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Gold and silver quietly preparing for a major comeback this autumn

-- Posted Sunday, 21 July 2013 | | Disqus

In volatile financial markets what has gone down like a stone can rebound like a rocket. Gold and silver investors should not forget that this summer after the recent price rout.

The financial markets have turned far too heavily against the precious metals, piling up wildly leveraged short positions that have driven the price down and down in the futures market. Once these positions come off then there will be an equally powerful reaction in the opposite direction.

Wall Street Crash

Why should that happen this autumn? There is only one obvious answer: Wall Street’s long rally against a very poor US economic recovery will finally end with a crash.

Where it will be different to 2008 this time is in the precious metals market. Gold and silver have already been through their correction and this time will be an oversold safe haven in a crisis.

Given the recent bond market squeeze there will be less confidence in treasuries as a safe haven this time round. Remember it used to be the Chinese who were buying all the bonds and now they just can’t get their hands on enough gold.

The Shanghai Gold Exchange settled an amazing 1,098 tonnes of physical gold in settlements compared with just 161 tonnes in the New York Comex in the year to end of June. To put this in perspective that is an eighth of all the US Treasury’s gold reserves in Fort Knox and 40 per cent of global gold production.

The Chinese really are turning their treasury bonds into gold now. ArabianMoney has explained this on many occasions (click here). Rumors that they might go the whole hog to a gold backed yuan currency are less credible (click here).

Put simply the gold price fall this year is an artificial construct of the gold futures market. That is paper gold. The hard stuff’s price is being artificially held down by the price of futures being traded by speculators.

Price mechanism

However, it just cannot stay down in the face of this huge growth in demand for physical gold from China. And it won’t for much longer because the physical gold backing the Comex futures paper is actually running out (click here).

In less than three months the price setting mechanism for gold will have to move from the Comex to the physical metal itself and that price-setting revolution will give the gold price a massive boost.

Buying what is cheap is a part of the contrarian investment philosophy. The other part is to have a cast iron case for believing a rebound is at hand. We have that now with gold and silver.

-- Posted Sunday, 21 July 2013 | Digg This Article | Source:

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