Bill Haynes continues:

“Both of the metals are moving to the upside.  It’s sort of like a stealth market, but it looks like it’s launching itself higher.  Before we draw back in the people who were buying a year and a half ago, we are going to have to see new highs on gold, and we are going to have to see silver in the $40s. 

But we’re going to see these prices start moving higher because there is greater awareness, worldwide, of the dire circumstances regarding the world’s financial situation.....

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Haynes also added: “He (Eric Sprott in his KWN interview) is talking about 6,500 tons of demand (for gold) annually, and there’s only about 4,000 tons of supply.  So there is 2,500 tons being leased (from Western central banks to make up for the shortfall).

So people are not left in a vacuum about what 6,500 tons, 4,000 tons, 2,500 tons means, the US government claims to only own 8,133 tons of gold.  We know that the US gold holdings have not been audited since the Eisenhower Administration, which begs the question, has any of that gold been leased?

But 2,500 tons, we’re now talking about a little over 3 years (using up the entire US gold hoard) of covering that 2,500 ton (annual) shortfall.  So 2,500 tons is a huge number of shortfall in here. 

The central banks have been leasing their gold, as Sprott suggests.  But what happens when the central banks realize they are not going to get their gold back?  The people they leased it to are the bullion houses.  The bullion houses then sold it to somebody who wanted physical gold.

The bullion houses, of course, were later going to buy the gold back from another source, and return the gold to the central banks.  But what happens when the time comes if there is not enough to go around to return the (gold) to the central banks? 

This is going to be an explosive move to the upside.  I just do not want to be out of the gold market at this time.” 

Norcini noted this major development in the gold and silver markets: “Both of these markets (gold & silver) broke significantly out of those ranges.  They did it on good volume, and they did it, surprisingly, when a lot of people really weren’t expecting them to do it.  This caught a lot of people napping with the intensity of the move, and the ferocity with which they broke out.

You had a lot of traders in the speculative community, and by that I mean the hedge funds, had taken out some pretty good size short positions in these markets.  These guys have been making bearish bets.  They’ve been adding shorts.

Those shorts got hit hard this week, and a lot of them ran for the exits, and the rest is history.  A lot of the momentum players are now in these markets.  That tells us that we should expect, as we move forward, to see dips in price begin to be bought because I think the (computer) algorithms are now in a ‘buy’ mode.

So these guys (shorts) got caught with their pants down, and that’s reflected in this week’s COT report.  Even though the COT only goes through Tuesday, we had some pretty big moves the rest of the week, so I expect we had significantly more short covering taking place this week than what’s on that report.

When we look at silver, we had a short position in there, it was one of the larger short positions the hedge funds have had going all the way back for five years.  Well that short position has dropped significantly.  We’re talking about nearly 17,500 (contracts) shorts that were in there.  They’ve dropped that position all the way down to 8,500. 

So we’ve had a huge amount of short covering.  My guess is another 3,000 to 4,000 (contracts) of those shorts came off after the COT cutoff date.  Above $32.50 I think you are going to see a significant amount of short covering occur.  If silver can then climb to $35 to $35.50, that’s the last line of defense for these shorts. 

You’ll see some very sharp short covering above $35.50, and you’ll see a huge new influx of money coming into silver, which will take it very quickly to $40.  

It’s the same thing in gold.  You had a large amount of short covering in gold take place, and new longs come into that market as well.  Their net long position has jumped about 28,000 (contracts) in one week’s time.  That’s a big jump.

They (speculators) are coming back (into gold) with a vengeance.  They are coming back in at very low levels of exposure to the long side of the market.  There is a lot of room for these guys to come piling into the market.  There is potential for a very strong move upward as these funds begin to rebuild their positions on the long side.

If we clear $1,680, you’ll see some short covering above $1,680.  But you’ll see a significant amount of short covering, of a panic type nature, if gold goes through $1,700.  In other words if gold gets a ‘handle‘ of 17 in front of it, and gold refuses to break back down, the shorts are in trouble and they know it, and you are going to see them come out of there very quickly.”

This was just a small portion of the type of critical information which is covered each week in the KWN Weekly Metals Wrap with Bill Haynes and Dan Norcini.  To hear a continuation of this conversation, you can listen to the entire interview by CLICKING HERE.

© 2012 by King World News®. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed.  However, linking directly to the blog page is permitted and encouraged.

There was a delay in publishing both the Michael Pento piece, and the Eric Sprott audio interview, due to internet problems within the US, but both have now been posted.  You may have to clear your cookies/cache in order for the audio to show up in the broadcast section.

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The interviews with Eric Sprott, Jean-Marie Eveillard, John Mauldin, Gerald Celente and Ben Davies are available now.  Also, be sure to listen to last week’s line-up of other KWN interviews which included Rick Rule, Egon von Greyerz, Bill Fleckenstein, Dr. Keith Barron, Nigel Farage, Peter Schiff and John Embry by CLICKING HERE.

Eric King

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