Market commentary and EFPs

With no resolution in sight and military action continuing to escalate, patience remains the key. What are the #gold and #silver EFPs telling us?

It bears repeating: it is extremely difficult to confidently buy the dip when there is still no credible path to de-escalation. As long as geopolitical headlines continue to dominate market sentiment, precious metals are likely to remain vulnerable to sharp intraday swings, rapid reversals, and heightened volatility.

In my view, patience remains the best strategy. Markets driven by uncertainty rather than fundamentals can stay volatile longer than many expect. Until there is a credible and durable resolution to the conflict, I believe it is prudent to remain disciplined rather than trying to catch every move.

The gold EFP with 10 days remaining to August delivery is trading today @ $4.00, which is approximately 3.6% vs ~ 3.9% London OTC Forward. With the price lower, there is a small incentive for banks to close out their borrowed gold EFP positions (long OTC London and short CME futures). Conversely, the silver EFP is trading slightly above London OTC forwards. The silver EFP closed ~ 26 cents to September CME, which is ~ 4.02% vs ~ 3.75% London OTC. The silver EFP has been trading above OTC, which will probably continue until we get a definitive response from the US on tariffs for investment grade silver. Presently, the differential is not enough of an incentive for banks to trade the arbitrage and ship silver into the CME. Meanwhile, liquidity has clearly come back to London OTC silver market with ~900mm ounces of silver in the London warehouses, free floating stocks at a normalized level and OTC rates well into contango out to 5 years.