From Frank Holmes at Frank Talk:
Gold continued its trek lower last week, the price steadying around $1,220 an ounce on Tuesday following Federal Reserve Chair Jerome Powell’s congressional testimony. Powell commented that he thought the U.S. was on course for continued steady growth, supporting his expectation of a rate hike every three months. These comments sent the dollar up and gold down.
Despite this movement, I’m amazed that gold is holding up so well, particularly when you compare real interest rates in the U.S., Japan and the European Union.
In addition to these price moves, we’ve seen suppression and manipulation in the gold market in recent years. This is a topic I discussed last week in our webcast, co-hosted by Randy Smallwood, CEO of Wheaton Precious Metals.
What do I mean by “gold suppression”? Historically, the price of gold has tracked U.S. debt, but as you can see in the chart below, that seems no longer to be the case.
The question, then, is not whether gold is actively being suppressed, but to what extent and by whom. Traders working at some big banks—including UBS, Deutsche Bank and HSBC—have already been charged for manipulating the price of precious metals futures contracts and fined as much as $30 million by the Commodity Futures Trading Commission (CFTC).
However, I’m skeptical that this has resolved the issue. In the past several years, gold has traded down in the week prior to China’s Golden Week, when markets are closed. As much as $2.25 billion of the yellow metal was dumped in the futures market in October 2016, as someone clearly sought to take advantage of the fact that markets were closed for the week in the world’s largest buyer of gold.
During the webcast, Randy Smallwood thoughtfully pointed out that the deliberate suppression of prices can’t go on forever. I agree, and believe that precious metals such as gold and silver are significantly undervalued right now.
So what should investors be paying attention to?