Silver Crosses $30, Gold Eyes $1700

Thursday was yet another massive up day for the precious metals as both Gold (AMEX:GLD) and Silver (AMEX:SLV) added to Wednesday’s gains in the Asian markets setting up a continuation of the rally that began last week.  We are moving towards the end of the September contract delivery month and the markets for both metals remain extremely tight.  By a number of traditional metrics the markets look over-extended in the short-term but do not be surprised if this rally moves forward one more day.

Gold has horizontal resistance between $1680 and $1690 per ounce and a close above that on Friday would set up an opportunity for biblical short-covering next week coming into the end of the month.  Those longs that intend to stand for delivery on the COMEX could and may well attempt to bust the exchange at some point.  Will it be next week?  I’m one to always bet on stability because of the immense power that the central banks have over the markets but the probability of a commercial signal failure on the COMEX has always been non-zero.

The longer prices stay in this zone and the more bellicose the trade war rhetoric between the U.S. and China becomes and the higher that probability becomes.  Remember, the Chinese are rapidly becoming the power-brokers in the physical gold and silver markets.  They own the LME now.  They trade Silver futures in Shanghai denominated in both Yuan and Dollars.

A weekly close for Silver above $31 and Gold above $1685 would be a massively bullish signal that there is something fundamental breaking in the system.

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Tom Luongo

About Tom Luongo

Tom Luongo is a professional chemist and self-taught economist who has been following and trading stocks for nearly 12 years. He has no formal ties to the financial industry and considers that an asset in his analysis of the interplay between monetary policy and capital markets.

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