We had more inflows into the gold ETFs again in September. Well hello there, my friends, and good afternoon. Chris Marcus here with you for Arcadia Economics, and today we are going to look at some of the latest gold and silver data, in particular, that the gold inflows into the ETFs have continued to remain strong, and we will dig into that as well as a look at the bank short positions and a whole lot more. So with that said, let’s get started, taking a quick look at the gold and silver prices.

As I’m recording 11:45 Eastern on Wednesday morning, so you can see here on the gold chart that certainly we had that tough day yesterday, where there was quite a sell-off, a little bit of a rebound, down to 70 today. Again, a lot of this started with the labor report that came out on Friday, and at least according to government metrics, it was a lot more than had been expected, and there was also a feeling of a lack of Chinese stimulus this week. I don’t personally think they’re done, but markets are reacting to that, and we see gold—let’s call that close to 26.90 back on Friday—and here we are at 26.33. So in some sense, given what we’ve seen, if we pull this back, and it will be the same in silver, but to see a bit of a correction at this current time, not surprising, especially given what we’ll get to on the cot positioning.

So quick look at silver, we’re back up 23 cents today. Obviously a tough day yesterday, down about a dollar and a half before rallying back a little bit, and again, as you can see, a much different chart. Well, not entirely different. You can see a bit choppier, where we’ve had some bigger swings in silver, in particular, being over 32.50, then going under 27 at one point, and now declining to 30.81.

In either case, let us take a look at some of the things happening, because as I mentioned, we had more inflows into the gold ETFs again in September, and this time dominated by North America as we see global gold ETFs extend their inflow streak to five months. And the one diversion was that in Europe, they saw a withdrawal of gold, at least to the degree that everything is put in there accurately, as advertised. But again, fifth consecutive month overall, North America we’re seeing inflows for three months in a row, and Europe slightly losing. North America gaining 1.4 billion, Europe losing 245 million, and metal also going into Asia.

And again, in terms of why some of this is happening, another piece here from World Gold Council where they mentioned gold was pulled higher by a further drop in the US dollar as the Fed embarked on its rate-cutting program with a somewhat surprising 50 basis point cut. Obviously, as I’ve talked about over the past couple of months, was expecting that as we got closer to the rate cuts, and certainly the fact that they went 50 versus 25, and then also a week later, you got more aggressive-than-expected easing out of China, even if it is not as much as some market participants hoped for. But they mentioned the dollar in here, and worth taking a look back as we see over September.

Why don’t we go back to the three-month here, and you see over September dollar actually trading lower before having a rally back up above the 102 level, here at 102.79 today. So probably connected to some degree too, and not probably, but certainly that’s connected to some degree with what we’ve seen this week. And again, in terms of those Fed cuts, interesting that the probabilities for the next meeting have really shifted. A few weeks ago, we were seeing it being a favorite to have another 50 basis point cut, now with the current rate at 475 to 500 basis points, we’re seeing an 18 percent chance of no move, 82 chance of a quarter point cut. Interesting to see how quickly that has shifted. I’m guessing right now I’ll go with the favorite percentage there, that we will see a quarter point.

But in terms of looking visually at some of the impact that we’ve seen of the resulting metal that’s gone into the ETF, here we’re looking at the two-year chart. You can see this has come down, the blue line is the amount of metal held in the ETFs, also includes the COMEX, and was sinking for quite a while before reversing in April. And we’ve had a couple months of consecutive inflows there, and even if you go back to the 10-year, interesting. We’ll look also at the correlation between these two on the silver chart here. But first, here is the past two years, and you can see that bottom again right before April, there was a European ETF that had a big addition that accounts for the majority of that spike. And then certainly over the summer months, we’ve seen a substantial increase of let’s call that 60 million ounces or so.

And if you take a look back on the silver chart here, the gray line is the price, blue line is the amount of metal that’s being stored, and this is a 10-year chart, so not a perfect correlation. But you can see there was a fair amount of correlation, diverged a little bit here, and then we saw metal coming out as the price was rising, and now starting, looks like we bottomed out in, you know, similar levels here. But again, that was right before April, and seeing some inflows back into silver as well.

And again, if you want to look at the 10-year on gold to see the correlation here, we had a lot of metal added in which didn’t have quite the same corresponding effect in the price, although seems like that’s been accounted for there. So worth looking at, not always linear or one-to-one, but that’s had a lot to do with, again, not that it’s surprising that the Fed would be cutting rates and we’d see this type of activity. But I hope we talked about it, it happened, so at least here it is and that part adding up.

As I mentioned at the same time, quick look at the cot report from last Friday, and you can see in silver swap dealers, the banks added about a thousand contracts to that short position, which is historically large, not in record territory. Here on the gold side, we see them adding about 7,500 contracts to a gold short position that has already been in record territory and just got a little bit bigger in terms of the short position here. You can see that on the gold chart, this black line showing that, and if we scroll down here, you know we’re, we’ve already been well past the 2016 and 2022 record short positions. And after that last week, we see that continue a little further.

Similar position in silver where again we are not yet at the 2016 record high per bank short position, but also not far off, and it will be interesting to see. I guess the decline so that won’t, that will be included decline of Monday and Tuesday, will be included in this Friday’s report. So certainly, we will be looking there to see if there has been much short covering. I think that will have a lot to do with how low the price goes if the banks do not feel that they’re going to be able to cover those shorts eventually at significantly lower prices. Of course, there is always that possibility that you see short covering and a short squeeze, which perhaps you could say is what we’ve seen to some degree when you look at what’s happened over the past nine months. It remains out there somewhat unresolved, but certainly makes it interesting for the times coming ahead.

Along with the fact that note from Peter Kraut mentioned a report, this was back at the end of September, but Citibank is bullish silver with year-end at mid-25 targets of 35 and 38 to 40, respectively. So again, a lot of the banks have been, including Citi, increasing their precious metals forecasts throughout the year, and now we see a 40 target on the board. I think we saw one of those from one of the other banks in the past month. But again, now institutional funds are at least being presented with the idea of 40 silver, which again when you look at some of the things that Bank of America puts out talking about the deficits, not Citi, but talking about Bank of America now, and some of the research that they’ve had, certainly it’s getting out there. And the idea that we are in a deficit.

Here’s one about a Goldman Sachs report that Vince talked about last week, but wanted to mention a few comments that I found interesting here. They’re now cast of central banks and other institutional demand shows that central bank purchases remain strong, averaging 730 tons annualized year to date, or about 15 percent of the global annual production estimates. And certainly, that would be a strong year. That would be, we had 1082 tons in 2022, it was 1037, so it would be slightly behind, about 75 percent of, a little less than that of what we had over those two record-setting years. Although still a significant amount here. A note on China, their central bank has been a key focus, and they have had that reported streak of 18 consecutive months of purchases, which again was put on hold as we see on Sunday night. I guess this would have been trying to gold reserves remain unchanged for the fifth straight month in September. Now again, whether that means that they have not actually added any gold in any capacity is a different story, but at least in terms of what they’re reporting, that is what came out on China.

And there was one more note in here which I thought was worth sharing, and that’s this part, as Goldman differentiates between UK gold bar exports to Switzerland and other countries. Because the former typically represents retail demand, while the latter indicates central bank and institutional demand. UK with no significant gold mines or refineries producing large 400 ounce bars primarily imports these large bars from Switzerland, the global refining hub, when London institutional demand or ETFs are high. Conversely, when demand in London is low, UK exports large 400 ounce bars back to Switzerland, where they’re refined into smaller bars and sent to retail markets, which I thought was just helpful as people are trying to figure out the different ways these metals flow.

And then of course in some news ahead of the BRICS summit, which is coming up in just a couple of weeks now, and certainly looking forward to it, seeing if we get any concrete resolution. Although on Kitco News there was an article posted here: BRICS eye petroyuan for oil settlement as de-dollarization trend accelerates. And some comments in here that I would like to dig through, because here is Herbert Poniche, senior fellow at Zhejiang University and a former senior economist at the Bank for International Settlements, so a few credentials. And he mentions unlike the BRICS summit last year, which was waved off by Western observers as no real threat to the dollar, this October summit in Kazan is set to be groundbreaking for two reasons. And he mentions A) that the BRICS have expanded by five members. By the way, I know there had been a lack of clarity around whether Saudi Arabia had accepted their invitation to the BRICS earlier this year, and here we do have confirmation of Saudi Arabia being included. And so in addition to the size, he mentions that Russia is engaging in economic conflict against the whole Western alliance and is going to use the summit as a means to push BRICS members to join Russia’s new denomination for oil, the petroyuan.

So, an embridge system to pay for oil, and even a common BRICS currency to reduce independence on the dollar. Now, he mentions problems have cropped up as there are imbalances among BRICS currency, BRICS countries using national currencies. For instance, there are piles of Indian rupees at Russian banks paying for Russian oil imports, and obviously is one of the challenges that I hope I’ve mentioned that enough over the past couple months. But that’s one of the things that they are figuring out, and where the unit currency, which certainly I credit Matt Riley for bringing that to my attention way back earlier this year, and also Matt Riley for sending this article that he caught over there.

And in either case, main challenge facing the petroyuan will be putting enough renminbi at the disposal of major oil importing countries such as India. They do not want to run current as they do not run current account surpluses with China. These countries do not earn enough renminbi to pay for all their oil imports, and that must be provided through other channels. And then they talk about the embridge platform, which could be a potential solution to that. And that meeting again is on October 22nd to the 24th, so two weeks, we’ll be finding out a little bit more.

And also Vladimir Putin did confirm that they’re going to be talking about some of these, and won’t go through the other reports that have confirmed that the unit is under discussion. I think we’ve covered that plenty. But anyway, one other note that I did want to share here right before we wrap up, this was something that I think I found in Luke Groman’s column where he mentioned that Robert Zellich, a former member of the world, a former president of the World Bank article back in 2010, where he surprised the world with a gold standard idea. Zellich called for Bretton Woods two system of floating currencies as a successor to the original Bretton Woods regime back in 1970. And he mentioned the system should also consider employing gold as an international reference point of the market expectations about inflation, deflation, and future currency values.

Interesting that you have, this was back when it briefly hit a record high of 1398. So for some of you long-standing gold and silver fans who felt like you’re getting hit over the head with a shovel at some points along this journey, keep that in mind. And certainly for those of you who were wise enough to see this back around the turn of the century when gold was at 250 dollars, certainly nice to see that that has gone well. And the last thing that I’ll say about this, it just reminds me of something I’ve thought about for years, where following the great financial crisis, the housing bubble, whatever you want to call it, you would think somewhere that people with this type of experience would be thinking, okay, that maybe we can patch this together with the Fed and the other central banks, yet could be a problem going forward. Certainly there’s been a lot of rumors, some more substantiated than others, and evidence that some of that thinking has been going on behind the scenes. But anyway, came across this one, wanted to share it, along with again my favorite quote from Paul Volcker that I found earlier this year, and where he mentioned, it is a sobering fact that the prominence of central banks in this century has coincided with a general tendency towards more inflation, not less. By and large, if the overriding objective is price stability, we did better with the 19th century gold standard and passive central banks, currency boards, or even with free banking. So again, that is not my opinion. I would agree with that, but coming from Paul Volcker, who certainly has some standing in the banking community, and those were his words.

And in my words, I will end up by saying that just wanted to thank Silver Viper Minerals, who helps to bring us this show each day. And obviously has had a challenging year as they’ve been trying to figure out the arrangements to get out for the next round of drilling. And I know that they are still in discussions, figuring that out, and no official news yet, but we’ll have Steve Cope on the show in about two weeks to get an update to see how that is coming along. Obviously, they have a promising project, and they need to get the financing in place to be able to move that forward. And should they be able to do that, then certainly that would be a good outcome. And they already have a resource estimate which would be updated following the next round of drilling. So a few pieces moving around there, but they did actually just release a 2024 corporate presentation with some more details of the latest, and that one is coming your way right now.

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