By Adam Hamilton – Re-Bloged From http://www.ZealLLC.com
The miserable summer for precious metals grinds on, with both gold and silver limping along near major lows. Such dismal price action has exacerbated the extreme bearishness long plaguing this sector, sparking even more capitulation. But this incredible weakness will be short-lived, as it was driven by American futures speculators’ record short selling. That will soon reverse into guaranteed, proportional buying.
In all markets including precious metals, price is rightfully considered the most-important fundamental signal. Prevailing price levels are set by free-market buying and selling until supply and demand meet. And gold and silver prices are exceptionally weak, with these despised precious metals slumping down to challenge major new 5.2-year and 5.4-year lows this week. So their fundamentals must be bearish, right?
The only fundamental factors that can drive prices near major secular lows are too much supply, too little demand, or some combination of the two. And if the gold and silver markets are as oversupplied as their prices indicate, they’re likely to keep drifting lower indefinitely. This popular bearish thesis is universally believed today, with virtually no dissent. There aren’t many contrarians left to combat this overpowering groupthink.