are still struggling to
gain ground in the face of persistent fears about the eurozone and
the threat of a 2008-style market
meltdown. The CFTC’s
latest Commitments of
Traders Reports for the gold and silver futures market in America shows managed money (read: hedge funds, commodity trading advisors, etc) holding their largest short positions
in these markets since September 2008. Is The
Great Crash coming?
The GotGoldReport comments, however, that if recent history is any
guide these large short positions are more often that not an indicator that we are getting close to a bottom, as the chart below suggests:
Gold remains trapped
in a range between $1,550 and $1,600, after failing yesterday to settle above $1,600. Silver is holding above $28 just about, but it’s not going to take much in the way of selling to take the price down to just above $26 if we get more depressing economic news. The plunge in
the newly issued Facebook
shares is an apt metaphor for the broader malaise affecting markets at the moment.
Why, you may ask, are precious metals – and in particular, gold – not doing
well in such an environment? Isn’t gold supposed to be a hedge against financial Armageddon?
As John Butler addresses in a new article at the Cobden
Centre Blog, as far as financial regulators are concerned, it is not a safe
haven asset. Crucially, it is not counted towards banks’ “Tier 1 capital” – those
assets such as highly liquid government bonds that regulators deem the “safest” investments. This
means that when the going gets tough, banks are forced to sell gold, silver, and other liquid non-Tier 1 assets in order to raise Tier 1 capital.
Over longer periods of market strife however, this is negated by the fact that trust in financial assets is lost, meaning
that precious metals increase in value
relative to many “paper”
assets. But violent corrections are inevitable on the road to peak precious metal valuation.