Russia and the War in the Gold and Silver Markets
The comments below are an edited and abridged synopsis of an article by King World News
In a general flight into the US dollar last week, the yen, euro, and pound weakened while the dollar strengthened. Accordingly, the hedge funds on Comex were selling gold and silver to buy the dollar.
But in these conditions that favour the dollar, the swaps on Comex, which are mostly bullion bank traders, still haven’t managed to reduce open interest sufficiently. If anything, resilience at the 550,000 contract level suggests that paper prices for gold and silver are unlikely to go much lower.
Other news was the 0.5% increase in the Fed’s funds rate. The initial reaction was for equities and bonds to rally, before losing it all. The yield on 10-year US Treasuries breached the 3% level, a wake-up call for complacent investors.
Inflation is likely to approach 10% in the coming months. Either interest rates have much further to rise, or prices will rise even faster, not because of demand but because currencies’ purchasing power will decline at an even greater rate.
Meanwhile, the Russian ruble has recovered all its losses against the US dollar.
The ruble is now the strongest currency by far, as the EU will have difficulty uniting member states against Russian demands for payment for energy in rubles. In the West, the media tells us of dire economic conditions in Russia, but the facts suggest otherwise. It is the West that is collapsing under the burden of its own sanctions against Russia. Russia, meanwhile, is enjoying record balance of payment surpluses.
A combination of currency and credit expansion in recent years is undermining the purchasing power of all Western fiat currencies. That is driving rising prices, and the various crises (Covid, supply chains, Russian sanctions) are merely catalysts. The long-term trend of declining interest rates is over and market prices of financial assets, which act as collateral at the major banks, are extremely vulnerable.
Tying the ruble to commodities shows not just its own strength, but the weakness of Western currencies. And because commodities priced in gold are stable over time, the ruble’s strength tells us that gold should also be rising.