. Silver was even worse. Down 12 cents with a volume of 41,000 on Wednesday, it was pummeled to $36.23 with the sell-off of 82,000 contracts on Thursday; a drop of $3.78 as contracts were doubled. Then came Friday. Just like gold, heavy selling occurred in London in the morning hours. And, again, the US markets brought in a barrage midday that beat silver down over $5 at one point, before it regained a little, managing to close at $30.93. This is a drop of $4.91 on the day. And, again, in case you’re still a skeptic, check these numbers. Remember, the number of contracts doubled from Wednesday to Thursday. On Friday they almost tripled Wednesday’s contracts with a whopping 114,000 contracts.

As the plot thickens, there’s more to this story. The US dollar has for many years moved inversely with gold. It’s a simple matter of the markets that reveals the value of the dollar against gold. In more recent years this movement has been largely negated, with gold often holding it’s own as the dollar drops. Sometimes it’s even moved with the dollar’s upward moves. As might be expected, the dollar moved upward rapidly on Thursday, coinciding with the sell-off of metals. However, contrary to the claim that the rising dollar led to the drop in gold, we see that on the day that gold dropped the most, Friday, that the dollar was actually down, if only a few cents. In a free market this makes no sense at all. Moral of the story? Market manipulation, of course. It’s elementary dear Watson. Gold and silver were beat down. That much is clear. Pressure on the euro is evident with recent troubles in the euro-zone. I don’t pretend to understand why exactly the dollar would go up, other than perhaps it seemed the only place to flee in light of other options dropping against it. But then, why was it flat on Friday? Don’t ask me. I’m just Another Joe. But I’d encourage you to subscribe to Ed Steer’s Gold and Silver Daily in order to better educate yourself in regard to these dynamics.

Okay then, what’s the point of all this discussion? In one word, fundamentals. Of course we know that markets are controlled by the world movers and shakers. But there are fundamentals that eventually win out. How long before we see them win out is a challenging question to ponder. But as you consider where you’ve placed your confidence remind yourself of why. It’s so incredibly easy for us to get caught up in these swings emotionally. When we let our emotions dictate our perception of truth we generally do stupid things. So, ask yourself some questions.

• What am I invested in?
• What are the fundamentals of that investment?
• Have those fundamentals changed?
• If so, for the better or worse?
• If I’m to move my position, what option has better fundamentals?

As you can surmise, it’s no secret that we’re bullish on true money. Simply put, it can’t be obliterated. It always has some value. Furthermore, the manipulations of the institutions to keep the price of gold and silver down serve to build more pressure underneath them; pressure that must be released somehow. It may happen next year, it may be next decade. But it has to happen. And those same pressures have counter-pressures that are constantly bearing down on the value of fiat currencies, especially the world’s reserve notes. I can’t advise you. But I can tell you what we think. And we think that the fundamentals that made silver and gold look good last year, the year before and ten years before that are still just as viable today. We can’t know what the politicians and institutions will do to move the markets in the near-term. But we’re confident that the world’s real money will trump the fiat currency eventually.

So, if you’re fretting, take a deep breath. Consider your position and why you’re in it. If it’s for the right reasons, relax and enjoy the ride. Or maybe the right reasons provide more opportunities in light of recent events. For instance, the silver/gold ratio just moved back up to the 54/1 range. Perhaps this is an opportunity to move some gold to silver and wait for another move that’ll bring the ratio closer so that you can trade back, increasing your position. For the emotional, these movements can seem like a disaster. For those who rest in sound fundamentals, these movements are opportunities.

These principles don’t just apply to your finances. They’re applicable to every area of life. Our perceptions often overwhelm our ability to discern what’s really true. Emotional reactions sacrifice truth on the altar of perception more often than not. And this results in chaos in our lives. With this in mind, I’d like to close with an encouragement to rest in the truth that God is in control. If He’s in control, is good and promises to do good for those who love Him and are called according to His purposes (Rom 8:28), what is there to fret? Though we lose all our earthly wealth, nobody can take our eternal riches in Christ. Just as mentioned above, we must consider the fundamentals of what we believe. Are the fundamentals of your perceptions based on emotional responses or revealed truth? If this truth is your foundation then strive to conform your emotions to embrace the thoughts of God as revealed in Scripture. Then you can find true peace as you rest in Him.

Enjoy your weekend,

Another Joe