Since December 2015 when gold’s value measured in fiat currencies began to rise, gold priced in the four major western currencies has been consistently hitting new high ground. Put another way, these currencies measured in gold have all more than halved, with the yen having lost two-thirds.
We can say this in the knowledge that over long periods the purchasing power of gold is remarkably stable, while those of fiat currencies are not. This is why everyone should examine their exposure to credit, which is always fiat usually with systemic risk thrown in (unless you hold cash notes). But we are all human, and from time to time worry that the headline values of our gold or silver might fall and we have missed a selling opportunity.
Having broken into new high ground, there is no doubt that there’s much speculation embedded in gold and silver prices. While we should not tie events together to tightly, this build up has been ahead of the BRICS summit in Kazan next week, with speculation that a new trade settlement currency backed by gold might be announced. Well, President Putin said on Friday that “talk of creating a single currency for the BRICS grouping was premature”. It is not ruled out, only it is not for this agenda
That would suggest that this coming week will see profit-taking in gold and silver and perhaps a shake-out of speculative longs as their stops are triggered on Comex. But Putin made his statement deferring the introduction of a new currency on Friday, after which gold and silver soared higher. It was probably wrong therefore to associate rising prices for gold and silver with speculation about a new BRICS currency.
The other material statement was that Putin was open to admitting new members. A few weeks ago, I suggested that this could be accelerated by creating a class of associate members as a stepping stone to full membership and I would take this to now be the case. Could that have been behind the surge in gold and silver?
We cannot know. But looking at last night’s Commitment of Traders figures for last Tuesday and adjusting for Open Interest since then it is clear that gold is now in overbought territory, but could go further.
A consolidation here would be the healthy outcome, at least from a technical point of view. We can bet that central banks and other statist interests would welcome the opportunity to pick up some cheap bullion, underwriting the market. And recently, Russia announced that it was in the market for silver bullion. That’s our last chart.
I wouldn’t rule out a back-test, maybe to $30.50 or so. But the bullish message of the chart is clear. And even that might not happen.
Reprinted with permission from MacleodFinance Substack.
