Precious metals' analysts claim that the demand for both physical gold and silver remains strong. If this is true, how can we account for the huge drop in PM sector for the last few months?
The three most common reasons so far used to explain the drop in the price of gold and silver are related to Fed rate hike, the strength of USD, and the uncertainty brought by US election. David Scheman recognized that they certainly affect the price of precious metals, but none of them is the real reason for the huge drop. The real reason he said is that JPMorgan had massive short position for the last few months. However, just recently, JPMorgan is closing out its shorts and at the same time aggressively buying physical gold and silver and futures contracts.
I don't understand the futures contracts and the meaning of buying them. This is the good thing living in an information age for you can simply consult Mr. Google to answer your question. Investopedia provided me an answer that made sense to me:
"If market participants anticipate an increase in the price of an underlying asset in the future, they could potentially gain by purchasing the asset in a futures contract and selling it later at a higher price on the spot market..."
The above explanation tells me that after suppressing the price of precious metals, JPMorgan now anticipates that their price in the future will increase. And that's the reason why JPMorgan is buying both the physical gold and silver and futures contracts. They intend to profit from it by selling gold and silver later at a higher price.
References:
campaign.r20.constantcontact.com/render?m=1101357242253&ca=fc1c8b73-0fe7-41e3-be8d-2fb1b12e4dfb
www.investopedia.com/terms/f/futures.asp
The three most common reasons so far used to explain the drop in the price of gold and silver are related to Fed rate hike, the strength of USD, and the uncertainty brought by US election. David Scheman recognized that they certainly affect the price of precious metals, but none of them is the real reason for the huge drop. The real reason he said is that JPMorgan had massive short position for the last few months. However, just recently, JPMorgan is closing out its shorts and at the same time aggressively buying physical gold and silver and futures contracts.
I don't understand the futures contracts and the meaning of buying them. This is the good thing living in an information age for you can simply consult Mr. Google to answer your question. Investopedia provided me an answer that made sense to me:
"If market participants anticipate an increase in the price of an underlying asset in the future, they could potentially gain by purchasing the asset in a futures contract and selling it later at a higher price on the spot market..."
The above explanation tells me that after suppressing the price of precious metals, JPMorgan now anticipates that their price in the future will increase. And that's the reason why JPMorgan is buying both the physical gold and silver and futures contracts. They intend to profit from it by selling gold and silver later at a higher price.
References:
campaign.r20.constantcontact.com/render?m=1101357242253&ca=fc1c8b73-0fe7-41e3-be8d-2fb1b12e4dfb
www.investopedia.com/terms/f/futures.asp
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