How did gold and silver really do in 2016 and where are they headed this year?

Musings on what is likely to happen with precious metals in the year ahead and a look at how they actually performed in 2016 – very much a year of two halves.  Precious metals behaved really strongly up to the July 4th Independence Day holiday in the USA – but from there it was virtually all downhill for gold and silver, with big sales out of the Gold ETFs to accompany, or some would say drive, the price downturn.  This article was published on sharpspixley.com and, in the context of the timing of the price downturn should perhaps be read in conjunction with an article I published on seekingalpha.com; GLD Drops 158 Tonnes Since Independence Day and another published on the same site which also included some stock picks: 2017 Predictions – Gold, Silver, PGMs, The Dollar, Markets and Geopolitics…

Gold is, as usual, somewhat unpredictable.  Its performance in 2016 will have been very much dependent on the performance of your local currency vis-à-vis the US dollar.  Even in the latter the actual year-end price is also dependent on location and timing.  For example year-end prices in US dollars in Shanghai, London and New York were sharply different – respectively US$1,185, US$1,159 and US$1,151 based on the SGE final benchmark price for the year, the final LBMA gold price setting in 2016 and the final New York spot price.

We can’t view SGE comparisons for the full year as it only commenced announcing its benchmark prices back in April, but from the final LBMA price for 2015 to that in 2016, gold rose 9.1% over the year.  In terms of New York prices gold rose a slightly smaller 8.5% over the year. On the other hand in Russian rubles the gold price FELL by 10.6% over the year as the ruble appreciated against the dollar after a very sharp fall in 2014/15.  On the other hand, in the Pound Sterling, the UK gold price rose 22.5% over the year!  The Brexit vote effect!

But, as far as the media is concerned it tends to be the US dollar price which is the only one which matters so let’s look at the prospects for the gold price in the year ahead in US dollars – and for the other precious metals as well.

While global geopolitics and economics all have an effect on the dollar price of gold, it will almost certainly be the US itself and the impact on it of the Trump Presidency’s policies which will be the primary gold price drivers.  If President Trump is perhaps as unpredictable as his performance through the runup to the election suggests then we could see some major domestic and foreign policy upsets in relation to what has gone before.  Trump’s stated policies on the US economy have proved popular with Wall Street, but may well not fly – at least not nearly as quickly as the general public might expect, or even at all.  This could all see a reversal in the seemingly inexorable advance of general equities and an about-turn by the Fed in terms of interest rate rises, both of which would likely see a boost in the gold price.  Indeed general equities could crash given that they look to be overbought and in most cases earnings don’t look sufficient to justify the high prices currently prevailing.  At some stage the stock price bubble will surely burst.  Some ‘experts’ are predicting a crash of epic proportions – perhaps 80% -but although this is indeed possible we reckon that if there is a major correction ahead it will be more in the order of 50% as in the 2008/9 crash when the Dow fell around 55% at one time.

Should an equities market crash of this magnitude occur again, similarly to 2008 the gold price could be brought down sharply too as funds and investment houses struggle for liquidity and a fall to $1,000 or thereabouts wouldn’t be out of the question but again, as in 2008/09, gold would likely recover far faster than equities and then go from strength to strength as its safe haven role would become paramount again.  Where gold might end 2017 therefore could be a matter of timing.  If equities don’t crash, but perhaps correct by say 10-15%, then gold could well hit the $1,400 mark during the year.  If there is a major equities crash and it happens early in the year, gold could still hit the $1,400 mark – and steam on upwards in 2018, but if there is an equities market crash, and it peaks in the final quarter of the year then gold could well end the period in a much weaker position – but still steam ahead in 2018.

On Foreign policy there would appear to be, on the face of things, the likelihood of a rapprochement with President Putin’s Russia – if Congress allows this to take place.  The nomination of Rex Tillerson as Trump’s Secretary of State certainly suggests a change of relationships here, although it is yet possible that Tillerson’s nomination may be rejected by the Senate.  Trump may well be trying to take a leaf out of President Ronald Reagan’s book whose positive relationship with Russia’s Mikhail Gorbachev led to the end of the arms race, perestroika and effectively the end of the US/Russian stand-off, which now seems to be being resurrected by the current leaderships of two of the world’s three superpowers.  But while Trump may be heading towards a less hostile relationship with Russia, he also looks as though he may also be stirring up problems ahead with the third major superpower, China.

Domestic and foreign policy uncertainties may form the crux of a gold price resurrection in 2017.  This may already have started in 2016, but big financial sector interventions from around mid-year succeeded in nipping that in the bud – even so gold was up around 8% over the year and silver an even higher 15%.  This was after being up respectively around 25% and 45% immediately after the US independence Day holiday – a turnaround date which saw inflows into the world’s largest gold ETF switch to major outflows (See: GLD Drops 158 Tonnes Since Independence Day).  The referenced article looks at the seemingly pivotal impact of major holidays in the USA seemingly often providing the inflection points for complete changes in investment sentiment with respect to precious metals prices.

Where all the political and economic uncertainties which lie ahead will impact is probably on the strength, or otherwise, of the US dollar.  It is currently riding high, in part due to the US Fed’s 25 basis point interest rate rise and the avowed prospect of two or three more such increases during the year.  But those with even short memories may recollect that the Fed promised the same thing for 2016, but didn’t deliver.  Could it be déjà vu all over again in the immortal words of Yogi Berra!  We doubt the Fed will move until after it sees the initial impact on investment sentiment of the Trump Presidency.  The Fed’s FOMC meetings this year are scheduled for Jan. 31-Feb. 1, March 14-15, May 2-3, June 13-14, July 25-26, Sept. 19-20,. Oct 31-Nov. 1 and Dec. 12-13, thus we doubt any move to raise rates will happen until at least the May meeting, and perhaps not until June unless there’s a huge (and in our view totally unjustified) equities surge immediately following Trump’s accession to the White House.  If Trump’s supposedly business-friendly initiatives run into serious opposition in Congress then the dollar may well suffer.

But, there’s little doubt that dollar strength will be important for the gold price and the prospects of a trade war with China and the unwinding of some other key trade agreements, which Trump appears to wish to implement, could be destabilising for the greenback.  It is also perhaps not in US interests for the dollar to appreciate further – the dollar index (DXY) is currently comfortably above 103 which is a new record having varied between 91 and 103 during 2016, and this may colour the Fed’s thinking on interest rate rises too.  A high dollar makes US exports less competitive (which is why so much US company manufacturing activity has moved offshore), and imports cheaper, which would be a further blow towards trying to balance the nation’s current account.  We suggest that, over the course of the year ahead, the Fed will move surreptitiously to bring the dollar index down to perhaps a level of around 95, which is not conducive to further interest rate rises and which is gold positive.

While gold opened higher in early New Year trade, it rapidly lost ground, falling below the key $1,150 mark in Europe.  It remains to be seen how the US will react once markets open there.  But again, in 2016, it opened the year weaker before surging upwards.  Will this year see a repeat?

If we are correct in our assumptions about gold and we do see something of a repeat of 2016, then silver will do even better.  The gold:silver ratio (GSR) has slipped back to over 72, up from around 66 when silver peaked in mid 2016 (it had started the year near 80 and at one stage had risen to close to 84) but we think that if gold does perform then a GSR of around 65 could be seen again given silver tends to outperform gold in a rising gold scenario – and if gold hits $1,400 then silver could rise to over $21, still a huge way short of the near $50 it hit back in 2011 before a massive price takedown.

So overall a positive view of the gold price in the year ahead and perhaps an even more positive one on silver, BUT if there is a general equities crash as many doom and gloom merchants are predicting (and the uncertainties surrounding the Trump Presidency would perhaps make this even more likely) then booth gold and silver could suffer heavily in the financial fallout.  The comfort here is that would likely not be as intense a fall as the equities market and the recovery would be far quicker.

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Surprise sale from GLD and strong U.S. jobs report knocks gold price back

Gold TodayGold closed in New York at $1,359.10 on Thursday after Wednesday’s close at $1,364.00.  In Asia the gold price also fell slightly further as you can see below  

  • The $: € slipped to $1.1075 down from $1.1066.
  • The dollar index was almost unchanged at 96.15 from 96.17 yesterday.
  • The Yen was slightly weaker at 100.55 from at 100.00 against the dollar.
  • The Yuan was slightly weaker at 6.6883 from 6.6820 yesterday.
  • The Pound Sterling fell to $1.2942 down from $1.2968 with more falls expected next week as the B. of E. adds further easing of interest rates!

Yuan Gold Fix

Trade Date Contract Benchmark Price AM Benchmark Price PM
2016  07  8

2016  07  7

SHAU

SHAU

291.58

294.54

292.05

294.43

Dollar equivalent @ $1: 6.6883

$1: 6.6847

$1,355.97

$1,370.54

$1,358.16

$1,369.96

The fall in the Yuan is now on a gently continuous basis. It is being engineered in such a way that it has, to date, not alarmed the markets, which are consumed by the fall in sterling at the moment. For there to be a U.S. outcry on the Yuan’s weakening, as seen in the past, would lack credibility when we see the current turmoil in the markets.

LBMA price setting:  $1,356.10 down from Thursday 7th July’s $1,367.10.

The gold price in the euro was set at €1,225.25 down €7.21 from Thursday’s €1,232.45.

Ahead of the opening in New York the gold price stood at $1,347.80 and in the euro at €1,223.00.  

Silver Today –The silver price closed in New York at $19.67 yesterday down from $20.09 the day before.  Ahead of New York’s opening the price was trading at $19.50.

Price Drivers

Whenever you get that feeling that the way higher is free of obstacles, profit taking usually kicks in or a simple pause or consolidation comes in. That’s what’s happening now. While we had not seen any physical gold sales out of the gold ETFs we follow until now, the appearance of one dampens euphoria. Today, is an expression of that.

But when we look at the Technicals, the picture tells us that the price restraint will not last for long at all. Indeed, today may be seeing all that restraint disappear.

In the U.S. a much stronger than expected jobs report caused some wild fluctuations in the gold price with a knee jerk drive down to the $1,335 level before an almost equally rapid climb back to the $1,350s from whence the fall started.

On the fundamental side, we see Chinese demand starting to recover now. The news out of China that auto sales are up 19% confirms that Chinese middle class numbers are burgeoning, despite an overall slowdown economically. We focus on the middle classes because they drive Chinese demand for physical gold. With an estimated eventual 500 million Chinese middle classes on the way, the demand for gold will completely overwhelm available supplies.

In India markets are becoming euphoric, as the monsoon is now covering the entire country promising a strong rise in gold demand from that country too. With the U.S. demand for physical gold at levels last seen when gold was headed to its peak, the only restraint we see on the gold price is an Indian propensity to hold back when prices are rising strongly. They prefer to buy either on the fall or when a base is established.  But such caution is overwhelmed when it comes to your wife’s demands when a daughter’s wedding comes up [September to May].

In China gold investors buy when the disposable income is there, with the only restraint being how much that money can buy. This diminishes as prices rise, falling by the same percentage basis that gold prices rise.

Gold ETFs – In New York yesterday there was a sale of 4.158 tonnes from the SPDR gold ETF leaving its holdings at 978.286 tonnes. But there were no purchases or sales from or to the Gold Trust leaving its holdings at 213.19 tonnes.

What is a surprise, but shouldn’t be, is the sight of a sale of gold from the SPDR gold ETF. It’s not a small sale either. We are used to holders of the shares of this fund buying to hold for the long term, so the sight of the first sale of any significance for months, causes a surprise to all. But for there to be either a trader of a stale bull in this fund should be considered as a ‘normal’ market event.

Since January 4th this year, the holdings of these two gold ETFs have risen by 394.69 tonnes.

Silver –Silver prices are still pausing, but we expect for only a short while before moving higher, again.

Julian D.W. Phillips

GoldForecaster.com | SilverForecaster.com | StockBridge Management Alliance [Gold Storage geared to avoid its confiscation]

Silver through resistance and gold preparing to run higher

Gold TodayGold closed in New York at $1,343.70 on Friday after Thursday’s $1,323.70.  In Asia the gold price again jumped higher and London was trying to pull the gold price lower just after its opening.  

  • The $: € slipped to $1.1124 up from $1.1152.
  • The dollar index moved lower to 95.73 from 95.89 Friday
  • The Yen was unchanged at 102.65.
  • The Yuan was weakening to 6.6663 from 6.6572 on Friday.

Yuan Gold Fix

Trade Date Contract Benchmark Price AM Benchmark Price PM
2016  07  4

2016  07  1

SHAU

SHAU

290.07

284.54

290.01

285.50

Dollar equivalent @ $1: 6.660

$1: 6.6572

$1,354.68

$1,329.42

$1,354.40

$1,333.90

Shanghai took the lead again ahead of London’s opening, as the perspective on the global economy continued to point to more deflation and national monetary policies targeted more easing.

The Yuan continues to weaken, as you can see above, against the U.S. dollar. The dollar itself continues to weaken against the euro as a result of behind the scenes activity. We see this as more than just protecting the U.S. economy, but a stabilizer in the foreign exchange world itself. The Pound appears to be stabilizing now too.

LBMA price setting:  $1,348.75 up from Friday 1st July’s $1,331.75.

The gold price in the euro was set at €1,211.60 up €12.40 from Friday’s €1,199.20.

With New York closed for Independence Day, the gold price in London’s afternoon was trading at $1,350.70 and in the euro at €1,212.80.  

Silver Today –The silver price closed in New York on Friday at $19.70 almost a dollar higher than Thursday’s $18.26. In London’s afternoon the silver price stood at $20.18.

Price Drivers

With New York closed today, our audience is either those whose interests/positions demand they keep in touch or in countries where business is as usual. All of us are slightly open mouthed at the strong rises in both gold and in particular silver, of late. It is a good opportunity to reflect on the global ‘big’ picture. In summary this points to a solid, rising second half of the year for both gold and silver prices.

The prime reasons for the rises are that both their Technical pictures have moved out of the consolidation area into ‘new territory’. Silver’s breakout is clearer than gold’s at this moment.

Over the coming weeks and months the ramifications of ‘Brexit’ on the global economy will give us a measure of just how much of a tectonic shift in the world economy it was. The most visible impact has been a lowering of the expectations for interest rates and the heightened economic risks to the world.  The risk factor pulls markets down and the low interest rates should push both bond and equity markets up. That mix is expressing itself in market levels now. But equity market rises are not for the right reasons. The future is not improving economically, quite the reverse, so markets are rising [where they are doing so in the world] because of better yield offerings. Most agree that the future of the global economy is extremely worrying, which is why gold and silver are gaining more and more momentum. This is a trend change from the last three years in precious metals and will not reverse until we see some of the last eight year’s hopes become realities. This is unlikely!

A growing fear is now becoming that deflation’s grip will grow in a world where the capacity and competence of the governments and central banks is insufficient to combat the downturn in the developed world. The current efforts are focused on undermining currencies, which is showing itself in currencies weakening against gold.

Gold ETFs – On Friday the holdings of the SPDR gold ETF jumped another 3.86 tonnes leaving their holdings at 953.914 tonnes and the holdings of the Gold Trust remained the same as the day before, leaving its holdings at 208.17 tonnes.

Since January 4th this year, the holdings of these two gold ETFs have risen 365.298 tonnes. According to Bloomberg, the total increase in ETF gold holdings is over 500 tonnes. This far exceeds expectations of central bank’s purchases for the entire 2016.

Silver –Silver prices have burst through overhead resistance and sees little if any resistance to rises for some way.

Julian D.W. Phillips

GoldForecaster.com | SilverForecaster.com | StockBridge Management Alliance [Gold Storage geared to avoid its confiscation]

Large GLD purchase strengthens gold price

Gold Today –Gold closed in New York at $1,269.30 on Thursday, falling slightly in London at the opening on Friday morning.

The $: € moved from $1.1299 to $1.1346 overnight. The dollar index is standing at 94.20 up from 93.89.

China remains on holiday

LBMA price setting:  $1,266.60 up from Thursday 9th June’s $1,258.35.

While the dollar is not rising significantly, the E.C.B. and many other central bankers want to see it rise. The Fed doesn’t want to see this and behind the scenes continues to discourage any rise. But the forex markets are not seeing any acceptance of this. The central banks keep enacting policies to weaken their currencies to gain trade competitiveness and the U.S. appears constant in its actions to see the dollar keep current levels or weaken it. As such, there is a currency war and it is unlikely to go away. This makes for fragile foreign exchanges.

The Fed expressed concern that the ‘Brexit’ referendum could affect the Fed’s perception of future rate rises. How? If the vote is for an exit, capital will try to flow out [Pounds 65 billion and more has already left the island’s shore and this number should rise ahead of the vote] substantially.

The question is, “Will the ‘Dollar Premium’ be revisited from its 1971 stay? This will disrupt foreign exchanges far more than it did in 1971.

If the vote is to stay, forex volatility will soar as funds flow back to Britain quickly. The Fed is likely to wait for forex markets to settle before it takes any action.

The gold price in the euro was set at €1,120.98 up from yesterday’s €1,108.19

Ahead of New York’s opening, the gold price was trading at $1,268.40 and in the euro at €1,122.33.

Silver Today –The silver price closed in New York at $17.30, up from Thursday’s $17.05 a rise of 25 cents. Ahead of New York’s opening the silver price stood at $17.29.

Price Drivers

As we know China wants to use the Yuan in its international trade and get away from the U.S. dollar as much as it can. The international trade by China is seeing the use of the Yuan climb steadily, rising 5% over the last year. We expect this number to rise at a much accelerated pace in the future.

It makes little sense to invoice in the dollar then convert into Yuan when one can pay and be paid in Yuan immediately. The costs of the transactions drop significantly, as do the dollar exchange rate risks. More than that, as the Yuan exchange rate falls [as appears to be the policy for the foreseeable future] exporters find such trade more profitable. Importers too would prefer to pay in Yuan passing the risks to their suppliers. But the main benefit of using the Yuan in such trade is to move away from any influence the U.S. may have on China’s business.

This undermines the dollar still further, as the global reserve currency. Every increase in the use of the Yuan is a decrease in the use of the dollar and consequently justifies holding the Yuan in nation’s forex reserves and lessening the amount of dollars held by other nations. Over time this will benefit gold and silver prices as gold steps in where disruptions surface in such trade.

Indeed, the prospects of oil prices holding at current levels, O.P.E.C. moving to a point where they accept currencies other than the dollar for their oil and a rising use of the Yuan points to a considerable smaller usage of the dollar in global trade than has been the case until now.

Gold ETFs – On Thursday the holdings of the SPDR & gold Trust rose as 6.238 tonnes was purchased into the gold ETF, leaving its holdings at 887.383. No purchases or sales were made in the Gold Trust leaving its holding at 196.90 tonnes.

This purchase, in one day, was sufficient to move the gold price in the U.S. and this price is holding in London ahead of New York’s opening.

Silver –After the rise in the silver price of the last few days, we expect a pause in the price as it consolidates.

Julian D.W. Phillips

GoldForecaster.com | SilverForecaster.com | StockBridge Management Alliance

Gold and silver boosted by weak U.S. jobs report

Gold TodayGold closed in New York at $1,243.90 on Friday, and stood at $1,240 in Shanghai on Monday morning, but then moved to $1.243 in London’s Morning.

The $: € moved from $1.1240 to $1.1353 over the weekend.

LBMA price setting:  $1,240.55 up from Friday 31st May’s $1,221.25.

Yuan Gold Fix

Trade Date Contract Benchmark Price AM Benchmark Price PM
2016  06  06

2016  05  31

SHAU

SHAU

262.48

257.60

262.51

257.26

Dollar equivalent @ $1: 6.5671

$1: 6.5901

$1,243.17

$1,215.80

$1,243.32

$1,214.20

Last week’s rise in the gold price was reflected in Shanghai today, clear evidence that the Yuan gold Fixes are following U.S. and London prices, at the moment.

We are watching closely to see if Janet Yellen’s comments today will also be reflected in Shanghai gold prices following the U.S. prices. We continue to see the slight but steady fall in the Yuan against the U.S. dollar but last Friday’s fall of the dollar caught Shanghai by surprise. We do expect the rise that followed the dollar’s fall to fade away again as the Yuan continues to fall.

The gold price in the euro was set at €1,092.714 down from a week last Friday’s €1,086.52.

Ahead of New York’s opening, the gold price was trading at $1,244.55 and in the euro at €1,096.23.  

Silver Today –The silver price closed in New York on a week last Friday at $15.99, up from Thursday’s $16.32 a fall of three cents. The silver price jumped to $16.40 on Friday a level it began at this week.

Ahead of New York’s opening the silver price stood at $16.47.

Price Drivers

We were travelling for the last week, which allowed us to gain a clearer perspective on the gold and silver prices. In the last week these were lackluster though the week until the jobs report came out. That galvanized the market which jumped around 3%. The rise came because of the impact on the $:€ exchange rate which tumbled to today’s level of $1.1353.

Today sees Janet Yellen again comment on the U.S. economy and we expect her to try to calm markets after the poor jobs report on Friday. It is now two months of relatively poor numbers on this front and the perception is that the U.S. economy is cooling. The global economy certainly is, as evidenced by the poor German factory orders index, which fell by 2% last month. The fall covered a wide range of products.

After factoring in a rate rise, markets reacted brutally to the disappointment of not seeing one. The dollar tumbled and gold and silver jumped over 2%. This emphasized that the gold and silver markets, in line with other major markets, are reacting to the moves of the dollar. We were among the first, if not the first to call the end to the dollar bull market. Since we made that call the dollar index has not approached the 100 level and is now likely to weaken still further, particularly against the euro.

Before we went travelling last week we had included a comment by Mr Abe of Japan who came out openly and warned of a potential “Lehman” moment in the global economy, if nations do not do something to stimulate growth. We expect his comment will be taken more seriously as the days roll by. Certainly if we continue to see evidence of a slowing global economy the ratio of debt to GDP will grow, placing most countries in line to see a crisis of one sort or another.  

The jump in gold and silver prices was due to the falling dollar, but we expect physical demand to follow through over time. Over last week this happened, but we do expect to see more rises this week, in the U.S.A.

Gold ETFs – On Friday the 31st May the holdings of the SPDR & gold Trust were at 868.662 and 198.89 tonnes, respectively.  On Friday 3rd June they stood at 881.436, a rise of 12.774 tonnes over the week. In the Gold Trust we saw a fall of 1.99 tonnes, leaving the Trust’s holdings at 196.90 tonnes.

Silver –The silver price has not moved much since Friday’s $16.39 but we expect the silver market to need to digest the Friday’s job numbers too. More reactions should be seen in the week, if Janet Yellen fails to convince the market that all is well in the U.S. economy.

Julian D.W. Phillips

GoldForecaster.com | SilverForecaster.com | StockBridge Management Alliance

Prospects for gold and silver brightening by the day

Gold TodayGold closed in New York at $1,273.70 up from Thursday’s $1,268.50. On Monday morning in Asia it rose to $1,280, as the Yuan slipped further against the dollar, before the LBMA price setting in London.

LBMA price setting:  $1,281.00 up from Friday’s $1,275.15.

Yuan Gold Fix

Trade Date Contract Benchmark Price AM Benchmark Price PM
2016  05  16

2016  04  13

SHAU

SHAU

268.68

266.05

269.39

267.51

Dollar equivalent @ $1: 6.5492

+$1: 6.5407

$1,276.02

$1,265.17

$1,279.39

$1,272.11

Once again, Shanghai led the way higher after a lower New York close. The Gold Fixing in Shanghai’s morning was $2.32 higher than New York’s close but again rose at the afternoon Fix to a price close to London’s morning LBMA price setting.

The gold price is still in a tight trading range and still dominated by exchange rates. It remains at a point where a strong move will take place, but whether it is today or later this week remains to be seen.

The dollar index is almost unchanged at 94.53 up from Friday’s 94.33. The dollar is also slightly stronger against the euro at $1.1325 up from Friday’s $1.1348.

The gold price in the euro was set at €1,131.13 up from Friday’s €1,123.68.

Ahead of New York’s opening, the gold price was trading at $1,286.40  and in the euro at €1,135.22.  

Silver Today –The silver price closed in New York on Friday at $17.10 lower than Thursday’s $17.07. Ahead of New York’s opening the silver price stood at $17.33.

Price Drivers

The drivers of the gold and silver markets are primarily exchange rates, which are currently moving against a backdrop of waning global growth. Since 2008 the prime engines trying to bring about a recovery have been central banks using monetary policies. These have produced limited results that, to us, are in the process of losing effectiveness. Their efforts are to be commended particularly considering they were not designed to do the job, just support government when they did the job. But the track record of governments, whether it is the U.S., E.U. or Japan is very poor. Consequently, after 8 years since the credit crunch, recoveries are weak, debt levels higher than in 2008 and prospects for the global economy are uncertain. All of this synthesizes in the monetary system which is in the process of changing to a multi currency system from dollar hegemony. The ruptures these will cause are close now but have yet to be felt fully.

These are the reasons why the prospects for gold and silver are brightening by the day and why institutional investors of note are lauding gold’s qualities. The uptrend in gold and silver has started, but has yet to move into second gear. We are close to that happening now.

Gold ETFs – Friday saw purchases of 5.943 tonnes of gold bought into the SPDR gold ETF and 0.6 of a tonne into the Gold Trust. This leaves their holdings at 851.132 and 198.38 tonnes in the SPDR & Gold Trust, respectively.  

This was a substantial purchase and one that should have moved the gold price more. It was recognized in Shanghai where gold prices did rise. The continuous buying of the shares of gold ETFs this year is significant and starting to be recognized by the large institutions, who are now joining the view that gold has moved to the uptrend after nearly three years of low prices.

Silver – Repeat: The Silver price continues stable and keen to move behind the gold price.

If government trusts gold so much, shouldn’t you?

Gold TodayGold closed in New York at $1,244.10 down from $1,256.00 on Monday. On Tuesday morning in Asia, ahead of London’s opening it was pushed higher to $1,258.00. London pulled it back to see the LBMA price setting at $1,251.80 up from $1,244.25 yesterday.

The dollar index rose today to 95.61 after yesterday’s 95.12. More institutions are now accepting that the dollar’s bull run is over.

The dollar is stronger against the euro at $1.208 up from yesterday’s $1.1277.

The gold price in the euro was set at €1,116.88 up from €1,103.30 yesterday. Now the gold price is rising with the dollar again, contrary to ‘normal’ behavior.

Ahead of New York’s opening, the gold price was trading at $1,254.00 and in the euro at €1,116.95.

Silver Today –The silver price closed in New York at $15.86 up 4 cents on yesterday. Ahead of New York’s opening the silver price stood at $15.90.

Price Drivers

The gold price jumped $14 this morning as the dollar strengthened slightly. ETF buying is still underpinning prices in this volatile U.S. gold market. This is expected to be an ongoing pattern in the days ahead.

We usually hear two criticisms of gold, first that it gives no yield and second that it is bought in times of uncertainty.

As we see negative yields popping up in several countries and likely more to come, gold is now ‘yielding’ more than such currencies. Mervyn King, ex-Governor of the Bank of England, pointed out yesterday that interest rates are now a central bank tool to lower exchange rates. It is traditional thinking to believe that yield is very important and they will run to deposits as low-risk places to park savings. Today, such thinking is almost irresponsible, because you could deposit your money in the U.S. dollar, say, a month ago, to get a miniscule annual yield [before fees] and see it fall 4%+ within just a month! It’s worse in most other currencies! Gold, meanwhile, is an anchor to value.

As to gold being bought in times of uncertainty, what uncertainty? Economic uncertainty, or currency uncertainty? We suggest that it is currency uncertainty, which reflects central bank handling of currencies and their values. In each country this is different. With the dollar bull market now over, other currencies are going to struggle to fall, but all are likely to fall against gold as global currencies continue to fall, but not so much against each other, but in credibility.

In the developed world, there is a point at which investors will want to turn to gold heavily, but likely it will be too late to get low prices, as Asia has been sucking up available supplies for years now.

The classic example of distrust in a government controlled financial system is India, where distrust of government and banking has led to the population having an alternative financial system based on property and gold, usually out of sight of the government, because of the corrupt system of financial policing and bureaucratic interference.

In the developed world, trust in government and the banking system is complete, with the banking system essentially controlling all our transactions and taking fees from them. Until 1933 gold was an alternative, but this was removed as such, by confiscation. What happened to that gold? Government in the U.S. banned its use by individuals for 41 years and placed it in their reserves. Why? Governments needs that gold as insurance against their potential failure in managing currencies. If government trusts gold so much, shouldn’t you?

Gold ETFs There were purchases of 2.676 tonnes of gold into the SPDR gold ETF yesterday but no change in the Gold Trust. The holdings of the SPDR gold ETF are now at 821.661 tonnes and at 192.72 in the Gold Trust. While the purchase of gold into the SPDR gold ETF was significant it was not a huge amount relative to recent purchases. What is significant is that these sales did not touch gold prices until this morning in Asia.

Silver – The silver price continues to run ahead of gold and is showing a sterling performance today. It hasn’t broken away from gold yet and remains reliant on gold to give it direction. We continue to believe it is priced as a monetary metal, not on its fundamentals.

 

Julian D.W. Phillips

GoldForecaster.com | SilverForecaster.com | StockBridge Management Alliance

 

Gold keeps pushing higher – slowly but surely

Gold TodayGold closed in New York at $1,268.00 up from $1,260.80 in New York on Monday. In Asia on Tuesday, it moved higher to $1,274 and then in London until the LBMA price setting was set at $1,274.10 up from $1,267.60 yesterday. The dollar index is slightly lower at 97.17 down from 97.61 on Monday.

The dollar is down against the euro at $1.1009 from $1.0963 Monday. The gold price in the euro was set at €1,157.33 down from €1,156.25.

Ahead of New York’s opening, the gold price was trading at $1,277.70 and in the euro at €1,159.86.  

Silver Today –The silver price closed in New York at $15.65 up 16 cents.  Ahead of New York’s opening the silver price stood at $15.67.

Price Drivers

China saw 25% lower exports last month, but that month included the week long Chinese Lunar New Year, so a lower figure was expected. Likewise imports dropped 13%+. Because of that the falls should not be taken as a ‘hard landing’ for China. But it is clear that global growth is declining steadily. Monetary policy certainly won’t reverse this. Therefore the environment for gold remains positive and will do until governments across the world take effective action to promote growth.

Gold ETFs The holdings of both the SPDR gold ETF and the Gold Trust remained the same yesterday. This is the second day running that the holdings were barely changed and yet the gold price keeps pushing higher, slowly, but surely. This certainly does not have the appearance of a ‘spike’ but a steady solid set of rises.

COMEX  is seeing short covering and increases in long positions. A look at today and yesterday’s gold price shows that COMEX is no longer leading the way, but following prices as they rise now. Dealers too are getting more confidence in the gold price holding these levels.

We do see gold and silver markets remaining very volatile in New York in the coming days as liquidity levels remain under visible pressure. However, after yesterday, we expect the volatility to come in taking gold higher. Bear in mind, please, that physical gold buying in these markets does not create ‘spikes’. We expect COMEX to cause volatility as liquidity pressures continue, while London calms the market.

Silver – The silver price looks like it will hold its gains and move higher with gold.

 

Julian D.W. Phillips

GoldForecaster.com | SilverForecaster.com | StockBridge Management Alliance

 

And still the U.S. gold ETF buying goes on

Gold TodayGold closed in New York at $1,240.90 up from $1,232.70. In Asia on Thursday, it held slightly higher at $1,241 ahead of London’s opening. It then held there to be set by the LBMA at $1,241.95 up from $1,229.35. The dollar index is slightly lower at 98.21 down from 98.45.

The dollar is down against the euro at $1.0879 from yesterday’s $1.0853 on Thursday. The gold price in the euro was set at €1,141.60 up from €1,132.78.

Ahead of New York’s opening, the gold price was trading at $1,243.25 and in the euro at €1,142.80.  

Silver Today –The silver price closed in New York at $14.95 up 11 cents.  Ahead of New York’s opening the silver price stood at $14.95.

Price Drivers

Equity markets continue to rally today. But as the trading range tightens and the gold price moves to the top of the trading range, the prospects of a strong move happening comes closer. The tightening of the trading range implies a balancing between U.S. COMEX gold market buyers and sellers. Just as with a see-saw, once in balance, it takes a tiny amount on one or the other side to make the see-saw to move strongly one way or the other. We expect the trigger for this move to come out of the U.S.

London’s gold market is being bid for and there are two main contenders, apparently, the LME and the CME. The LME is owned by Hong Kong Exchanges and Clearing giving London a direct link to the Chinese market. For the London Bullion Market Association to remain relevant, it needs a link to the biggest physical gold market in the world. For it to go CME’s way it would be tied to the U.S. primarily paper market. Just as London is the developed world’s hub for Yuan trading so a tie to China’s gold market through the LME would keep London ‘relevant’ in the global gold market. This would enhance the structural reforms of the gold market being carried out in China and London right now.

So, if the bid goes the way of the CME, we would expect a divided global gold market. If the way of the LME we would expect the London gold price and the Shanghai gold price to far better reflect the demand and supply fundamentals than is the case at the moment!

Indian Gold Markets are on strike! As of now the Indian gold market is on strike against the 1% gold sales tax. This means that 35,000 jewelers across India including 7,000 in Chennai have downed tools.

The last time such a strike occurred, the government backtracked. Will they this time?

Gold ETFs An amount of 2.379 tonnes was bought into the SPDR gold ETF and a purchase of 0.27 of a tonne into the Gold Trust. The holdings of the SPDR gold ETF are now at 788.574 tonnes and at 190.14 tonnes in the Gold Trust.   But yesterday was different than the other days we saw in the week, because the equity rally continued and yet so did the gold buying.

Silver – The silver price lowered its volatile swings yesterday an rose with gold but still remaining under $15.00. If gold does jump $20 or just under 2% silver is likely to jump around 5%.

Julian D.W. Phillips

GoldForecaster.com | SilverForecaster.com | StockBridge Management Alliance

Gold pawing the ground as ETFs continue to build

Gold TodayGold closed in New York at $1,236.80 up from Thursday’s $1,208.20. In Asia, it started to slip back and kept slipping in London’s morning until the LBMA set it at $1,221.50 up from $1,204.40 up $17.10 at yesterday’s setting. The dollar index is barely changed at 96.88 after yesterday’s level of 96.85.

The dollar is slightly stronger again, against the euro at $1.1102 up from $1.1116 on Thursday. The gold price in the euro was set at €1,100.25 up from €1,083.48.

Ahead of New York’s opening, the gold price rose to $1,231.70 and in the euro at €1,108.24.  

Silver Today –The silver price stood in Asia at $15.49 up 22 cents at the close in New York.  Ahead of New York’s opening the silver price stood at $15.46.

Price Drivers

Thursday saw purchases of 2.677 tonnes into the SPDR gold ETF and a purchase of 1.11 tonnes into the Gold Trust. Physical gold purchases are returning into these two, U.S.-based gold ETFs as gold now consolidates in a pattern promising a strong move shortly. The holdings of the SPDR gold ETF are now at 713.631 tonnes and at 181.50 tonnes in the Gold Trust.

With U.S. investors now firmly on the buy side, gold is ‘pawing the ground’ ready for a strong move. We believe this move will catch most market professionals off-guard and delineate where gold and by extension, silver prices are headed now.

Volatility comes most strongly when liquidity levels are low. The 3%+ moves of the gold price both ways in the gold market on COMEX, in the last few days in particular, are clear indications of this. To us this is also a sign that New York’s pricing power is falling. London, where liquidity is higher sees prices move in smaller ranges and it continues to pull prices back or up because of this. But with the large amounts leaving London for Switzerland [for refining into metric measurements] and directly to Asia liquidity is slowly but surely being reduced there too.

Most commentators are ignoring the developments coming in the Chinese gold market that are to start in April. These are structurally important to the gold price.

Silver – The silver price is robust with American investors confident silver will not fall soon.

 

Julian D.W. Phillips

GoldForecaster.com | SilverForecaster.com | StockBridge Management Alliance

Gold touches $1200 in dramatic surge

Despite the Chinese market being closed for the Chinese New Year, the gold price has opened this week very strongly.  After a small dip overnight down to the mid $1,160s, it rapidly recovered any lost ground from Friday’s close, and then surged upwards through what many considered to be a key resistance level at $1,180.  At the time of writing it had pushed up to $1,196 and now commentators and analysts see it as heading to the $1,200 psychological level – a level it hasn’t see since June last year.  Indeed, as I write the gold price has surged from the high $1,170s to touching $1,200 in under an hour, before falling back to around $1,190.  Is this sign of the breakout the ardent gold bulls have been waiting for?

Sentiment towards gold appears to have made a complete sea change in the first five weeks of this year, not only in the world’s two biggest markets for physical gold, India and China, but now also in Europe and the USA, where the price tends to be set.  To an extent this is due to continuing serious nervousness in global equities markets.  For the past two to three years analysts have reckoned that gold had fallen out of favour as an asset class as far better returns were being made in the equities markets, but last year equities were largely flat, and ever since the U.S. Fed. commenced its so called interest rates normalisation programme, albeit with a tiny 25 basis points increase in mid-December. after a brief hiatus period equities have tanked and gold has been on the up.

Today, European equities markets opened lower, as did their U.S. counterparts, with the Dow falling back below 16,000 – it peaked last April at comfortably over 18,000.  Markets can move strongly in either direction, even in a day, but the overall trend since the beginning of the year has been sharply downwards.  The market pessimists have long been talking about a forthcoming equities crash, and now people are beginning to see this as a real possibility, and they are nervous.

Gold has thus been becoming a safe haven again.  We have seen purchases into the big gold ETFs heading towards erasing last years big liquidations in a matter of weeks.  Last week gold moved back up through its 200 day moving average, which reinforced other ‘buy’ signals, while panicky covering by some of the big holders of short gold positions will be adding to the surge.

Before gold investors get too euphoric though, it should be remembered that gold started last year really well too, with a similar surge, which took the then price up to around $1,296 by January 22nd – after opening the year at around the $1,170-1,180 mark (a rise of around 10% in only three weeks).  This year gold has risen so far by around 11% over five weeks – so a similar kind of increase.  Has the speed of the price increase been overdone?  Time will tell, and gold can be a somewhat fickle investment class, although long term it has tended to hold its value well.

Silver has not been immune to gold’s rise.  It was fixed this morning at the somewhat discredited London benchmark pricing system at $14.94 (although to be fair this was around the spot price at the time), but at the time of writing only a couple of hours later it had surged to $15.40 before falling back a few cents like its yellow sibling.

GLD gold ETF inflows year to date 21.8 tonnes

After outflows of 66.6 tonnes over the whole of 2015 – admittedly encompassing some sharp ups and downs before reaching the year end – the SPDR Gold Trust ETF (GLD), the world’s largest gold ETF, has already clawed back around one third of this in the first three weeks of the current year.  At the end of last week the total gold holding in GLD stood at 664.2 tonnes, a rise of 21.8 tonnes over the three week period.

While this is still only around half the peak holding of 1,351.5 tonnes reached back in 2012, it does demonstrate that perhaps gold is indeed coming back into favour as a safe haven asset….

The above is the opening of my latest article on shapspixley.com.  To read the full article click on Do GLD ETF gold inflows suggest a positive sentiment change?

Follow the Money: Billionaire Investor Makes Huge Bet on Gold

By Frank Holmes
CEO and Chief Investment Officer
U.S. Global Investors

This article is abstracted from a recent posting on the U.S. Global Investors website

I always advise investors to follow the smart money, and one person high on the list is Stanley Druckenmiller.

Second-quarter regulatory filings show that Stanley Druckenmiller, the famed hedge fund manager, just place more than $323 million of his own money into a gold ETF, at a time when sentiment toward the yellow metal is in the basement.

Investors should take note!

Druckenmiller Sees Gold as a “Home Run”

Druckenmiller has commented in the past that if he sees something that really excites him, he’ll bet the ranch on it.

druck

“The way to build long-term returns is through preservation of capital and home runs,” he said. “Grind it out until you’re up 30 to 40 percent, and then if you have the convictions, go for a 100-percent year.”

While I have always advocated for a diversified approach, this all-in approach has served him well. Between 1986 and 2010, the year he closed his fund to investors, Druckenmiller consistently delivered 30 percent on an average annual basis. Thirty percent a year! That’s a superhuman, Michael Jordan-caliber performance—or Ted Williams, if we want to stick to baseball imagery. The point is that words such as “legendary” and “titan” were invented with people like Druckenmiller in mind.

During his career, the man has made some now-mythic calls, the most storied and studied being his decision to short the British pound in 1992. This bet against the currency forced the British government to devalue the pound and withdraw it from the European Exchange Rate Mechanism (ERM), which is why many people say the trade “broke the Bank of England.” It also made Quantum, George Soros’s hedge fund, $1 billion.

And now he’s making a call on gold. The $323-million investment is currently the single largest position in Druckenmiller’s family fund. It’s twice as large, in fact, as its second-largest position, Facebook, and amounts to 20 percent of total fund holdings.

His conviction in gold can be traced to his criticism of the Federal Reserve’s policy of massive money-printing and near-zero interest rates. Such ongoing low rates push investors and central banks alike into other types of assets, including physical gold.

Concerns over government policy is why prudent investors hope for the best but prepare for the worst. I’ve always advocated a 10-percent weighting in gold: 5 percent in gold stocks, 5 percent in bullion, then rebalance every year. This is the case in good times and in bad.

Trump on Gold

Love him or hate him as a presidential candidate, Donald Trump has the same attitude toward owning gold in today’s easy-money economy. After leasing a floor of the Trump Building to Apmex, a precious metals exchange, he agreed back in 2011 to accept three 32-ounce bars of gold as the security deposit, according to TheStreet.

The U.S. dollar, Trump says, is “not being sustained by proper policy and proper thinking.” Accepting the gold “was an opportunity… to show people what’s happening with the dollar so we can do something about it.”

Trump and Druckenmiller aren’t the only ones adding to their gold positions right now. As I told Daniela Cambone on this week’s Gold Game Film, the Chinese government is now reporting its gold consumption on a monthly basis. In July it purchased 54 million ounces. This is significant in the country’s march to become a world-class currency that’s supported by the International Monetary Fund (IMF) for special drawing rights.

Both of our precious metals funds, Gold and Precious Metals Fund (USERX) and World Precious Minerals Fund (UNWPX), aim to offer protection against the sort of monetary instability Druckenmiller and Trump have warned us about.

Follow the money!

Gold awaits data-driven Fed’s next move

Julian Phillips’ latest analysis of the gold and silver markets and their key drivers.

The key news of yesterday was the drop in U.S. GDP growth to 0.2% in the first quarter. More importantly the data coming out of the U.S. is for a continued slowdown with it possibly worsening. With no weather constraints now, the current quarter is crucial to what the Fed will do in the future. It has made it clear in the past that its actions are data driven so speculation as to whether a rate rise will happen in June, September or even later, appears pointless as future data will make that decision.

If the U.S. is slowing you can be sure the Eurozone is too, with the prospect of a recession there starting again. It is possible that, as different economic flows converge, we could see a very different global scene in the second half of the year to the one we are seeing now. How will that affect gold? One of the main flows that will directly affect gold this year is the continued path to a truly global gold market alongside the move of the Yuan to center stage in the global monetary system, while economic weakness returns. We see this to the detriment of the dollar. We know that the U.S. could use a much weaker dollar now, but China too, would like to see a steady to weak Yuan going forward. In this climate the environment for gold is distinctly positive.

Just remember that we have had 7 years of quantitative easing in the U.S. and now see it at massive levels in Japan and the Eurozone. If growth falters, questions about the abilities of governments to control growth jump up! That is gold positive!

Markets

New York gold closed at $1,204.00 down $8.20 on Wednesday. Asia saw it hold there and London took it up a dollar. The LBMA Gold price was set at $1,204.30 down only 50 cents. The euro equivalent stood at €1,076.13 down almost €20 while the dollar was weaker at $1.1192 down from $1.0993 against the euro. Ahead of New York’s opening, gold was trading in London at $1,203.40 and in the euro at €1,075.81.

The silver price closed at $16.53 down 8 cents on Wednesday. Ahead of New York’s opening it was trading at $16.57.

The dollar index fell, again, this morning  to 94.61 from 95.89 yesterday with the dollar continuing to lurch lower against the Euro from $1.1008 to $1.1212 today.   The fall of gold in the Euro is extraordinary and may spur arbitrageurs to lift the gold price in the Euro soon.  The question this poses is, “Is gold priced in the dollar or the euro?”  So now a weak dollar means a weak gold price?

There were no sales or purchases of gold from the SPDR gold E.T.F. or from or into the Gold Trust on Wednesday. The holdings of the SPDR gold ETF are at 739.065 tonnes and at 165.58 tonnes in the Gold Trust.

 

Julian D.W. Phillips for the Gold & Silver Forecasters – www.goldforecaster.com and www.silverforecaster.com

 

More SPDR gold ETF purchases show continuing institutional interest

New York closed yesterday at $1,270.20 up $4.90. In Asia gold slipped slightly to $1,267.80 ahead of London’s. At the Fix gold was set at $1,264.00 up $0.24 and in the euro, at €1,103.641 down €3.067, while the euro was slightly stronger at $1.1453. Ahead of New York’s opening gold was trading in London at $1,265.00 and in the euro at €1,105.09.

The silver price closed at $17.30 down 6 cents. Ahead of New York’s opening it was trading at $17.27.

There were purchases of 5.376 tonnes of gold into the SPDR gold ETF but no change in the Gold Trust on Thursday. The holdings of the SPDR gold ETF are at 773.305 and at 167.75 tonnes in the Gold Trust.  The purchase yesterday was big enough to lift gold prices to current levels reflecting continued institutional interest in gold.

When we look at Europe, we see that specific political events don’t move precious metal prices by themselves. How those specific events impact the large monetary picture is what matters. Right now the euro is consolidating in the mid $1.14 area despite impending quantitative easing and the Greek debt negotiations, which should send the euro lower. That is, of course, provided the market is not discounting a Greek euro exit, which would strengthen the euro. As to Greece, the current chapter shows Germany in an avuncular manner putting the two Greek Ministers in their place, a big mistake, if they want the euro to remain intact. We do not believe the two leading Greek Ministers can take such a scolding quietly. In that scene, we now expect Greece, through these two politically committed men, to take that story up a notch.

With the Ukraine about to see its currency lose all credibility and the nation about to move to bankruptcy we are waiting to see if the U.S. and Eurozone are willing to take the Ukrainian civil war to an international one. Russia has made it clear it wants, at least, eastern Ukraine and will pay any price for it. This is well described by the exchange rate of the Ruble. The next week we see how far the West will go? It will affect the economic state of the Eurozone and may well eventually see a rupturing of gas supplies to Europe if the West takes the strife up to the next level. Only at that stage will it affect the gold price, we feel.

In China we are seeing the government increase liquidity in the system and aiding borrowers to lift growth. We cannot see China allowing deflation at this point in time, so will continue to follow the developed world by expanding their monetary base. We also expect to see them join the rest of the world by weakening the Yuan against the dollar. This continues to be gold positive.

Julian D.W. Phillips for the Gold & Silver Forecasters – www.goldforecaster.com and www.silverforecaster.com

Unstable global monetary environment favors gold and silver going forward

Julian Phillips’ latest commentary on yesterday’s gold and silver market action and where they may go from here.

By Julian Phillips

New York closed at $1,182.60 on the last day of 2014 and the first trading day of 2015 saw the gold price stand at $1187.40 ahead of London’s opening. The Fix saw the gold price set at $1,184.25 down $15.00 and in the euro, at €983.351 down €3.991 while the euro was 1.23 cents weaker at $1.2043. Ahead of New York’s opening gold was trading in London at $1,183.10 and in the euro at €981.87.

The silver price was at $15.69 down 58 cents. Ahead of New York’s opening it was trading at $15.79.

Price Drivers

There were sales of 1.792 tonnes from the SPDR gold ETF and sales of 0.55 of a tonne from the Gold Trust before the year’s end. In thin holiday trade, alongside the falling euro, traders knocked the gold price back to the $1,180 area as the euro began today a cent lower at $1.2051. While the holiday continues until next week, we expect the euro’s fall to dominate the gold prices, until real volumes return to the gold market. The holdings of the SPDR gold ETF are at 709.16 and at 161.18 tonnes in the Gold Trust.

We expect 2015 to be a year where currency dramas keep popping up as the dollar rises and the rest of the world’s currencies fall. The oil price collapse is benefitting all nations as well as the U.S. dollar as oil import costs fall to around half of last year’s levels. In most countries these costs make up a big proportion of imports. But because all non-oil producing countries are benefitting it is a common denominator so cancelling out the impact on most exchange rates. Attention therefore reverts back to interest rates, with the U.S. offering higher rates than the Eurozone, placing continual downward pressure on the euro and upward pressure on the dollar. This will continue to be the case throughout 2015.

In addition we do expect the Chinese Yuan ‘peg’ to the dollar to be lowered as the dollar rises. After all, China exports globally, not just to the U.S. More importantly we cannot see a case for the Yuan to see a higher exchange rate in the eyes of that government, no matter what other countries say.

The volatility we expect to see in exchange rates will create an unstable international monetary environment favoring gold going forward. Please bear in mind that the current monetary system is not the result of design but consequences. We do not believe it has the capacity to withstand the heavy pressures that lie ahead in 2015/16.

Silver– While the silver price is and will following gold it has become considerably more volatile as U.S. traders see more profit opportunities in silver than gold. This will continue until gold holds above $1,210, we feel.

Julian Phillips is founder and editor of www.goldforecaster.com and www.silverforecaster.com