2018-11-19 Week - Thanksgiving - Gold
Henry Ledyard of Addlepated - InsideFutures.com - Fri Nov 16, 5:38PM CST

This Week

USA markets close and trading slows for the Thanksgiving holiday. This leads to Black Friday sales, which allow retailers to go into the black before the end of the year. With the advent of internet shopping, Black Monday has become the trend. Online retailers do a massive amount of business on the Monday because people like to shop online while at work. So keep an eye on these retail sales numbers to indicate spending (more spending means lower market fear).

Gold

I am a bit disappointed in the current gold price. I would have expected with the current level of market risk in conjunction with poor monetary policy decisions by governments (Brexit, trade wars, financial tightening) that the gold price would reflect that. I was also expecting a gold price over $1400 by December, but am doubtful that it will make it to $1300.

In the paper gold market, manipulation is rampant. None of those involved have been prosecuted and most of the institutions have received minor fines compared to the amount of money they have reaped from that market. So expect more of the same price action to continue.

The price of gold will surge higher when producers and small speculators are short. Producers have a vested interest, while small speculators are trying to hedge risk. If the producers pulled their shorts, the market would blow up because there would be no counter trade to the banks and manipulators. The same is true if investors took delivery of their gold because the number of outstanding ounces versus contracts is obscene compared to other markets.

The large speculators (banks, trading houses) are in control of this market because they are merely playing a numbers game. To them, it is just digital bits to fiddle around. They have massive amounts of money behind traders to work with. They also get to manipulate the London fix price to push price action. These banks have a vested interest in keeping price low because gold is an indicator of fear in markets. As long as the gold price is low, then speculators will continue to gamble on other markets (making them big profits), regardless of risk.

Large speculators have enough wealth behind them that they can drop a year's worth of production gold in a single order during the overnight session when volumes are lowest. In any other market, that sort of outright manipulation would be criminal. In gold, it is business-as-usual for these trading houses to manipulate prices lower. They are consistent in the way they will build a position and then slam prices lower because it is easier for them to slam price lower. When sentiment changes, then they take the opposite side and will push prices higher.

When small speculators (day traders) and hedge funds get short, and producers hold a heavy short position, then it benefits the large speculators to take the opposite side and then slam prices higher. This triggers stop-loss orders and promoted momentum traders piling onto the move which force out the shorts and make these banks massive profits. The large speculators can then reverse their position and slam price lower to increase their profits, which is why they are in this market. So keep an eye on the Commitment Of Trade reports for an indication of the next big price move.

https://www.barchart.com/futures/commitment-of-traders/technical-charts/GC*0

If you are new to COT reports:

https://freecotdata.com/how-to-use/

Silver, and to a lesser extent platinum, are also used to move price. Traders can slam the silver price to cause a spread-trade reaction in gold. Because the silver market is smaller, with more expensive contracts, there are less speculators and traders to take up the slack on the opposing trade.
From a production perspective, silver should be trading at 11:1 to gold based on naturally occurring deposits. Silver is often mined as a waste metal from gold and copper production, but is critical to many industries. As industry uses silver, it is often as a catalyst or merged metal which will not be recovered.

In markets, silver to gold is often closer to 40:1 or 50:1. If the ratio moves over 60:1 then silver is cheap compared to gold. If it hits 20:1 then silver is considered expensive to gold.

Currently, silver is trading at 80:1 to gold. This means that silver price has been shorted to a point where spread traders will be selling gold contracts and buying silver contracts. So a selling push in silver by market manipulators will be less effective, because speculators will be absorbing the slack (after the initial price slam manipulation).

Platinum is the other place for a decent spread. Once, platinum traded at 2:1 to gold. However, after 2008, gold surged as a hedge against money printing. Platinum price fell below that of gold. Currently, platinum is trading at 20% below gold price. This means that platinum may be a good place to speculate on gold. When the gold price moves higher, platinum will be a reactive trade (following on from the move). Platinum price will not return to the 2:1 ratio level until markets stabilize because gold is the primary hedge against risk. However, platinum will move closer to a 1:1 spread to gold, so it is a good surrogate to a gold trade. So if you are looking for a long term investment against risk (to be sold during stability), platinum is a good way to trade that.

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Moving forward, I still expect the gold price to move higher. I expect the silver price to move higher, at a greater percentage move to current prices than expected from gold. Platinum will follow the move, but at a smaller percentage until market stability returns (probably over 10 years into the future, at least). When stability returns (if stability returns) then platinum may again be 2:1 to gold and likely gold will be trading at over US$10,000/ounce.

I have been burned by the gold market (futures options) this year, so I am limiting risk by limiting size. I am also limiting risk by investing in physical gold instead of the paper market (removing supply from market). I suggest you do the same and wait for the inevitable collapse (price explosion higher).

DISCLAIMER:

YOU ARE AN ADULT and must make your own decisions. ONLY YOU know what level of experience you possess. ONLY YOU know what level of risk you are willing to take. ONLY YOU know what your financial goals are, and to what lengths you are prepared to go to meet those goals. You will be the one to wear your losses, so trade with caution and do your own research.

Henry Ledyard is an independent trader. He has NO affiliations with banks, brokerages, funds, trading houses or markets. He trades for himself and posts trading ideas merely to share information. He does NOT want your money, advice or opinions. He does NOT want your unsolicited emails. If you require further financial advice, seek it elsewhere. Henry`s opinions should be considered as addled as his blog site:

www.addlepated.com.au