Friday 15th August 2014 was the day when the “New Silver Unmanipulated Fix” goes into place and many claimed it would be an unprecedented day. With India’s markets closed the night before for their Independence Day, which put a lot less demand-stress on the physical market, and no high impact economic events, besides the new Silver Fix, the day looked to be a typical mid-August Friday. Although I strongly believed a single event would not cause any dramatic movements in itself, the day proved to be full of dramatic turns and opportunity.
The new Silver Fix went ahead as expected at 12pm GMT, without any hiccups. But with no news or even triggers, at 12:40pm GMT, over 13,700 silver futures contracts were dumped onto the Comex markets for 2 hours. Gold futures were smashed at the same time.
There were no financial news events that would have triggered the sudden selling of silver in huge quantities. The geo-political news had seen unconfirmed reports of Russia moving military vehicles across the Ukraine border, an escalation that would have seen support for precious metals prices. After 2 hours, silver dropped from $19.90 to test key support at $19.50. Gold dropped from $1,314 to test support at $1,295.
Geo-Political Tensions Rising
Tensions continue to escalate with ISIS advancing in the Iraq, rioting on the streets of the United States and the conflict in eastern Ukraine edges closer to boiling over and dragging Europe into a more dangerous scenario.
Media coverage of the conflict in Ukraine has gone strangely quiet on the tragic crash of Malaysian flight MH17 since evidence has started to emerge that the Ukrainian military rather than the separatists were likely the cause of 298 people losing their lives. Instead the media has recently centered on Russia’s Aid Convoy being sent to supply the civilians caught up in Ukraine’s civil war with humanitarian aid. Ukraine and western governments suspect it may in fact hold weapons for the separatists, and as the convoy got closer to the border, Ukraine said they would deny entry, creating a tense standoff that remains unresolved.
These events have added support to precious metal prices, as money flows to safe haven assets in times of uncertainty. Demand flooded into Gold and Silver midafternoon Friday when Ukraine announced it had destroyed a Russian armored convoy that had crossed into its country Thursday night. Why such an explosive event, if true, took over a day to be reported is unclear, but it was certainly convenient that the news broke after the Comex market dumping of Gold and Silver futures contracts. The rally in prices that resulted began from lower levels.
Silver broke through previous support found at $19.82 and now finds support above the next technical level at $19.50. Gold regained more ground than Silver, retaking $1,305. The decoupling of Gold to Silver ratio gives the strong possibility of silver rallying to close the gap with is currently 1:66.
If Silver holds above $19.50, this dramatic sell off in silver futures presents an opportunity to accumulate. Gold holding above $1,305toz suggests current prices in Silver will not be low for long as we head into September. Precious metal demand is beginning to report increased demand, which will likely increase whilst prices have come lower unexpectedly. Commercial banks in India recently reported demand is excess of 35kg compared to 15kg available supply. Additionally, Shanghai’s Silver vaults have reportedly been drained since March of last year. In that month the vault claimed to have 38 million ounces of Silver, now they only have 4.75 million. If they continue to see the same amount of drainage with no intake things could get quite interesting by the end of next quarter.
The long term fundamentals and technical outlook remains intact and still point to higher prices so I recommend looking at Fridays attack on precious metals as opportunity to acquire more metals at bargain prices. Gold and Silver will reward those who bought smart and stayed the course.