COMEX Gold and Silver Sell Off Likely to Be Greeted by Eager Physical Buyers

Gold

Gold and silver’s weekly gains have been pared but both remain higher for the week so far. Gold and silver fell almost 1% and 2% respectively in trading on the COMEX yesterday. They traded sideways in Asian trading and have resumed their slide in early New York trading. The dollar has bounced from record monthly lows and this is leading to some selling. Profit taking is also likely after the recent run up in price.

Gold is currently trading at $1,328.80/oz, €957.28/oz, £837.48/oz.

Click on the image to view full size.

Lower weekly closes below $1316.60/oz and $22.04/oz respectively would turn the technicals negative and could lead to further sell offs. The COT data shows speculative longs are near record levels which has often been a prelude to sell offs on the COMEX. Those short the market have incurred significant losses in recent weeks may use the opportunity to manipulate the market lower and possibly try and close substantial in the red concentrated short positions.

Click on the image to view full size.

However, physical demand is robust as seen in physical bar premiums in India and Asia and any sell off on the COMEX will likely be greeted with eager physical buyers including central banks. Therefore gold could be supported at the $1,300/oz level as pullbacks are likely to be bought. AngloGold Ashanti’s 2.7 million ounce hedge book was closed out at  an average price of $1,300/oz which is an indication that the gold mining industry sees prices at the $1,300/oz price level as sustainable.

Gold (orange), Silver (yellow) and Gold/ Silver Ratio (white) – 40 Years. Click on the image to view full size

Silver

Silver looks very well technically and the gold silver ratio has fallen to below 60 (59.10 – 1308/22.49) with 55 and 50 looking potential targets in the coming months. Throughout history the gold silver ratio has been close to 15 and the average in the 20th century has been around 45. The relative undervaluation of silver to gold and the fact that it remains less than half of its (nominal) record price in 1980 is leading to strong demand for poor man’s gold internationally and in Asia particularly.

Silver is currently trading at $22.47/oz, €16.19/oz and £14.15/oz.

Platinum Group Metals

Platinum is trading at $1,676.00/oz, palladium is at $578/oz and rhodium is at $2,175/oz.

Mark OByrne

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