The Implications of Fed-Induced Selling on Gold and Silver Markets

Title: The Implications of Fed-Induced Selling on Gold and Silver Markets

Introduction:

Gold and silver have shown resilience in the face of Federal Reserve (Fed) induced selling. Despite the downward pressure on prices, both metals have demonstrated strength, indicating continued Central Bank and Sovereign buying. In this article, we will delve into the reasons behind the recent performance of gold and silver, exploring factors such as trapped Fed positions, the adoption of paper gold, and the potential impact of Basel III regulations. Additionally, we will discuss the need for physical precious metals and the possible revaluation of gold and silver prices.

The Fed's Trapped Position and the Rise of Physical Gold

The Federal Reserve finds itself in a precarious situation, having failed to cover its bearish naked short paper gold bets ahead of the Basel III NSFR standards. With the reclassification of gold as a Tier 1 asset, the Fed is now exposed to a race by other central banks and sovereigns to accumulate physical gold. Consequently, the Fed is unable to cover its short positions adequately, leading to increased selling and short selling by speculators.

Revaluation or Inflation: The Fed's Dilemma

To resolve this predicament, the Fed has two options: revaluing treasury gold or printing its way out. Either solution would rally the dollar-denominated gold price. However, it is worth noting that gold's value remains constant; it is the value of the currency that fluctuates. The Fed's lack of physical gold holdings and its reliance on U.S. treasury gold certificates limit its control over the physical gold price. Furthermore, there is evidence suggesting that the Fed's gold reserves are burdened with multiple ownership claims, which could undermine its ability to deliver physical gold price in USA

Basel III and the Backing of Currencies with Gold

The adoption of Basel III regulations was necessitated by the increasing backing of currencies with gold by countries such as China, Russia, and other BRICS nations. These nations are creating hard commodity baskets linked to gold to support their currencies. If the Fed fails to back the U.S. dollar with gold, it risks devaluation against currencies backed by gold, as has historically been the case when currencies collapse against benchmark gold. This adds further weight to the argument for revaluing the dollar-denominated gold price.

The Unaudited Fed Gold Reserves and Implications

The unaudited status of the Fed's gold reserves raises concerns about the actual physical availability of gold for delivery. The ratio of gold to foreign debts outstanding currently stands at around 5%, well below the historical average of 20 to 40%. Assuming the unaudited reserves are burdened with multiple ownership claims, a haircut would be necessary, reducing this ratio further. Reverting to a historical average ratio would significantly impact the value of gold, potentially reaching $6,000 to $12,000 per ounce. However, caution is advised when considering higher valuations, as there is limited information available due to the lack of an audit.

Silver's Role and Potential Short Squeeze

The gold-silver cross ratio, currently above 80 to 1, suggests that silver is undervalued compared to gold. As gold breaks free from its unallocated collar, it is likely that silver will follow suit, experiencing a short squeeze. The historical 16 to 1 ratio between gold and silver may come into play, indicating a minimum silver price of $375 per ounce. These targets should not be dismissed, as we are witnessing unprecedented circumstances and the culmination of 50 years of paper gold dilution.

Conclusion:

Gold and silver have demonstrated strength despite Fed-induced selling. The trapped position of the Fed and the adoption of paper gold as a first-tier asset class have significant implications for the precious metals market. The revaluation of gold and silver prices, coupled with the increasing backing of currencies with gold, presents a new landscape for investors. Physical ownership of gold and silver remains crucial in uncertain times, as it provides a hedge against currency devaluation and preserves wealth.

Discover the implications of Fed-induced selling on gold and silver markets. Explore the trapped Fed positions, paper gold adoption, and potential revaluation. Understand the need for physical precious metals.

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