It’s one of those periods when everything is conspiring against precious metals. For those of the bullish persuasion, this can be a difficult time. I have resorted to wearing my own self-imposed “cone of precious metal trading” in an attempt to stop me from buying too much, too early.

Let’s review why this environment is so problematic for gold and silver. The main reason is that the global backup in interest rates is about the worst thing you could ask for. Think about it for a second. Central Banks are signaling they want tighter monetary policy because they are worried about future inflation running too hot. They are in essence behaving marginally more prudently. For all those hard money advocates that have been railing against irresponsible Central Banks, they now have less to complain about. Gold has often been called the anti-Central Bank asset, and although many would argue Central Bank policies are still a long way from appropriate, trading is all about the direction of change, and there can be no denying that Central Banks are becoming more hawkish, not the other way round.

Central Banks are sending real rates higher. In the process, they are sucking money out of precious metals, and into short dated fixed income securities. Look at US 5 year TIPs yields – they are pushing to new highs.

In fact, given the relationship between US 5 year TIPs yields and gold, it looks like our little yellow friend could still be vulnerable to further declines.

Although this global backup in yields is the main factor weighing on precious metal prices, there is another more complicated dynamic at play. And I think this relationship had something to do with last night’s silver flash crash.

Last night at 6 o’clock, someone wandered into the silver futures pit and sent silver down almost 11% almost instantaneously.

At first, I thought someone fat fingered it. But when the bounce was weak, it quickly became obvious that no one needed to buy back their error.

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