The past week or three have been, to say the least, disappointing for precious metals investors.  Gold and silver have continued to step downwards towards new interim lows as money continues to move from bullion (or at least from paper variations of it) to the general stock markets which have been continuing to perform well.  All this despite, so we hear, continuing high demand for physical gold and silver from Asian markets in particular.  But this physical metal demand growth seems to be being more than countered by some strange precious metals sales patterns – the latest of which saw silver plunge 10% in 4 minutes on a big computer sell order – from a single client according to a major Japanese bank – at a light trading time.

There was always a fear in the gold investment sector that if the massive build-up in bullion backed ETFs faltered or reversed, then we could indeed see a serious shake-out in the markets and this does indeed seem to have occurred – but precipitated by the above-mentioned sales anomalies in both gold and silver.  While some accuse the U.S. Fed of complicity in such sales, it could just as well be due to some serious financial shenanigans in the markets with the massive sale orders of paper bullion seen surely as attempts to drive prices lower by banks and funds perhaps holding massive short positions, and having access to almost unlimited capital. 

If anything out there demonstrates how the dice are loaded against the individual investor in today’s markets, then the recent goings on in gold and silver prices surely do.  This is not a natural market.  Sure, prices can move up and down and people can get their fingers burnt but when we come across sales of the kind of magnitude seen recently they have to be a hugely concerted attempt to move the market to the perpetrator’s advantage.

But the market movements won’t have just been due to these massive sales.  The sales are undoubtedly a calculated move to drive the markets down instantaneously past trigger points where high frequency stop loss computer trades come in automatically and force prices down even further.  This also persuades weak holders to sell (hence the movements out of the ETFs). We have been seeing recoveries from the excessive falls, particularly as physical buyers  come in to take up ‘cheap’ metal, only to see prices decimated again as the next massive sale comes in.  No wonder individual investors in gold and silver have been becoming disillusioned and want out.

At some stage all this will turn around and perhaps we’ll see paper gold and silver purchases in similarly strong amounts designed to drive prices up again and make huge profits foir the big money again.  That’s how the major financial players with virtually unlimited resources can make squillions of dollars at the expense of people’s investment savings and pension funds.  It’s all part of the great capitalistic rich-get-hugely-richer game and the legislators seem powerless to stop it – if indeed they want to as they themselves are often an integral part of the process.  What is demoralising is that the perpetrators don’t appear to see what they are doing as unusual, or immoral – which it clearly is.  Robin Hood in reverse – take from the poor and give it to the rich!  Well perhaps not all from the poor – but from those about to become poor!

The only bright spot on the horizon is the big increase in demand for physical metal which is being seen.  In the East, where this has been particularly strong, gold and silver price premiums are rising by the day as dealers find it hard to get their hands on the amounts customers want to take up – at least inside a reasonable period of time.  This has been accompanied, we believe, by an enormous downturn in scrap sales making supplies of actual bullion tighter and tighter.  This should have an impact to reverse the trend, but when paper markets dominate, to the extent they are at the moment, then it is hard to see an end except when the market players wish it to end.

The bullish commentators are looking for a short term turnaround as they feel that prices may have fallen too far too fast.  Jeff Nichols, for example, notes The key to recovery is in the paper market. What the hedge funds and other large-scale institutional traders need now is a sense that downside risks are retreating and some degree of comfort that prices have hit bottom.  When that confirmation comes, pent up demand could give the metal a short-term boost . . . and, from there, who knows?”

But how much of this is wishful thinking?  How deep are the pockets of those driving the prices down?  With the U.S. Fed, the Japanese central bank, the ECB, the Bank of England and others all pumping money into their respective economies, at least some of which is finding its way into the markets at unprecedented levels, this liquidity is potentially enormous.  A batch is going into the stock markets, which are on a sustained upwards trend, which suits the central bankers as a rising stock market helps hide the true state of the economy and promotes a feeling of financial well being. 

But some is undoubtedly also finding its way into those hands which are knocking precious metals prices over and over – again a process which suits the central banks. If gold is falling all has to be right with the currencies the theory goes.  But patently all is not right.  As Rick Rule says – the U.S. dollar is the worst currency in the world – except for all the others!  Its all relative.  Quantitative Easing has to ultimately devalue all these currencies – and eventually it will when this particular bubble bursts, which it surely will one day.  Then gold and silver will again have their days in the sun, but how long will we have to wait to see this?  This year? Next year?  Sometime?  Never?  The odds may well be on sooner, rather than later – but again this is a wholly indeterminate prediction!

iPad Version: Picture – Gold and silver bars are pictured at the Austrian Gold and Silver Separating Plant ‘Oegussa’ in Vienna: Lisi Niesner / Reuters