What's really driving gold and silver?

April 27, 2015 03:21 PM

This week a subscriber shared with me an interesting and well-written analysis. The focus was mainly relative to gold. He wondered if I might shed light on silver - based on similar parameters.

First and foremost, I do not deny the complex tertiary dynamics with regard to the movement of physical gold. I am also painfully aware of the secondary technical indicators that arise from the short-term price action.

But the primary focus for any discussion surrounding future price must start with how we arrived at the dollar-denominated level we see today, for instance, the price of a derivative that determines the price of its underlying asset. Tail wagging the dog is the perfect analogy for this phenomenon because it encapsulates the absurdity.

Any discussion about what’s really driving gold and silver from a short-to-intermediate term starting point must include the conspiracy fact of price manipulation. The analysis below mentions price manipulation, but in an almost apologetic way. They admit it, but give it cheap seat.

Let me add to the analysis:

Secular Investor .

The ongoing narrative is that there is a positive correlation between monetary stimulus and the price of gold. However, as you probably know by now, precious metals collapsed during the Fed's QE to infinity program. The long-term gold chart shows that gold stabilized when the Fed started tapering and around the end of QE, which is very counterintuitive to say the least. That is not to say there is no correlation, but there is definitely not a direct correlation.

This begs the question: what drives gold and the whole precious metals complex?

Both metals, but especially the silver price collapse, could be read in the commitment of traders. These are the entrails of the commercial banks and speculators trading in the futures market.

This is true whether this happens to be simply useful, or to manage perception around blatant money printing. It is simply the modus operandi for a legal mechanism (in the case of gold). Or in a highly profitable trade scheme that also happens to enable both the survival and the continual consolidation of financial power.

We have evidence of intent, mechanism, and motive. All else that follows is a loose pattern of beliefs that may be entertaining, but that ultimately obscure the reality.

…people prefer assets that are likely to have better yield. Alternatively, if an asset climbs too high and/or too long, the opportunity cost becomes high.

This is true today more than ever before and there is a reason why we are emphasizing this. The point is that all trading decisions nowadays are computer based. More than ever before, small and large investors are using chart and market analyses to make decisions.

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About the Author

In addition to running a busy medical practice, Dr. Jeffrey Lewis is the editor and publisher of Silver-Coin-Investor.com, where he provides practical guidance for precious metals investors.