Eric King:  “Art, you had warned (on KWN back on July 12th) about a short squeeze in the price of gold, and we have certainly seen that (since then).  But the interesting thing is that even into the early part of this week, that squeeze (in gold) was continuing.  Gold is still in backwardation, which you bought up (July12th), and the physical market is incredibly tight.  Is it possible that this short squeeze (in gold) may continue and even intensify?  Your thoughts on where gold is headed, Art?

Cashin:  “It’s hard to see exactly where it’s headed, but that short squeeze and the backwardation are two key problems (for the shorts).  Let’s go back to those emerging markets that we talked about.  With the (Indian) rupee and the Indonesian currency dropping sharply, if you are a major businessman in those areas you say, ‘Wait a minute, my wealth and buying power are dissipating rapidly.  I’ve got to protect myself.’ 

So one could readily see increased demand (for gold) in all of those areas where the nations are now dubbed ‘The Fragile Five,’ and it (demand for gold) could expand (because of contagion).  Now, in line with that, and take this with a grain of salt because I haven’t been able to do all of the extensive homework that this takes, but there is some thought that the backwardation and some of the rates that we are seeing which don’t seem to be consistent with what is going on, may be because some gold is not being sold and lent out in the normal fashion.

It may (instead) be getting shipped overseas.  And what I’ve been trying to do for a week or so, and I intend to do for a couple of more, is to see if I can get any track of transit to see where it (the gold) is going.  Because you would have some of these effects if the gold was in fact being sent overseas, be it to China, India, or wherever.  And that might cause some of these unusual shortages that we are seeing, and a thing like backwardation that normally would solve itself by people just extending a little further out the curve.”

Eric King:  “Meaning, you could continue to see this squeeze (in gold), and it could possibly intensify?”

Cashin:  “You certainly can.  And as I say, the goldbugs in the U.S. have looked at those $2 trillion in excess reserves and said, ‘The Fed is printing money, that’s got to be inflationary and that’s got to help gold.’  So far, within these shores, there has not been the (massive) inflation because as I said, ‘They are not lending or spending.’  I do know the Fed is concerned about it -- you can see it in their actions. 

But I think we may have to look offshore because that currency depreciation we’re seeing in things like the Indonesian and Indian currencies, that’s the equivalent of sharp inflation in their area.  If you are in those countries, your purchasing power is disappearing. 

India is scrambling to try to prevent the importation of gold because they think the demand will be so great that it could overwhelm them.  So they are instituting taxes (on gold) and other things.  That usually doesn’t help.  History doesn’t tell us that this is an effective way (of stopping the flow of gold).

So, while I am not a gold expert, I will tell you that it’s certainly an area I will keep my eye on because as these emerging currencies begin to depreciate, demand will certainly grow.”  King World News note:  In his over half a century of experience in the markets, Art Cashin used to trade gold, so he is in fact a bit of an expert in this area.

Art Cashin continues: ... But the possibility of contagion and what’s about to happen in these emerging countries -- can they in fact keep their currencies from hemorrhaging?  Can they keep money from flying out of the countries seeking safety, whether it’s going to go to gold or to a stronger currency?  This is a very incendiary time and a very incendiary area.

And so far, as I say, Mr. Bernanke hasn’t spoken up, and the other (Fed) Governors have almost taken an approach of, ‘That’s their problem.  We will worry about the U.S. for now.’  We’ve learned over and over again throughout history, and particularly in the new global phase, all of these markets are linked, and an illness in one area can potentially lead to an epidemic.  That’s the kind of thing I worry about.”

This is an incredibly powerful and timely interview with Art Cashin where he covers a potential spike in gold because of further short covering, as well as so many of the incredible problems facing central planners which can create a panic in key global markets around the world.  The above information was just a small portion of his incredible interview.  The King World News audio interview with Art Cashin is available now and you can listen to it by CLICKING HERE.

© 2013 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.

The audio interviews with Dr. Paul Craig Roberts, Art Cashin, James Turk, Eric Sprott, Egon von Greyerz, Michael Pento, James Dines, William Kaye, Grant Williams, Hugo Salinas Price and Marc Faber are available now. Also, other outstanding recent KWN interviews include Jim Grant and Felix Zulauf to listen CLICKING HERE.

Eric King

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