• 611 days Will The ECB Continue To Hike Rates?
  • 611 days Forbes: Aramco Remains Largest Company In The Middle East
  • 613 days Caltech Scientists Succesfully Beam Back Solar Power From Space
  • 1,012 days Could Crypto Overtake Traditional Investment?
  • 1,017 days Americans Still Quitting Jobs At Record Pace
  • 1,019 days FinTech Startups Tapping VC Money for ‘Immigrant Banking’
  • 1,022 days Is The Dollar Too Strong?
  • 1,022 days Big Tech Disappoints Investors on Earnings Calls
  • 1,023 days Fear And Celebration On Twitter as Musk Takes The Reins
  • 1,025 days China Is Quietly Trying To Distance Itself From Russia
  • 1,025 days Tech and Internet Giants’ Earnings In Focus After Netflix’s Stinker
  • 1,029 days Crypto Investors Won Big In 2021
  • 1,029 days The ‘Metaverse’ Economy Could be Worth $13 Trillion By 2030
  • 1,030 days Food Prices Are Skyrocketing As Putin’s War Persists
  • 1,033 days Pentagon Resignations Illustrate Our ‘Commercial’ Defense Dilemma
  • 1,033 days US Banks Shrug off Nearly $15 Billion In Russian Write-Offs
  • 1,036 days Cannabis Stocks in Holding Pattern Despite Positive Momentum
  • 1,037 days Is Musk A Bastion Of Free Speech Or Will His Absolutist Stance Backfire?
  • 1,037 days Two ETFs That Could Hedge Against Extreme Market Volatility
  • 1,039 days Are NFTs About To Take Over Gaming?
Market Sentiment At Its Lowest In 10 Months

Market Sentiment At Its Lowest In 10 Months

Stocks sold off last week…

The Problem With Modern Monetary Theory

The Problem With Modern Monetary Theory

Modern monetary theory has been…

Trade In Counterfeit Goods Hits Half A Trillion Dollars

Trade In Counterfeit Goods Hits Half A Trillion Dollars

The counterfeit market has breached…

Alasdair Macleod

Alasdair Macleod

Alasdair Macleod runs FinanceAndEconomics.org, a website dedicated to sound money and demystifying finance and economics. Alasdair has a background as a stockbroker, banker and economist.…

Contact Author

  1. Home
  2. Markets
  3. Other

Two Horsemen of The Apocalypse

Gold and Silver 2015 Chart

If we can reassign meanings given to the biblical Four Horsemen of the Apocalypse from the original, we can then say financial markets saw two of them this week. The first brought us the Greek Crisis which went from very bad to impossible to resolve, and the second was a collapsing stock market in China. Between them these two events triggered another flight into the US dollar, which would have been far worse without central bank intervention. With the dollar rising against the euro, commodity prices, particularly energy and oil, have fallen sharply, with US Crude down over 15% in the last month.

Against falls of that magnitude the falls in gold of 3% and silver at 7% over the same period could have been worse. Very few market participants in Western capital markets use gold as a safe-haven in troubled financial times thinking of them primarily as commodities, seeing the dollar and US Treasuries as risk-free; so it's no surprise that the dollar rose and Treasury yields fell.

China's stock market may or may not be guided out of its slump by government intervention. The Greek crisis appears to be the greater currency danger, with Greece being only part of the problem. As principal creditor to Italy, Spain and Portugal, the real problem is with Germany, which cannot afford economically and politically to write off these debts, and the ECB which is in negative equity on Greece alone. And if this becomes increasingly obvious in the coming weeks, confidence in the Eurozone and the euro itself can be expected to erode.

A third Horseman may soon hove into sight. A credit implosion in China plus a slump in Eurozone confidence and economic activity would be powerful negatives for the US economy, possibly bringing yet more extraordinary measures from the Federal Reserve. The Fed is unlikely to stand by idly and watch from afar the collapse of the Eurozone's $11 trillion economy, nor can it stand by while stock prices in the US slide if Chinese negativity spreads to other markets. It is at that point that owners of physical bullion should sleep better at night than those that have none.


Silver

The market set-up is now extreme, with falling prices in futures markets generating physical buying of precious metals, a dichotomy that should lead to a more general scramble for physical metal eventually. This is already evident in silver, with the US Mint cleaned out of silver eagles and unable to supply any more until August at the earliest.

Silver is a good example of how extreme market positions have become. The chart below is of Managed Money short contracts on Comex.

MM Silver Shorts

This category of speculative shorts is the highest on record, and represents 273 million ounces, or over 30% of global mine production. These shorts are in an illiquid market, and have allowed professional dealers to square their books. This is reflected in record longs for swap dealers.

Swap long contracts

Admittedly, this is a one-sided view that excludes the managed money long positions and the swap shorts; but the objective is to show just how unbalanced the futures market for silver has become.


Next week

Monday. Japan: Capacity Utilisation, Industrial Production. US: Budget Deficit. UK: BRC Retail Sales Monitor.

Tuesday. UK: CPI, Input Prices, ONS House Prices, Output Prices. Eurozone: Industrial Production. US: Import Price Index, Retail Sales, Business Inventories.

Wednesday. UK: Average Earnings, Claimant Count Change, ILO Unemployment Rate. US: Empire State Survey, PPI, Capacity Utilisation, Industrial Production.

Thursday. Eurozone: HICP, Trade balance, ECB Deposit Rate, Refinancing Rate. US: Initial Claims, NAHB Builders' Survey, Net Long-Term TICS Flows.

Friday. US: Building Permits, CPI, Housing Starts.

 

Back to homepage

Leave a comment

Leave a comment