Tim Murphy
Precious Metals Advisor
Tim Murphy is a Precious Metals Advisor with over 15 years of experience. He started on the New York Commodity Exchange floor before founding his own brokerage firm. Tim joined Scottsdale Bullion & Coin to leverage the small-company feel with national exposure, focusing on personalized, client-first service and fostering long-term relationships.
Gold and silver spot prices continue to meander around their two-year lows, leaving some investors/would-be investors frustrated and confused, considering the high inflation rate and geopolitical concerns. The main culprits to keeping prices down are:
- The anticipated interest rate hikes by the Federal Reserve in two weeks.
- The strong dollar.
- The bullion banks manipulating paper prices lower.
So, for those individuals watching the gold and silver prices daily and “hanging on too tight”, please consider the following:
The Fed moving interest rates higher is only temporary and the surging dollar is only short term as well, as the high debt/high inflation fundamentals will ultimately assist a resumption of the long-term downward dollar spiral.
Also, evidence points to the bullion banks being close to ending their “bombing raids” of the paper gold and silver prices. As per London economist Alasdair Macleod stated,
“While gold and silver bugs are undoubtedly dismayed by headline prices, they should be aware that the establishment — the bullion banks ¬— are closing their short positions. Bullion banks almost always take the short side on Comex, which means that Open Interest is an excellent overall indicator of their books. We see that it is as low as it has ever been since 2015. And looking at the underlying numbers, we find the Managed Money category is unusually short. The hedge funds’ net position is as oversold as it gets in a market where there is very little physical silver available. This is a setup for a major bear squeeze. Since January 2021, the Managed Money position has shown a high correlation with the gold price. What this means is that when the gold price is high, hedge funds are long, and when it is low, they are short. In other words, they consistently lose money, and their net position is an excellent contrary indicator. In the real world, common sense and observation tell us that falling commodity and precious metal prices are a pause in the declining purchasing power of all currencies. And that with Russia being the largest energy exporter in the world, trade relations will almost certainly lead to further price shocks this autumn.”
In addition, Macleod refers specifically to two separate developments which point towards a weaker dollar and stronger gold.
The first is the newly proposed trade currency for members of the Eurasian Economic Union, which includes Russia, Belarus, Kazakhstan, and Armenia. The idea is that trade between these nations, and any other Asian nation that wants to join in, will be settled with a new trade currency, replacing the dollar.
“Looking at the available information, it is hard not to conclude that this is a Trojan horse for something bigger.”
“And separately, I hear from Moscow that plans are afoot for a new physical-based gold exchange to challenge the LBMA, which in accordance with NATO sanctions has suspended membership of Russian banks and refiners. This new Moscow World Standard is being promoted as a response to the LBMA’s action.”
And these developments are occurring at a time of rapidly escalating financial tensions between Russia and the West. Furthermore, with interest rates rising and banks being highly leveraged, a banking crisis leading to a central bank bailout of the entire western financial system is a real possibility. In fact, it seems difficult to avoid. As Macleod reports,
“I conclude that putting the two developments together is a plan for Russia and its close allies to prepare for a gold standard for participating currencies. It would protect them against the almost certain failure of the West’s financial system and the consequential collapse of the dollar and the fiat currencies tied to it.”
And finally, Macleod addresses two of the biggest present-day issues: supply chains and inflation.
“The disruption of global supply chains is seen to be a temporary problem yet to be resolved, but there are good reasons to believe it is now permanent. Global supply chains deliver enormous benefits between peaceful nations, but they cease to work when they are at war. Souring trade relations between America and China, covid, and the disruption to international logistics pits them into an undeclared conflict. The trade environment is now against a background of an increasingly belligerent geopolitical struggle, involving both China and Russia on one side, and America and its allies on another. In the absence of détente, which now seems a distant prospect, the system of global supply chains can operate no longer.”
In closing, Macleod emphatically states,
“The consequences are long-term product supply disruption, higher consumer prices, and soaring energy prices already evidenced in Europe. Coming on top of a new trend of rising interest rates and contracting bank credit, it has the makings of an economic crisis for the West, to which governments are bound to respond by creating an inflationary storm.”
In my own separate conclusion, the current lower prices of gold and silver are a temporary gift AND the bigger picture backdrop to a weaker dollar and higher gold and silver prices has never been more powerful. So, at a time when gold and silver spot prices are artificially low and bullish sentiment is weak, it is strongly recommended you take full advantage and buy physical gold and silver today, if so inclined.