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Bullion Banks Love Thin Markets

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It has been a snoozefest this week, following the volatility over the previous two. This is typical at this time of year, heading into the holidays, when traders take a vacation until the first of January. It has been made worse by a lack of material announcements that can move markets. The only data that fits the bill is Q3 PCE and the GDP price index on Thursday, and perhaps more importantly, the Core PCE numbers on Friday.

Core PCE numbers_on_Friday_d

Thin markets like these are ripe for volatility. Take the Bullion Banks for example. Their manipulation of markets is so blatantly obvious, it is predictable, as I forecast on December 3rd. The Banks love thin markets because it requires much less capital to move markets when liquidity is light. 


As of Tuesday, December 12, the Banks were net short Gold to the tune of 168k contracts. There was a slight drop from the previous week’s peak of 177k, which was the highest net short position since the peak in May. Back then, Gold peaked at 2085 and then entered a correction that would last five months into early October, when it bottomed at 1824 for a drop of $261 or 12.5%. I don’t expect a similar drop this time, but we should expect a sizeable reversal, such as a lower low below 1988.

Gold Prices to Go Lower? 

Back to that tiny 9k drop in their net short position from 177k to 168k. This followed a rout from 2152 to 1992 in just seven days, yet the Banks did not take the opportunity to cover their shorts and reap massive profits as always. Instead, they decided to hold on to 95% of those shorts. What does this tell me? The Banks—the smart money, the ultimate insiders—expect prices to go even lower. They knew thin markets were around the corner, and they also know it won’t take much capital to push Gold lower, taking out stops all the way down, with few traders at their desks to buy the dips.

Now consider the fact that Gold closed at 1993 on December 12, and now it’s around 2050. They have likely added back that 9k in short contracts and then some, and their overall position once again matches or exceeds that in May when Gold fell 12.5%. If Gold were to repeat this performance from 2050, we’re looking at a drop to 1793. But remember, we didn’t have thin markets the week of December 4, so this time it could be even worse than 12.5% and below 1793. 

To make matters worse, if and when Gold dumps, whatever few remaining traders are at their desks will not touch Gold with a 10-foot pole, making the market even less liquid.

Again, this is not a prediction but a reasonable hypothesis. For example, Gold could go higher towards 2100 first while Banks add even more shorts, and then Gold dumps 12.5% to 1837 or even lower.

What is a high probability, imho, is that the Banks are getting ready to slam Gold lower in a thin market. This could get very ugly.

I believe we are in an A-B-C correction from the peak at 2152. Wave A bottomed at 1988, and now we’re just waiting for the peak in wave B in order to determine targets for the bottom in wave C of wave ii. 

The following are just illustrations using two possible numbers for the peak in wave B, assuming standard A-B-C corrections where wave C is the same size as wave A (green) or C is 1.618 times the size of A (yellow).


Without knowing the peak of wave B, I can say that it is a reasonable assumption that the bottom in wave C will be below 1988, a lower low. “The low”, imho.

Sentiment remains relatively bullish, which also provides fuel for a sharp drop.

The daily RSI and MACD Line also have plenty of room to fall should they choose.

gold chart december

Future of Gold and Silver

What happens to Gold will likely be even worse for Silver. I am still anticipating a drop back to 21-22.

In summary, we may go a little higher first, but all else aside, the stage is set for a big drop in the metals over the holidays. But this will be a late Christmas gift, because I will be going all-in at “the low” for what happens next.



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About the Author

David Brady has worked for major banks and corporate multinationals in Europe and the U.S. He has close to thirty years of experience managing multi-billion dollar portfolios including foreign currency, cash, bonds, equities, and commodities. David is also a CFA charter holder since 2004.

Using his extensive experience, he developed his own process utilizing multiple tools such as fundamental analysis, inter-market analysis, positioning, Elliott Wave Theory, sentiment, classical technical analysis, and trends. This approach has improved his forecasting capability, especially when they all point in the same direction.

His track record in forecasting Gold and Silver prices since has made him one of the top analysts in the precious metals sector, widely followed on Twitter and a regular contributor to the Sprott Money Blog.

*The author is not affiliated with, endorsed or sponsored by Sprott Money Ltd. The views and opinions expressed in this material are those of the author or guest speaker, are subject to change and may not necessarily reflect the opinions of Sprott Money Ltd. Sprott Money does not guarantee the accuracy, completeness, timeliness and reliability of the information or any results from its use.


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