Banks Remain Short Gold Silver As Price Continues To Rise | Arcadia Economics

As the price has been going up, the banks that are short the gold have been losing a lot of money and are still short. Well, hello there, my friends. Chris Marcus here with you for RKD Economics and glad to have you joining me because there sure is a lot happening, especially on the gold side lately. And we are going to dig into that as well as some of the latest news out of the Fed and the reporting of said news out of the Fed, which we will touch on in just a bit. But to begin, let’s take a look at the gold and silver price.

We’re recording early Tuesday morning and you can see it’s a good start to the day for gold at $26.76, up 17 bucks after declining a bit yesterday. And here we see the one year chart, which it really is just stunning to think, especially now as we’re amazingly almost a year after the events in Israel on October 7 of last year. And you can see down here below $2,000 in October of last year. And yet here we stand today at $26.76 on the December futures, which I see having touched over $2,700 last week. Briefly intraday. Stunning year that it has been in the gold market and a similar situation in silver, even if we don’t have all time record highs at $31.70 today.

And again, for many of you, I’m sure you remember where we were at the beginning of the year, around $22 and around a 45% rally at this point. From $22 to we’ve seen over $32.50 several times intraday touching over $33 and certainly compared to what you expected going into this year where we were supposed to have six to seven interest rate cuts, which who knows, we might get 150 basis points before the end of the year, although we’ll touch on that in a moment yet. Here we are, certainly has been a good year. I would say, in my opinion, an historic year for both of the medals.

I mean, 2011 was a big year, obviously 1980 was a big year, but not sure there are too many other years in terms of overall moves that we’ve seen like this that I would stack on top of that. But one of the reasons why it is so fascinating is partly because of what we’ve seen here is the swap dealer position. So this is just the banks. And here you can see how short they’ve gotten, which this is the record, as I’ve mentioned a couple of times in recent weeks, this chart goes back to 2007. And you can see that we’ve been setting a couple new records.

So as the price has been going up, the banks that are short the gold have been losing a lot of money and are still short. And that’s why as we go throughout this video, I’ll show a lot of the news that’s coming out, especially in the east of ways that gold is being used or purchased. And traditionally, we have seen when the short position gets pretty big is usually some sort of sell off and the banks are able to buy the contracts back cheaper. That was one of the things that I asked Bart Chilton about. Again, I appreciate you mentioning the spoofing.

I’m curious because my understanding of how some of the manipulation has occurred is that if silver is trading $20.05, there’s a lot of stop orders placed around the $20 handle. So often if the price can get pushed a little bit, then you get a lot of those high frequency algorithms kicking in and then you’ll see a drop with many feeling that people kind of nudging a little are then able to buy lower. Does that sound like a reasonably accurate portrayal to put it in perspective to folks? Back in 2019, already five years ago, and he confirmed that that was what was routinely happening.

Well, it’s a good portrayal, but it’s actually it’s a very good portrayal. You still have it sitting out there unresolved. And so far, as we’ve seen, the price has continued higher. So that will be one of the key things. I’ll be curious to see how that gets resolved. I wish you could see ahead five or six months, but it seems like it’s going to be hard to cover some of those shorts at $2,200 gold or seems hard to imagine the scenario in which we’re going to see sub $2,000 gold again. Not saying it’s impossible, that would certainly be perhaps a more extreme crisis than Jerome Powell is concerned about, which is another thing we will get to.

But I want to keep us moving quickly here. Here is the silver chart and the bank position, which you can see is not quite as short as it was in 2016. But aside from that, the banks are very short silver as the price has gone up. So similar effect there. Of course, you do see this shift, particularly on the gold side following everything that happened with Russia and Ukraine and the decision to kick Russia out of the Swiss system and sanctions. And that’s really when the central bank gold buying started up. Now, at the time, we had interest rates going up and staying up for a while.

Yet it’s almost like you have the central banks doing what they’re doing. At least that was when the Fed was taking rates now that the easing is coming. It seems like it could be a perfect storm, especially if the bricks have more planned for their meeting and because on Russia at the end of October. So here was this came out on Friday, Fed seen cutting rates and other 50 basis points in November. So that was based primarily on the futures pricing, where they had a 54% chance of a half point cut in November and only 46% of the quarter point.

So that’s come in a bit. And you can see on Tuesday morning, we’re down to only a 38% chance of a 50 basis point cut. And significantly, I know many of you are aware of Nick Temeros from the Wall Street Journal, who kind of took over the crown from John Hilsenrath, affectionately known as the Fed Whisper, because perhaps a good topic for another day. What’s the exact dynamic? It seems like the Fed wants to get a message out so the markets aren’t surprised when the Fed does what the Fed does in in net. However you want to slice it, Nick often seems to be the one who lets others know.

And anyway, a couple interesting comments in this one. This came out on Monday. So Fed Chair Jerome Powell said officials would continue to reduce interest rates from two decade high to maintain solid economic growth, but they didn’t see a reason to lower rates as aggressively as they did at the most recent meeting. Overall, the economy is in solid shape. We intend to use our tools to keep it there. And the committee, this is not a committee that feels like it’s in a hurry to cut rates quickly. And here was an interesting part. If the economy performs as expected, that would mean two more quarter point cuts this year, which is different than what we see priced in.

The market is saying we disagree. And here you have the 38, 39% chance of the 50 basis point cut. Looks like by December, January, they’re expecting to be more than just two single quarter point cuts. So we will see on that. And of course, this was from the end of his press conference that I found pretty interesting. Not sure that I agree, but let’s take a quick listen here. I don’t see anything in the economy right now that suggests that the likelihood of a recession, sorry, of a downturn is elevated. Okay, I don’t see that. You see growth at a solid rate.

You see inflation coming down and you see a labor market that’s still at very solid levels. So I don’t really see that, no. So he doesn’t see any indication of any elevated risk of a downturn or recession. I’m actually talking with Tavi Costa in a couple of hours and we’re gonna record something. I’d love to get his response to that. And in either case, it was interesting because I was listening to a great interview with Luke Grohman, who’s a fantastic analyst and was on Palisade Gold Radio. And he had an interesting comment because, again, if there’s no sign of a downturn, why the need to go 50 basis points rather than 25? And we’ll just play a quick snippet, but I thought it was really interesting what Luke says when asked about that here.

The Fed’s 50 basis point cut. That’s obviously the big news story of the current moment, let’s say. So was it a surprise to you and is it a signal that the Fed is far more worried than what it’s presenting to the market? Yes and no. And what I mean by yes and no is I don’t think they’re worried about the economy. I think they’re worried about the far more worried about the U.S. fiscal situation than they are presenting to the market. And that, to me, is the elephant in the room, which is the Fed’s cut in rates because of the U.S.

fiscal situation. So interesting comment and certainly doesn’t feel like we’re being told the full picture from the Fed. Surprised they went the 50 basis points that they did. Now Nick Timmer is suggesting it will be down to 25 basis points, although I think Luke is certainly a pretty well-informed and intelligent guy. And to hear him say that certainly stands out and would make a lot of sense. So anyway, meanwhile, as all of that is happening at the Fed, we had a couple of days ago China weighing a $142 billion capital injection into its top banks. And keep in mind this came only a few days after we had the easing measures the PBOC took last Tuesday, including cutting the reserve requirement and announcing there may be another cut before the end of the year, cutting the seven day repo and reducing interest rates on existing individual mortgages.

And now, in addition to that, they’re considering injecting up to one trillion yuan, $142 billion of capital into the big estate banks to increase their capacity to support the struggling economy, which obviously, as you’re probably well aware, has not been going so well lately. And here you can see China’s megabanks have been under growing pressure from regulators to short the struggling economy by offering cheaper loans to risky borrowers from real estate developers and homeowners to cash strap local government financing vehicles. So it certainly seems like this will not be the last time we’ll be hearing of China easing.

And there is one of the things that’s currently being considered in terms of other things being considered that I’m guessing you’ve heard about now. But in Israel, they had some plans in the last week, including phasing out the 200 Shekel note, which is about $50. And also, now, these were comments from Benjamin Netanyahu who instructed top officials, this was last Thursday, to discuss the immediate discontinuation of the 200 Shekel bank note. And actually, some of the other proposals are a little stunning as well. Again, here, banning the holding of large amounts of cash alternatives such as gold, silver, metals and coins.

And I guess the most important part is that so far, there really haven’t been any specific details released. I did talk with Rafi and he was saying that essentially what happened is that you have some academic economist who wrote a paper that Netanyahu is supporting. So far, it seems like the Israeli Central Bank is not in line with this, that they’re pushing back and that this would also have to go through the Israeli Congress, which I’ll withhold comment on how likely that would be, but certainly a lot of steps. This is so far Netanyahu taking the research of economists and suggesting that, but certainly to the degree of people who are concerned about the way things have been going from a personal liberty standpoint in the world in the past couple of years.

You have a host of things that aren’t ideal here, expanding reporting obligations for citizens with income to the tax authorities. I don’t know what the Israeli tax code is like, but I’m sure there’s already plenty of reporting obligations, but they’re going to expand that. Launching a joint enforcement program involving all relevant agencies, including the tax authority, anti-money laundering, the police, utilizing artificial intelligence to identify tax evaders, increasing oversight of non-bank financial entities, and of course the part about potentially banning gold and silver. So I don’t know that that’s by any means a done deal or necessarily that it’s going to happen, but certainly a disconcerting precedent because as Michael Mahari, who writes some great articles for Money Metals, points out in his article about what happened here.

He mentions in 2019 the International Monetary Fund published a working paper and some of the lovely things they mentioned, the benefit of mankind. Although some countries will likely decash in a few years, going completely cashless should be phased in steps. Decaching process could build on the initial and largely uncontested steps, such as phasing out of large denomination bills. And this was back in 2019, placement of ceilings on cash transactions and the reporting of cash moves across the borders. Further steps could include creating economic incentives to reduce the use of cash in transactions, simplifying the opening and use of transferable deposits.

I have heard Martin Armstrong mention a couple of times that one of the reasons they want to go digital is because there’s a lot of economic activity that doesn’t get reported. And I think he had, I think it might have been 39% chunk of revenue that you would get by capturing that. He thinks that’s one of the reasons behind it. Obviously, there’s a lot of things about further being able to track everything that people are doing. In fact, I started watching the Snowden movie last night, which is certainly a reminder of just how disturbing some parts of the control are.

But anyway, we’ll keep moving on here. In any case, the tempting attempts to impose decaching by decrees should be avoided. Given the popular personal attachment to cash, a targeted outreach program is needed to alleviate suspicions related to decaching. In particular, that by decaching, the authorities are trying to control all aspects of people’s lives, including their use of money or push personal savings into banks. Decaching process would acquire more traction if it were based on the individual consumer choice and cost benefit considerations. And mentioned this is back in 2019 before certain things in the world changed quite a bit a year later.

And anyway, there is the title of the article. If you want to take a read through that, I’ve never met Mike, but I really enjoy his writing and coverage of the market. But there are a few more things. I’ll just perhaps I’ll put these links into the description field because a bunch of them were worth reading. Here’s Jan Neuenhaus, who is also writing for Money Metals Now. And he mentions 160 tons of gold buying by the Saudi Central Bank since early 2022, which certainly wouldn’t be shocking. And he goes through some of the data. Again, a lot of these figures, the public data is less than complete many times.

And he lays out some of the data, including here Saudi Arabia gold demand. And you can see like many of the other countries in the BRICS alliance. They have also been importing a lot of gold since that break point I mentioned earlier when Russia went into Ukraine. So that one is in the description field below, as well as this one where he, this is again from Jan, and he mentions Nations and Enbridge project are stockpiling gold. And he goes through the list of those, including some such as China, Thailand, and mentions how these are traditionally price sensitive buyers.

And that’s another thing that even in the midst of the rally, we have seen several price sensitive buyers not seemingly be as concerned about that. India, a little bit of a different case because they just had that reduction in the taxes on gold and silver. But certainly we have seen quite a spike in India in both the gold and silver side in August. And here you see Iran’s gold imports up six fold in six months as the country of AIDS sanctions. Ghana Central Bank launches new gold coin to boost savings. And here, unfortunately, the Zimbabwe ZIG that was supposed to be backed by gold has already been devalued as Zimbabwe raised interest rates and devalued its gold back currency by 43% following persistent weakness in the ZIG amid deep skepticism that the nation’s latest bid to create a viable local unit would succeed.

Monthly inflation quickened to 5.8% in September from 1.4% in August. The sixth attempt to stand up a local currency since 2009 was immediately met with doubt from Zimbabweans who have bitter memories of how previous local currencies had failed. And I mean, you can see through the history here, and it’s certainly tragic. And one of the reasons why, in my own opinion, I think there’s so dangerous to run the currency systems in a certain way, yet there the ZIG has been devalued. But Tanzania orders gold dealers to reserve 20% of what they mine for purchase by the Central Bank.

Tanzania’s mining regulator has ordered all mining firms and traders exporting gold to allocate at least 20% of the commodity for sale to the Central Bank to bolster the bank’s move to diversify its foreign resources. So it seems like you’re seeing stuff like this pretty frequently at this point. Although meanwhile, as we come up on the BRICS meeting, where we may hear more about the unit and Project Enbridge, we have something that I know this was a week or so ago, and Vince has talked about it, fortunately, but just wanted to mention for anyone who had not yet heard about Project Agora, which is JP Morgan, UBS, and they joined the EBIS blockchain-based plan to overhaul cross-border payments.

And you have Deutsche Bank on there, UBS, as well as Visa and MasterCard, that have lined up with some of the world’s largest banks and credit card companies for a blockchain-based project that aims to overhaul cross-border payments worldwide. And they are exploring the creation of an international platform on which tokenized assets can be bought and sold using digital currencies backed by participating central banks, which issue the world’s most important reserve currencies. And they feel Agora has the potential to lay the foundation for a new regulated financial market infrastructure to facilitate cross-border payments. And here you can see they’re even mentioning the similarities to Enbridge as Agora is the largest and most complex of these projects in terms of geographical scope and number of participants.

Another project called Enbridge and backed by Chinese, Asian, and Arabic central banks also allows instant cross-border payments and recently opened to the participation of commercial banks. So hopefully we’ll get a little bit more public insight. I know in one of those Pepe Escobar articles, he did say that one of the next steps was public awareness. So hopefully we’ll get some more official word and see what is happening, but certainly things are changing. And I guess the last thing I’ll mention here is that when people wonder is gold in a bubble yet, I’ve always thought one of the simpler ways to think of it is if you measured some form of money, whether you’re looking at M1, M2, or public debt, you can see if the gold price is just an inverse of that, then those charts often look quite the same.

And great chart here from this one is in gold, we trust in mining visuals. So lastly, as we wrap up here, just wanted to thank Silver Viper Minerals, who helps to bring us this show each day. And obviously, Silver Viper, the main thing is to be getting back out and drilling has not happened yet so far. Certainly not an ideal financing environment, but they did release an update that they just posted on their website, which is this one down here. And to find out more about where things stand, so at least you can have the most up-to-date information from Silver Viper, well, you can just click on the video that’s coming right now.

Thank you. [tr:trw].

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