Don’t get whipsawed!
Recent conditions have clearly been of a bear squeeze on the paper shorts. Overnight trading today has seen gold and silver marked down sharply. So what’s going on?
ALASDAIR MACLEOD
As a correction, it looks perfectly reasonable, with perhaps another $50—$60 downside.
But that’s forgetting an important factor: this run has been on a mega-bear squeeze, which saw Comex Open Interest unusually decline by 45,000 contracts, while the price climbed from $2540 to $2670 last Thursday.
The additional rise on Friday (+$45 to $2715) was driven by hedge funds seeing the squeeze, driving Comex Open Interest up 9,182 contracts on provisional estimates.
Clearly, the bullion banks are synchronising a hit to take out hedge fund stops while their managers are tucked up in bed.
We have seen this before, most notably the attack on silver in April 2011 when it challenged $50.
Only this time, the degree of speculation in gold is relatively insignificant, and we can expect the squeeze to continue even without hedge fund participation.
But there are bigger tectonic plates shifting in the background.
We face a period of heightened tension between America and Russia in the dying days of the Biden administration.
The provision of cruise missiles and American guidance systems to Ukraine appears to be the neocon’s last gasp before they face a new Trump administration set to abandon support for Ukraine.
The question arises as to what Russia will do to counter this new aggression.
The neocons appear to be gambling on Putin restraining his nuclear options.
But the quantity of cruise missiles supplied to Ukraine is very limited in numbers, and Russia shoots most of them down.
Putin might be patient.
But we should look at this from Putin’s viewpoint.
Other than exercising patience, which he is proven to do, he has more aggressive options to deploy.
At this stage I think we can rule out direct attacks on NATO territory as too escalatory.
Instead, he has other alternatives to make the Biden administration’s life difficult:
· Russia can step up its support for Iran in her undeclared war against Israel.
· Encourage China to step up pressure over Taiwan.
· Step up financial pressure on the dollar.
If I was Putin, I would probably squeeze Biden with all three, as well as increasing pressure on Ukraine as a prelude to negotiating with Trump.
What is relevant with respect to gold is the financial pressure on the dollar.
I notice that the rouble has weakened significantly against the dollar (and more so against gold).
The chart below is of roubles per dollar, inverted.
The reason for the rouble’s weakness is said to be relaxation by Russia of capital controls.
Could this be a prelude to Putin announcing some sort of link between the rouble or the price of Russian oil and gold?
If so, a deliberate weakening of the rouble ahead of an announcement makes sense.
The other side of this story would be the undermining of the dollar, which more than anything would strengthen Russia’s position vis-à-vis America.
We shall see.
But anyone tempted to sell physical gold at this juncture could be making an enormous mistake, and that’s even without factoring in the deteriorating value of the fiat dollar which is the principal reason for getting out of all fiat credit.
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