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The Endless War on Gold and Silver - Craig Hemke (19/12/2018)

Image shows stacks of gold bars besides stacks of silver bars

Dec 19, 2018

Last week, we succinctly laid out for you what to expect for the end of this year and into 2019. Though, there are many reasons for optimism regarding higher precious metal prices next year, understand that The Banks are already taking steps to fight us every step of the way.

In case you missed it, here is the post from last week. The key takeaway is that Comex precious metal prices have rallied into year end and the first quarter for each of the past five years. Expect this year and the first quarter of 2019 to see similar gains.



But understand that this isn't going to be all sunshine and lollipops. While other analysts were rejoicing a few months ago and falsely proclaiming that The Banks were now long and on the side of precious metal investors, we were quick to point out that that simply was NOT the case. The Banks that make markets on the Comex were never NET long and they had no intention of "shifting sides" and "letting price run". We laid this out for you back in October and you should be sure to read these articles again now as new rallies begin:



Simply put, The Banks are not "on your side" nor will they ever be. They've profited for years by controlling open interest, sentiment and price so you must expect them to continue their efforts in 2019. And we've already seen this play out.

For example, over the past few months, the "Managed Money" portion of the Commitment of Traders report for Comex gold revealed a massive and unprecedented NET short position for the hedge and trading funds that make up this category. As you can see below, at one point in October, these funds were NET short 110,000 Comex contracts for about 340 metric tonnes of digital gold obligations. If The Banks had been "on our side", they would have forced these funds to be squeezed in price as they do not hold 340 metric tonnes of gold for future delivery. Instead, as you can see below, the entire position was covered as of December 11 with a net change in price of just $47. For all intents and purposes, The Banks let the managed money funds off the hook by re-assuming the short obligation from them.

This can be seen in the latest Bank Participation Report, as well. After drawing all the way down to a Comex gold NET short position of just 24,079 contracts on the October report, the 33 Banks surveyed for the report in December showed a summary position that had already grown back to 88,265 contracts NET short...even though price had rallied just $40 over the same time period. See here: https://www.cftc.gov/MarketReports/BankParticipati...

And now, with prices rallying once again, The Banks are back to simply playing the same old games they've played for years. This week alone, with the price of Comex gold up $12 or slightly less than one percent on Monday and Tuesday, The Banks have increased the total Comex gold open interest or "float" by nearly 15,000 contracts...just shy of four percent! Managing price by managing the supply of contracts is Price Manipulation 101 for The Banks. At TFMR, we wrote the definitive explanation of this back in April of 2017. If you've never read this post, you should definitely do so today: https://www.tfmetalsreport.com/blog/8252/econ-101-...

Thus in summary, while we expect a continuing rally through year end and into the first quarter of 2019...and though we expect 2019 to be a terrific year for precious metals due to a wide range of factors...no one should be under any illusion regarding The Comex and how it operates. As they've always done in the past, The Banks which operate there will fight us every step of the way and tick-for-tick. The Banks are not, nor will they ever be, "on your side" and thus no gains will ever come easy.

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About the Author

Our Ask The Expert interviewer Craig Hemke began his career in financial services in 1990 but retired in 2008 to focus on family and entrepreneurial opportunities.

Since 2010, he has been the editor and publisher of the TF Metals Report found at TFMetalsReport.com, an online community for precious metal investors.

*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.