Gold & Silver: Out of Favor, About to Take Off?

by Wes Bridel on October 21, 2011

in Stewardship

Gold and Silver have lost all favor.  We’re started a series discussing the precious metals markets here, and those pieces will continue, but some important information has come out between the time we wrote the series and the time we’re editing them for the blog.  This post will quickly address this important information.

The Weekly Commitment of Traders Reports and Monthly Bank Participation Report came out after the big smash down in the price of gold and silver.  We’re not going to get real technical with it here because if you’re into that, you’re probably getting that information elsewhere.  The main points are: 1) That the bullion banks (the 4 or less traders… aka JP Morgan Chase) have their smallest short position in years, & 2) The other commercial traders have their smallest long position in years!

This is an extremely bullish set up.  The biggest seller in the market has drastically reduced their short position and managed to take out all the other big players who were long the paper market in gold and silver (remember this has absolutely nothing to do with the actual physical market for gold and silver which is actually booming in sales with these low prices.)

This typically is a sign that the metals will begin their dramatic rise again.  The bullion banks have gotten everyone who is likely to to sell.  Pushing the price lower by selling more hurts them more than it helps them because they get loaded up with additional shorts.  On the other hand, if they can get the market to panic they way they did, they can turn around and be one of the few buyers in the market and reduce their short position.  This is exactly what happened.

Another bullish factor… Sentiment in gold and silver is the lowest it’s been in years.  This means that there are now many people who are bullish about the future direction of the metals and can have their mind changed so that they turn into future buyers.  Sentiment is a contrarian indicator.  If everyone is bullish, there’s no one left to buy.  If everyone is bearish, there’s no one left to sell.  Sentiment is not horribly bearish, but it is the lowest we’ve seen in a couple years which has typically happened right around the time the market takes off again (if you examine sentiment over this 10 year bull market.)

So the setting for another bull run in gold and silver is set.  All that is needed is a catalyst.  Europe has been providing plenty of those lately and they no doubt will again at some point fairly soon.  This is not to say that a massive stock market crash could not take gold and silver a bit lower.  They certainly could.  But if you understand the way the biggest player by far (and no other markets have anything comparable) has been influencing this market for decades, and if you see how they are now set up, the market is ripe for another bull run.

As a matter of fact, it wouldn’t be a surprise if the bullion banks themselves are the catalyst for the next bull run up just as they were in August for gold and in the first quarter for silver.  It should be interesting to watch!

This is the 3rd post in a series on silver and gold. You can find all posts from this series at:  1) Gold & Silver on Sale, 2) Reasons to Buy Gold & Silver,  3) Gold & Silver: About to Take Off?,  4)  Why & How to Buy Silver & Gold?,  5) Gold Bubble?,   6) Gold Speculators or Savers?,   7) Gold Article Rebuttal, &  8)  Gold Rebuttal Pt 2.  Watch the previous economic update video series we did at: 1)  Europe Economic Update 1, 2) Europe Economic Update 2, 3) Europe Crises Explained, 4) World Economic Update, 5) US Economic Update,  6)  US Economic Update 2,  7)  US Economic Update 3,  8)  Hyperinflation Signs,  9)  Hyperinflation, Inflation, or Deflation?,  10)  Gold Update,  &  11)  Gold & Silver Update.

SocialTwist Tell-a-Friend

{ 0 comments… add one now }

Leave a Comment

You can use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>

Previous post: The Reasons to Buy Gold & Silver

Next post: Silver & Gold: Why? How?