Gold and silver sold off today as the U.S. dollar strengthened throughout the session. Rising crude oil prices are also adding to inflation concerns and expectations for further FOMC tightening, putting additional pressure on precious metals. What I find particularly interesting is that despite the selloff, implied gold and silver EFP yields remain elevated relative to OTC rates. With approximately 67 days until December, the implied gold EFP yield is around 4.54% versus approximately 4.30% OTC, while the implied silver EFP yield is around 4.08% versus approximately 3.70% OTC.

That spread is worth watching.

If these differentials persist, the economics should continue to encourage physical metal to move back toward the U.S. At the same time, banks may have an opportunity to take advantage of the spread by effectively borrowing through the EFP; buying London and selling December CME, while lending the metal OTC out to December, potentially capturing an attractive spread.

This is another example of why watching the EFP market is so important. It can provide valuable insight into the relationship between London OTC liquidity, CME pricing, physical metal flows and the balance-sheet decisions being made by bullion banks. We also have the U.S. midterm elections approaching, with control of Congress still uncertain. All 435 House seats and roughly one-third of the Senate are contested in midterm elections. That adds another layer of uncertainty for markets as participants assess how the eventual composition of Congress could affect legislation and fiscal policy.

Patience remains important.

This continues to be a headline-driven market, and we will be watching crude oil, the U.S. dollar, interest rates, physical demand, ETF flows and EFPs closely for indications of the next move. See Watchgold.org for the Gold/DXY 1 day chart where the dollar continues to strengthen most of the day while gold sells off.

Educational purposes only. Not investment advice.