Tuesday, July 19, 2011

Precious Metals Round Number Battle Royale

Round numbers in both Precious Metals portend a major battle between the Bulls and Bears this week as Gold assaults $1600 for the first time, and Silver looks to recapture ground above $40.  The Bears will be working overtime to prevent inevitable short squeezes in both Precious Metals should their efforts to halt their rises at these significant pricing milestones fail. 

Potential for Major Short Covering in Gold
From Eric King, KingWorldNews.com, July 18, 2011
With gold hitting new all-time highs and silver hovering around $40, a trader out of London told King World News today, “The all important thing to watch is the pit close (Comex). If we get a pit close today in the US above either $1,600 gold or $40 silver, then you are going to see some huge capitulation by the shorts. $40 silver is the trigger, there is a significant amount of money which did not want to enter the silver market until it cleared $40.”

The London Trader continues:

“So you essentially have two critical factors to watch if we get a strong close today in silver. A close today above $40 leaves those stops highly vulnerable to getting tripped (they will cover their shorts). In the meantime you are also going to get funds who have been out of the silver market popping back in once it closes above $40. These two competing buyers could create a quick and somewhat violent short-term move to the upside.

Right now silver is looking very bullish because the open interest is so small. It appears there is a lot more room on the upside for silver vs gold because of the current structure, but I am not saying gold is anywhere near the top.

A close above $1,600 on gold, similar to silver closing over $40, would create a huge bunch of short-covering. The commercials have been adding short positions in gold, but should we get a close above $1,600, I think you will find the smaller of those shorts are going to start covering their shorts because it’s going to be too much pain. This could result in a $50 move overnight.

Expect a Tidal Wave of Buying & Short Covering in Gold
From Eric King, KingWorldNews.com, July 19, 2011
With gold hitting new all-time highs in all major currencies and silver breaking above $40, today King World News interviewed James Turk. When asked about the action in gold Turk stated, “I wouldn’t be surprised to see $2,000 (gold) very quickly. It’s just a question of how the European bank crisis unfolds or the US debt limit unfolds or any one of these number of trouble spots around the world unfolds. Any one of those could light a fire under the gold market and you could see $2,000 very, very quickly. You could also see silver over $50 very quickly. That’s the way the trend is going so just position yourself and ride the trend.”

Turk continues:

"It’s all very positive Eric, it’s still within my bigger point of view that the summer is going to be spectacular. It has started out that way and I still think there is a lot more left. There are really two types of gold buyers, you’ve got the accumulators and you have the momentum players.

What the London Trader (KWN interview earlier today) was saying is that the accumulators have basically been out of the market, which is reflected by the discount to spot price on a number of the Asian markets where a lot of the physical accumulation takes place.

Now the interesting thing is you can drive prices higher if either one of those players are in the market, and while the accumulators are out, the momentum buyers are in there. I still think these momentum buyers are going to take gold and silver much higher and that’s basically what the London Trader was referring to by saying there was going to be a lot of short covering once we get over $40 (in silver) and $1,600 (in gold), which is what we did today on a closing basis in New York.

People are looking for the safety of gold and exiting national currencies. Exiting the dollar, exiting the euro, exiting the British pound, gold is at record highs against all three of those currencies.”

From Zero Hedge
Many market participants are expecting a correction in gold at the psychological level of $1,600/oz.

This is quite possible given corrections often take place after reaching record round number highs. Also, corrections tend to happen when there is a lot of noise in the press and media.

Gold’s record high in all currencies is front page news in the Financial Times today which would make any contrarian nervous that the recent move is overdone. However, coverage remains very muted in much of the non specialist financial press – many of whom barely covered or did not even mention the new record gold highs.

The man or woman in the street, in Europe and much of the western world, remain blissfully unaware of gold’s rising price and unaware of gold’s importance as a store of wealth and an important diversification.

Gold is not overvalued – especially in the long term but even in the short term.

Gold at $1,603/oz is only 2.5% above the recent record nominal price seen on April 29th at $1,563.70/oz. Thus, gold has had a two month correction and consolidation prior to reaching the new nominal highs over $1,600/oz.

Year to date in 2011, gold is only 13% higher in dollars, 7% in euros and 9.4% higher in sterling.

Therefore, it is quite possible that gold targets the next psychological level of $1,700/oz, prior to any meaningful correction. Higher prices in euros and pounds are especially likely, prior to a correction.

1 comment:

  1. WOW! Go silver! The CRimeX can try their best but the manipulation cannot last forever. Look at the facts people: (http://www.silverpriceuk.com/2011/07/american-silver-eagle-sales-2011-6.html) silver sales are through the roof this year.

    Time will not be on the dollars side forever.