Silver Rally Breaks $90 As US Mint Runs Into Delays

Goldfix Market Rundown - January 12, 2024

Key Concepts:

• Stock vs. Flow (Gold Market): Gold is primarily driven by conviction buying (stock) rather than new mining supply (flow).
• Illusion of Liquidity: The perception of readily available metal masking underlying supply constraints.
• Conviction Flows: Price direction in gold is largely determined by the actions of central banks, ETFs, and strong conviction buyers.
• Measured Move: A technical analysis technique to project price targets based on the magnitude of a breakout.
• Margin Requirements (CME): The amount of money investors must deposit with a broker to cover potential losses on futures contracts.
• Numismatics: The study or collection of coins, currency, and medals.

1. Market Overview & Precious Metals Performance

The market opened with 10-year yields down to 4.15%, the dollar at 99.07 (down 9), the S&P 500 down 20, and the Nasdaq down 111. The VIX (volatility index) saw a slight increase of 1. Gold experienced a significant rise to $2463.4, up $48 and change, while silver jumped to $25.89, up 5.43%. Notably, silver’s increase in China was 5.89%, creating a spread of approximately $11, indicating potential supply pressures and bullish signals. This spread is widening due to factors including China facing a squeeze on silver supply.

2. Goldman Sachs’ Gold Market Primer

Goldman Sachs’ August report is highlighted as a crucial resource for understanding gold’s unique market dynamics. The report reframes gold not as a commodity driven by supply and demand, but as a “stock market” where nearly all mined gold still exists. Price movements are primarily dictated by “conviction buyers” – central banks and ETFs – with emerging market demand establishing a price floor. The report also details the interconnectedness of the physical and paper gold markets in London, New York, and Switzerland.

3. Restrictions on US Coin Sales & Supply Chain Pressures

Unverified, yet credible, reports suggest restrictions on US coin sales from the US Mint and volume limitations at Costco. While no official suspension has been announced, these supply chain behaviors indicate mounting pressure.

• Costco: Costco is reportedly limiting purchases to one 20-ounce sleeve of silver per customer per transaction, allowing repeat purchases throughout the day. This is a response to customers rapidly buying up silver when prices rise, resulting in a loss for Costco.
• US Mint: The release of the 2026 silver eagle coins has been delayed to February 26th (year unclear). The official explanation cites price volatility, but the underlying issue is believed to be a lack of available metal. Furthermore, a US Mint memo circulating suggests potential delays or cancellations of numismatic coin production.

These events mirror restrictions observed in Japan (limiting bar types), India (restricting ETF access for new customers), and Thailand (difficulty purchasing gold), all pointing to governments or entities accumulating metal directly or encouraging citizen purchases that ultimately remove metal from public circulation. This is described as a pattern of governments “hoovering up” metal from the supply chain.

4. CME Group Margin Requirement Changes

The CME Group will modify margin requirements for gold, silver, platinum, and palladium futures contracts following recent price swings and volatility. The change aims to align margin requirements with current price levels – increasing margins as prices rise and decreasing them as prices fall. While potentially discouraging excessive speculation on the large contract size, the CME is simultaneously launching a 100-ounce silver contract to attract retail investors, a move considered bullish as it democratizes ownership and increases market awareness. This is likened to a stock going public, raising awareness and driving demand.

5. The Democratization of Ownership & Bullish Signals

The speaker emphasizes the importance of the “democratization of ownership” in precious metals, particularly in China where citizens are encouraged to buy gold. This contrasts with scenarios where a small number of entities control large quantities of metal. The combined signals from Costco, the US Mint, and the CME are interpreted as bullish indicators, suggesting increased awareness and demand for precious metals.

6. Technical Analysis & Price Targets

• Silver: The measured move target for silver is approximately $25.70.
• Gold: Gold has a measured move target of $2800. A previous attempt at a measured move failed, but the current breakout suggests a potential reach of the new target.

7. Notable Quotes

• “Gold does not trade like other commodities on Earth.” – (Attributed to Goldman Sachs’ report)
• “During war, you export immigrants and you import metals.” – Vince Lansancy, highlighting the geopolitical context of metal accumulation.
• “Raising the margins on the bigger contract while creating a new contract for the retail to buy is like breaking open a pack of cigarettes and selling them one at a time.” – Vince Lansancy, illustrating the CME’s strategy.

8. Data & Statistics

• Silver Spread (China vs. US): Approximately $11 as of the recording date.
• Silver Increase (US): 5.43%
• Silver Increase (China): 5.89%
• 10-Year Yield: 4.15%
• Dollar Index: 99.07
• S&P 500: Down 20
• Nasdaq: Down 111
• VIX: Up 1

9. Logical Connections & Synthesis

The report connects seemingly disparate events – Costco’s purchase limits, the US Mint’s delays, and the CME’s margin changes – to a broader theme of tightening supply and increasing demand for precious metals. The speaker argues that these are not isolated incidents but rather symptoms of a larger trend driven by government accumulation, geopolitical tensions, and the democratization of ownership. The Goldman Sachs report provides a framework for understanding gold’s unique market dynamics, while technical analysis offers potential price targets. The overall conclusion is that despite potential short-term volatility, the long-term outlook for precious metals remains bullish.