By Patrick A. Heller
Commentary on Precious Metals Prepared for CoinWeek.com
In my radio program six days ago, I warned listeners to expect the prices of gold and silver to be clobbered late last Thursday and early Friday morning up to the time that Federal Reserve Chair Ben Bernanke made his remarks at the Federal Reserve meeting in Jackson Hole, Wyoming. Then I stated that prices would jump noticeably thereafter, perhaps as soon as Friday afternoon. This prediction followed my forecast at the end of July that precious metals markets looked to be strong in the month of August.
In a free market, it is virtually impossible to make such a prediction and be accurate. However, it has long been my observation that gold and silver prices are almost always suppressed when the Federal Reserve Chair, the US Treasury Secretary, or the US President make a major economic pronouncement. In other words, I conclude that gold and silver prices do not trade in a free market, but rather are heavily manipulated.
Well, markets unfolded exactly as I described. Gold and silver prices were held in check Thursday afternoon. Then on Friday morning, just as Bernanke made his statement, gold and silver prices fell to their lowest levels in a week. Gold hit bottom at $1,644 and silver at $30.17.
Almost as soon as precious metals hit their intraday lows, their prices then took off. By the close of trading in the US ACCESS markets Friday afternoon, gold rose almost 3% from the bottom to touch $1,692! Silver did even better, rising 5% to $31.70!
In early trading early this week, prices were even higher. Apparently, JPMorgan Chase is now an aggressive buyer of silver to cover its huge physical short positions. The only reason why this bank would do so is that its management expects higher prices in the near future.
There is a huge shortage of physical silver in the exchange operated by the London Bullion Market Association. This is the world’s largest over-the-counter market for trading physical silver, where minimum contracts are for 50,000 ounces of silver in the form of .999 fine 1,000 ounce silver bars in bonded warehouses. Now, there literally is no silver available for immediate delivery in London. In fact, the earliest available physical silver in London is further into the future than some traders have ever experienced.
For the entire month of August, gold rose more than 5% and silver jumped a whopping 13%!
Still, in my judgment, we haven’t seen anything yet. Although the silver supply squeeze in London has not yet had much impact on premiums and availability for bullion-priced silver coins and smaller bars and rounds, this market could change within a few weeks. In particular, the premium on US 90% silver coin has already started to rise. Gold is bound to follow.
Patrick A. Heller was honored with the American Numismatic Association 2012 Harry J. Forman Numismatic Dealer of the Year Award. He owns Liberty Coin Service in Lansing, Michigan and writes Liberty’s Outlook, a monthly newsletter on rare coins and precious metals subjects. Past newsletter issues can be viewed at http://www.libertycoinservice.com. Other commentaries are available at Numismaster (under “News & Articles) . His award-winning radio show “Things You ‘Know’ That Just Aren’t So, And Important News You Need To Know” can be heard at 8:45 AM Wednesday and Friday mornings on 1320-AM WILS in Lansing (which streams live and becomes part of the audio and text archives posted at http://www.1320wils.com.