Just seeing how gold and silver prices have reacted after QE4 was announced should be enough to convince even the most skeptical investors that the gold and silver markets are not really “free markets” and that the prices are really being manipulated.
Prices have dropped in the days following the QE4 announcement, and there is normally no more positive news for the precious metals than the announcement of massive money printing.
Gold has always served as a barometer for measuring the true « health » of the world financial system. Breaking this barometer helps in hiding the system’s fragility and the real inflation rate and, most importantly, to hinder the normal understanding, or logical tie, between the destruction of the monies’ purchasing power and the rise in the price of gold.
I’m not going to explain this manipulation again, which I have done many times (read here), because, despite its existence, the prices of gold and silver have performed significantly for the last 12 years and are even the two best performing assets during President Obama’s last term.
Let’s just remind ourselves that the fundamentals behind this 12-year progression are still in place (near-zero interest rates, negative real interest rates, loss of confidence in paper money and massive demand from emerging countries) and that investing in gold or silver without being aware of price manipulation makes it hard for the investors to support this artificial volatility, which is generated to slow down a massive movement towards the precious metals.
Let’s rather look at how the precious metals have fared in the months following each new QE announcement, and let’s look at the situation on the physical gold and silver markets.
What Indications Do the Physical Gold & Silver Markets Give Us?
Investors must take into account the facts observed on the physical markets, not only the spot price, to understand where the price is headed :
- Central banks keep buying physical gold, despite the volatility of these last months. Iraq just tripled its gold reserves in two months by buying 25 extra tons. Korea raised its physical gold reserves by 20% in November. Brazil doubled its gold reserves in August 2012 by buying 15 tons. Russia bought nearly three tons of gold in November.
- The dichotomy between the “paper” and physical markets is growing with massive demand for physical gold and silver coming mostly from Asia. It is costing more and more above the spot price to acquire physical gold and silver. We just learned that, in China, one has to pay $2.89 an ounce above the spot price to acquire physical silver, or a 9.6% premium above spot. Asian brokers know that manipulation is creating an artificially low price and refuse to sell physical silver based on “paper” spot prices.
- Chinese diplomats are confirming that China is accumulating physical gold to insure the yuan’s convertibility into physical gold.
- Japanese hedge funds just started to invest in gold.
- The US Mint has suspended the sale of Silver Eagles for three weeks in order, in my opinion, to prevent having to sell at an artificially depressed price which wouldn’t cover production costs.