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Precious Metals Market - Where I Was Right And Where I Was Wrong


  • In this article, I am discussing where and why I was right or wrong about the precious metals market.
  • Shortly: I was right about the US dollar and US 10-year Treasury notes.
  • Despite being right about these important (for the precious metals market) instruments, I was too optimistic (or even wrong) on gold/silver prices.
  • In the final section of the article, I am suggesting that gold prices are at their inflection point right now.

I want to start this week’s survey in a different way and revert to my article published on April 1, 2017 (titled "Gold Market - A Big Change in the Making"). At that time, my optimism on gold/silver prices was founded on two patterns delivered by the US dollar and the prices of 10-year Treasury notes.

US dollar

In April 2017, big speculators were very optimistic on the greenback and hold very large net long positions in US dollar futures (43.0 thousand contracts). I summarized this situation in the following way:

"Generally, strong rallies in the US dollar begin when speculators are bearish and hold net short positions in the greenback. Now we are very far from that so, in my opinion, the US dollar is poised to remain unchanged or go down. Both alternatives are supporting gold prices."

According to the last Commitments of Traders report, on June 27, 2017, the big speculators were holding a net long position of 5.5 thousand contracts. Simply, they were quite pessimistic about the greenback. What is more, the sentiment index (invented by Simple Digressions) calculated for the US dollar index is close to zero now:

Source: Simple Digressions

The chart also shows that it was the change in speculators' mood (from optimism to pessimism) a factor responsible for dragging down the US dollar from 100.6 on March 31 to 95.6 on June 30 (a decrease of 5.0%).

What about gold prices? On March 31, gold was trading at $1,247.3 per ounce, and on June 30, the price was $1,241.4 per ounce, so, generally, there was no change in gold prices.

Well, I am baffled because the common knowledge is that gold prices and the US dollar index go in the opposite directions. This time the US dollar went down but gold prices did not

This article was written by

Simple Digressions profile picture
An unorthodox approach to the mining sector, precious and base metals

An independent analyst and private investor. Professional experience comprises about 20 years in a number of financial and industrial companies. Fan of the Austrian School of Economics.

Analyst’s Disclosure: I am/we are long GDXJ. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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