Perfect Storm for Precious Metals Leads to Price Correction

Gold fell by nearly 6% yesterday and silver by a whopping 15%, the largest one day loss in over 7 years. 


Gold Price Chart

The futures market saw massive volumes of selling with over 1.6 bn ounces of silver contracts sold yesterday. That’s a value of over $40 billion. 


Silver Price Chart

But what’s behind this massive move and is the bull market over just as it was getting started?


A combination of factors has created a perfect storm for precious metals which has led to this price correction including…


1. Silver was running into strong resistance as it tried to test the psychological resistance at $30.


2. Both gold and silver were massively overbought in the short term leaving it exposed to downside pressures. 


3. Recent short term traders with less appetite for this type of volatility and price swings exited the market en masse as the price began to fall. 

4. Those holding massive leveraged short positions, namely the bullion banks, have been hemorrhaging money and nursing very big losses on their positions since the recent break out in the metals prices. They were able to take advantage of this short term weakness in the market to pummel the price. This allowed the downside move to be over-exaggerated as they attempt to cover their short positions at a better price. There is even an argument to be made that they added fuel to the fire of the recent price run up to create the short term weakness, allowing their subsequent selling pressure to create this over-exaggerated move to the downside. 


This short term correction can be viewed as overdue and indeed healthy for the metals. A wave of nascent buyers will always tend to fuel an overbought market which risks short term vulnerability and weakness. They have now been cleared out. 

Nothing has changed fundamentally in the world in the past 24 hours when it comes to the rationale for holding precious metals. The Central Banks are continuing to run their printing presses at full tilt to protect economies from total collapse. However, although the recent run up in price allowed many precious metals commentators to say “I told you so!” and it is always nice to see the value of our metals increasing, we must remember that owning precious metals is for the long term. 


Gold and silver’s returns for the year are impressive even after yesterday’s rout. Gold is up by over 28% and silver is up over 43%! They are doing their job of protecting portfolios against uncertainty. 


As the bullion banks continue to try and reduce their short position at lower prices to stop themselves losing even more money, this will underpin the gradual move higher in metals prices as their positions and hence their impact reduces. 


We need to understand the cause of short term price volatility as well as we understand the long term value of holding precious metals to hedge against exactly the type of situation that we are seeing unfolding in the world today. 


That way we will remain protected. 


NEWS and COMMENTARY

Silver Price Drops Nearly 15%, 1.6+ Billion ozs of Futures Contracts Traded

Gold Collapses Below $1,900 as Rout Extends Into the Second Day

UK enters recession after GDP plunged by a record 20.4% in the second quarter

Gold slumps below $1,900 as U.S. dollar, yields rise


Gold’s evolution into a ‘must-have’ asset is storing up trouble


GOLD PRICES (USD, GBP & EUR – AM/ PM LBMA Fix)

11-Aug-20 1996.60 1939.65 1524.40 1479.57 1694.51 1646.76
10-Aug-20 2030.30 2044.50 1552.98 1561.38 1725.35 1734.96
07-Aug-20 2061.50 2031.15 1574.37 1559.52 1743.82 1726.88
06-Aug-20 2049.15 2067.15 1555.30 1569.59 1728.87 1743.43
05-Aug-20 2034.45 2048.15 1553.30 1558.03 1718.09 1722.90
04-Aug-20 1972.25 1977.90 1508.77 1519.62 1671.09 1686.56
03-Aug-20 1972.95 1958.55 1509.50 1504.56 1678.39 1670.45
31-Jul-20  1974.70 1964.90 1505.91 1492.54 1666.84 1661.72
30-Jul-20  1952.20 1957.65, 1503.00 1502.10 & 1662.30 1662.44
29-Jul-20  1954.35 1950.90, 1506.80 1502.39 & 1663.54 1659.24
28-Jul-20  1931.65 1940.90, 1499.15 1501.48 & 1647.70 1654.23
27-Jul-20  1940.55 1936.65, 1511.30 1504.78 & 1659.56 1647.70
24-Jul-20  1893.85 1902.10, 1486.67 1490.30 & 1631.55 1638.09
23-Jul-20  1882.35 1878.30, 1480.28 1477.47 & 1624.47 1621.54
22-Jul-20  1851.00 1852.40, 1462.85 1456.91 & 1604.82 1598.44
21-Jul-20 1823.20 1842.55, 1436.86 1449.35 & 1594.21 1608.36
20-Jul-20 1810.30 1815.65, 1437.92 1438.18 & 1580.21 1590.87

 


Access Latest Goldnomics Podcast (Part II) Here


Own gold and silver coins and bars in the safest vaults in Zurich, Singapore, London and Dublin with GoldCore.

Receive Our Award Winning Market Updates In Your Inbox – Sign Up Here



Mark O'Byrne

Also on news-goldcore-com

Videos

When will Silver Break Out? Is Triple Digit Silver Still on the Cards?

Is Gold Still in a Bull Market?

Gold Mining Operation Supply Issues Points to a Sustained Bull Market for Gold

Blog posts

Quantitative Easing: A Boon or Curse?

Central banks’ massive Quantitative Easing (QE) programs have come under scrutiny many times since the central banks fired up the printing press and began quantitative easing programs en masse after the 2008-09 Great Financial Crisis. However, the increase in central bank assets due to quantitative easing programs during the crisis pale in comparison to the […]

READ MORE

The Fed’s Inflation Gamble Continues

The fed’s inflation gamble continues… Are central banks trapped? Last week’s Fed statement and the press conference that followed proved to be the start of a US$90 (4.8%) decline in the gold price. Fed on Economic Recovery The Summary of Economic Projections (known as the dot-plots) released with the statement showed that committee members changed […]

READ MORE

Gold to Gain Momentum in 2021 – Here’s Why

Big ideas are like supertankers filled with oil; both take forever to get moving. The move from one state to another is a boring form of entertainment. However, each is impossible to stop once the momentum has built. Substantial progress can be seen over a period of time and one can notice and understand the […]

READ MORE

Featured

Gold, the Tried-and-True Inflation Hedge for What’s Coming!

READ MORE

How High is Too High for Rising Government Bond Yields?

READ MORE

Silver – 7 Reasons it is Still Set to Soar

READ MORE
Newsletter
Category
Archives
Popular

No posts available

Videos

When will Silver Break Out? Is Triple Digit Silver Still on the Cards?

Is Gold Still in a Bull Market?

Gold Mining Operation Supply Issues Points to a Sustained Bull Market for Gold

Blog posts

Quantitative Easing: A Boon or Curse?

Central banks’ massive Quantitative Easing (QE) programs have come under scrutiny many times since the central banks fired up the printing press and began quantitative easing programs en masse after the 2008-09 Great Financial Crisis. However, the increase in central bank assets due to quantitative easing programs during the crisis pale in comparison to the […]

READ MORE

The Fed’s Inflation Gamble Continues

The fed’s inflation gamble continues… Are central banks trapped? Last week’s Fed statement and the press conference that followed proved to be the start of a US$90 (4.8%) decline in the gold price. Fed on Economic Recovery The Summary of Economic Projections (known as the dot-plots) released with the statement showed that committee members changed […]

READ MORE

Gold to Gain Momentum in 2021 – Here’s Why

Big ideas are like supertankers filled with oil; both take forever to get moving. The move from one state to another is a boring form of entertainment. However, each is impossible to stop once the momentum has built. Substantial progress can be seen over a period of time and one can notice and understand the […]

READ MORE

Featured

Gold, the Tried-and-True Inflation Hedge for What’s Coming!

READ MORE

How High is Too High for Rising Government Bond Yields?

READ MORE

Silver – 7 Reasons it is Still Set to Soar

READ MORE