Second Half of 2022 Could Turn Out to Be Spectacular for Gold & Silver

The comments below are an edited and abridged synopsis of an article by Alasdair Macleod

Gold and silver fell sharply last week into the half-year end as recession fears mounted.

Second Half of 2022 Could Turn Out to Be Spectacular for Gold & Silver - BullionBuzz - Nick's Top Six
Business and finance background. Rows of golden and silver bars

The wider commodity complex also sold down as markets readjust their expectations from outright inflationary conditions to growing evidence of a global recession.

Weakness in precious metals and the broader commodity complex owes much to the banks that run short positions managing half-year mark-to-market values. While they make substantial profits trading derivatives of gold, silver, energy and base metals, it is always against a background of short positions. It is at moments such as quarter- and half-year ends that prices often fall significantly as market expectations are carefully managed.

Sentiment for gold and silver is at a low ebb. In Comex silver, the Swaps are net long about 4,000 contracts, the short positions carried by hedging producers. This is a classic sell-off; all news seems to work against gold and silver and the bulls capitulate. The bullion banks want to see lower prices, so the sell-off might not be over yet, but it is getting close.

There is a silver lining. Over-extended banks are reducing their balance sheets, so pressures on trading desks to close their positions are growing. Losses incurred are becoming a secondary factor as banks seek to withdraw from funding financial activities altogether. Not only is this leading to liquidation of bonds and equities, but also of the banks’ own positions.

The forces contracting available finance backing for holdings of bonds and equities applies to derivatives as well. In bonds and equities, the prospect is for market-making liquidity to reduce as selling intensifies. It works the opposite way for commodities because it is artificial supply that’s being withdrawn, not finance backing long positions.

The ability of the system to control or suppress commodity prices will be compromised by these developments. Market failures, such as the recent nickel spike, are likely to become more frequent.

In addition to the effects of failing currencies on prices, the second half of 2022 could turn out to be spectacular for gold and silver.

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