The Italian referendum came and went. But the markets have never been more chaotic.
As Zerohedge reported, in BREXIT, it took the markets 3 days to recover, in Trump's win, it took 3 hours and in the Italian referendum, it took 3 minutes for the markets to swing from a loss to a gain, thanks to central banks intervention once again.
It looks like the central banks were able to act in unison to prevent any fallout. Gold was once a gain a victim. A total of US$3.5B of gold contracts were dumped starting with the LBMA open and then another huge sell off at the COMEX open. However gold recovered towards the end of the trading day losing just a few Dollars. Silver was likewise manipulated, but it held on to its position and was little change at the end of the trading day.
Although at the beginning the miners surrendered more than half of their gains achieved Friday, by the closing bell the some miners were mostly in the green.
The situation was not helped by rumours that India is restricting gold ownership which later was denied by the officials. Frankly I don't see that happening as many temples in India have vast amount of gold and it is unlikely the government would want to stir a hornet nest by imposing restrictions on gold ownership. Still the bullion banks will ride on any rumours to take gold down.
Then we have the liquidity problem in China that is causing the government to restrict import of gold despite the large appetite for the precious metal in China. The liquidity crisis in China is a major problem and could trigger a wide spread crisis in the region. Already, there are several restrictions on cash such as conversion to foreign currencies, bitcoin and merger and acquisition by state companies. China would not impose such restrictions if the situation is not dire.
However, the demand for gold in India continues unabated. Chinese are paying more than US$20 premium per oz over the spot prize. In India the black market for gold is more than US$3,000 per oz. The greater the restrictions the greater the demand.
So the bullion banks use the restrictions as a negative narrative to push down the price of gold, but events within the countries show otherwise. Therefore it is not surprising that many long term holders panicked and sell off.
If anything the crisis in India and China shows that when all else fail, gold and silver are the only protection against major crises.
Going back to silver. Silver has held up pretty well because silver is not only a precious metal but an important industrial metal.Silver is used for all types of electronics due to its super conductivity. it is also used in the medical industry due to its medicinal properties. None of these are ever recycled. So silver supply is falling and production now is lower than 2015.
Economic growth in US could lead silver higher, not as a precious metal but as an industrial product. Since May, the US has been importing tremendous amount silver. It could be a sign of demand and that bullion banks have shortage in silver. Silver therefore could be the Achilles heel of the bullion banks.
The US$ has weakened somewhat in the last few days. One thing to look out for is the USD/JPY rate. The elation of a Trump victory has caused the US$ to skyrocket and the Yen weak. What happened next was a carry trade in Yen (due to low interest rate) to purchase securities in US, which pushed US$ higher and the Yen even weaker. According to Phoenix Capital, the carry trade was somewhere in the region of US$10T. I will be watching for further signs for the Yen to strengthen due to the following:
1) As the US stock market losses steam and economic realities set in, a big correction could ensue and with that a falling US$
2) Further dumping of US treasuries. This is akin to dumping US$ which could weaken confidence in both the US economy and US$
3) A sell off in international bonds could reach Japan's shore. About 10% of Japanese bonds are owned by international investors. A sell off could spark a rise in yield thus making the Yen stronger and the US$ weaker
4) A falling US$ will mean a stronger Yen and this could cause a domino effect as the carry trade is unwound. There will be a massive crash as investors panicked pushing the US$ lower
In such a scenario, gold and silver, miners and related ETFs could do well.
Precious metals aside, I believe the next major trade will be in commodities, and companies involved with commodities could perform better than other industries. Some of the major movers recently are iron ore, zinc and lithium Another commodity which has reversed its downtrend is copper. It therefore pays to look out some good copper producers.
The above is just my opinion.
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