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Why did gold and silver tank after the long-anticipated Fed rate hike of ¼%?

That is the question that is on the mind of most of our readers.  And it is a logical question if you think that the dollar, interest rates or the uncertainty of the Trump election are probably the reasons

Reasons?  Yes, in a sense they do affect the price of precious metals, but if you really want to understand what is happening, you have to refocus on the real reasons.

First of all, it would serve you well to separate, in your mind, the paper gold and silver markets from the physical gold and silver markets.  Sooner or later, probably sooner, the physical demand will wrestle price setting from the paper market.  But for now, that is not the case.

I can state this for a fact.  Our business at Miles Franklin this year is equal to last year.  We are not experiencing a soft market for the actual coins.  Demand is strong.

And the premiums for gold and silver coins and bars in India and China and on the Shanghai physical metals exchange are huge.  The demand for physical metals is strong!

So why the drop in the spot price?  Here is what we feel is the real reason and I suggest that you carefully think this thru.

JPMorgan is buying silver with both hands. They are buying physical silver and they are buying futures contracts from the longs who are selling. In that way, JPMorgan is reducing its short position. That’s two kinds of buying. 

Here’s what Ted Butler said, “This year, JPMorgan has taken delivery of more than 6,000 net silver futures contracts (contracts stopped minus contracts issued), all in its own proprietary trading account. That’s more than 30 million ounces of silver acquired by JPMorgan, most of which eventually found its way into the bank’s COMEX warehouse.”

“The big theme, as I see it, is JPMorgan becoming more aggressive in acquiring physical silver and gold while at the same time reducing its COMEX short position in each almost as aggressively. It’s hard to imagine a more bullish backdrop for futures prices.” 

Many of our readers are confused because of the views presented by Harry Dent and Martin Armstrong.  Could they be right?  I seriously doubt it, but anything is possible.  The real question is – is there a better, a more logical and documented reason for gold and silver’s fall?  I say absolutely.  I just gave it to you.  Now you have to decide for yourself; is this a time to panic or a time to accumulate?

I say, if JPMorgan is closing out their shorts (and it was their massive short position that caused the drop in the metals for the last few months), and if they are now accumulating massive amounts of physical gold and silver – and going long on the Comex, then that is where you want to be too.  JPMorgan controls the market, for now, and tailing along with what they are doing is a logical thing for you to do.

JPMorgan, at this point in time, stand to make the most money when prices RISE, not when they FALL.

I recall, over a decade ago, when Jim Sinclair said, “The big winners on the way up will be the bullion banks (Goldman Sachs and JPMorgan).  They make money both ways, either a rising or falling market, but the big money will be made on the way back up and they have positioned themselves for this event and have little reason to suppress the price going forward.  They have essentially squeezed out the “longs” the momentum hedge funds, and there is little profit left for them to make by continuing to suppress the price.

Watch what happens if inflation re-appears (which it should if Trump is successful), when the dollar starts to retreat (which it should) and when the Fed enacts its next interest rate hike (which I expect to happen early in 2017).  Once the market for the metals turns up, it should be the continuation of a long lasting and powerful bull market that started in 2001.

If prices hold here, then I think we have seen to bottom and 2017 will be a great year to be in precious metals.

David Schectman

Founder, Miles Franklin