Weekly Briefing 6/6/21 - The Forecast

Weekly Briefing 6/6/21

Weekly Briefing 6/6/21

 

Bullion banks have significantly reduced short positions over the past three months.  Institutional money is always forward-looking and positions capital months before whispers reach the retail trading community.  Basel III, an anticipated event, is expected to go into force at the end of June. It is a complex change to the COMEX system and will effect gold’s trading in different ways, both positive and negative.

Gold will become a tier one asset for central banks and will thus become more desirable for them.  Initially, as a tier three asset, gold could only provide half of its market value to the banks’ solvency requirements.  It will now provide 100%, its full value, towards the solvency requirements. Central banks are the world’s largest holders of physical gold and their stake will now begin to drastically increase, likely boosting gold prices significantly. Collectively, central banks own 90,000 tons of gold.
It is also interesting to note that SWAP desks which provide liquidity to gold miners and other businesses which deal in gold will be adversely effected. These desks deal primarily in unallocated gold and paper gold. The margins in their loan business are razor thin and these new regulations are forcing many desks to close up shop due to less liquidity.  This will make liquidity in the market much thinner and the end result will be greater price swings. The main reason behind these new central bank rules are to make gold less desirable to own and trade. Dating back to the 1970’s, institutions owned 6% of the outstanding bullion, but as of this year, that number is down to 5%.  Yet central banks have done nothing but buy for the past five decades. The botton line is that gold is one of the most valuable assets on the planet and has withstood the test of time.  Central bankers want an environment that allows them to control and own the most amount of physical bullion possible going forward – especially since we are in an era of currency debasement and astronomical debt.  Central Banks will continue to continue to make gold less desirable and more difficult to own for the rest of the world as they alone increase their personal stakes.  So the big question remains: will Bullion banks still short gold? The answer is yes, but it will be far more difficult due to less liquidity from a reduction of SWAP desks and the hoarding of physical gold as a result of it being a tier 1 asset.

Now we will examine what this means for the price of gold for the long and short term. Initially, we expect a price spike into mid-June with potential for extension into early July. The price spike may exceed our expectations based on bullion desks’ fear of shorting until they become comfortable post Basel III.  From there, gold should pullback but remain elevated into September with potential for higher highs.  Gold miners and silver should catch up to the price of gold into August.  Gold members will be apprised of projections on a daily basis throughout this rally which has spectacular potential.  Knowing which asset class (SLV, GLD, GDX, etc) to be in over the next two months will also be key to maximizing profits in the metals sector. Each one will take turns leading at different times as occurs in every metals rally.  Long term, gold is likely to trade at or near $5000 by 2024 at the latest.
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