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Market Comments from Jerry – February 2018

We just completed a nice month in precious metals with gold advancing from $1301 at year end (Dec Low $1234) to $1341 (Jan High $1362). Could this be the turnaround we have been expecting? A break and closing price above $1370 will confirm it.

What is going on with silver? The fundamentals indicate it should be higher in price, yet only up 30 cents since year end. Perhaps we have the answer.

This is from the Wall St Journal of 1/30/18 page B10. “Traders Charged With Spoofing Tactic”. In the futures market, spoofing is a practice involving entering large orders with the intention of tricking others into thinking there has been a change in the supply and demand in the precious metals (illegal since 2010).

In addition to criminal charges, which will get prison time for the 8 traders, Deutsche Bank agreed to pay a $30 million fine, UBS $15 million, and HSBC only $1.6 million because of their cooperation in the investigation. All agreed to enhanced controls and surveillance to ensure that such conduct doesn’t occur in the future. We will see.

At a current ratio of 78 to 1, silver to gold, is historically low. At the market peak in 2011, that ratio was briefly 30 to 1, which seemed more realistic. From 1790 to 1933, that ratio was 16 to 1, as defined by our US Constitution. With the 1933 nationalization (confiscation) of gold and fixing the price at $35 per oz. the ratio stayed fixed at 27 to 1, with silver stuck at $1.29.

In 1965 the US government silver stockpile was depleted and it was removed from the production of coinage. The Johnson administration stated that silver had become “too valuable” to be used as money. Without the artificial government “lid” on the price, it rose to $6 by 1973 than ultimately to $48.50 by 1980 until the government intervened again and for next 20 years the price ranged between $4 and $10.

Since 1986, US Treasury has been producing gold and silver coins for public consumption at an ever increasing rate, one of a small group of profitable government enterprises.

Technically, a buy signal confirming a bull market in silver will occur at $18.70, a price last seen briefly in June of 2016. Gold hit 1370 then as well.

So even though many economic indicators are good, hot money is off chasing crypto currencies, the US dollar does not look well (see chart below). Treasury Secretary Mnuchin says a weak dollar is good for our exports. It should be a good year for metals.

The price guess for year-end (no more predictions), $1500 gold, $25 silver (60 to 1).

US Dollar Index Chart