On Feb. 24, Gold, Crude Oil and Natural Gas – all major “go-to” trades in the current geopolitical climate reversed at virtually the same time from major levels. Gold hit $1974/oz, Crude Oil $100/barrel, and Nat Gas a nudge under $5/Btu.
The fall from these levels was massive. So what was the volatility down to? Does it seem a coincidence that this type of “fear trade" all turned around at such critical levels? There was a reason that Gold’s rally reversed at precisely the level it did, as it would have equaled Gold’s highest monthly close of all time.
Would it have been outrageous for Gold to be allowed to get to these sorts of levels? Its good derivatives are still being created out of thin air in futures markets; otherwise, the world would have a problem on its hands if a little thing called price discovery was allowed to happen. And what about Silver, Platinum, and Palladium? it's the same story.
The world would be in turmoil if commodity prices were genuine. Nearly 40% of the world’s palladium comes from Russia. Palladium’s price let go when the shorts threw in the towel a few years back, and recent uplift to around the $2500/oz level seems a reasonable reaction.
Silver production in Russia is the 4th highest globally after Mexico, Peru, and China. There’s still a world deficit in silver which has only worsened since COVID, yet here we still sit under $25/oz. These metals are all experiencing colossal backwardation, yet the futures prices do not reflect this.
Basel III (while still delayed in the UK) and the Net Stable Funding Ratio (Which is implemented globally) was supposed to end the creation of derivatives and huge over-leveraged positions. While there is some evidence to suggest this has taken place in some instances, it would appear $100/oz daily swings in the Gold market would not be institutions selling their physical.
Russia, on the other hand, has continued its Gold buying spree. With their currency on its knees against the dollar and having just raised their rates to 20% from 9.5%, Gold just got a whole new price for them.
One more thing - if Gold closes today above $1908 (and it is currently close to this level), it will be Gold's third-highest monthly close of all time. The war spike has occurred, and on the last day of the month, you usually see the price dip on profit-taking so expect fresh flows in on the first day of the month.