On the heels of gold and silver surging late in the day, one of the most respected veterans in the gold world spoke with King World News about the reason gold and silver spiked after the Comex close as well as what to expect in the future. He also gave the key number to watch for a major breakout in the gold market.
James Turk: “Today was a quiet one, Eric, with a relatively narrow trading range for both gold and silver — until after hours when gold and silver both began to move higher. So it was constructive from a technical point of view in that both precious metals have held above their low price from Friday. Everyday is positive when the low price of the previous day is not broken. Powerful uptrends typically have many consecutive days with higher lows….
Continue reading the James Turk interview below…
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“Here in London some of the intense pressure we have seen in recent weeks as a consequence of the demand for physical deliveries has eased somewhat. If you believe the GOFO rates reported on the LBMA website, backwardation in gold has disappeared. However physical metal remains tight.
It is useful to consider whether what the LBMA reports is useful. It is another piece of the puzzle. So it is useful in that sense. But GOFO is a contrived rate. More often than not, it reflects what central banks want it to reflect. We have to keep in mind that GOFO is just a politically correct way to state the reality that gold has an interest rate, even though gold was supposedly demonetized in 1971. In other words, gold is no longer supposed to have any interest rate because the government said it is no longer money.
So the important point is not “GOFO” per se. After all, we don’t talk about DOFO or EURFO, but the dollar and the euro obviously have forward rates too. The key point is gold's interest rate (which is calculated by subtracting GOFO from LIBOR) in relation to dollar or euro interest rates.
Gold lending is not really a competitive market. The minimum loan is 30,000 oz, which is roughly one tonne, and lending deals are often done in terms of multiple tonnes. So given the sizes involved, the gold lending market is dominated by central banks. Basically, they can make gold lending rates whatever they want them to be. Gold interest rates are even more rigged than dollar or euro interest rates simply because the gold lending market is so small, and therefore easier to control, particularly when compared to that of other currencies.
However, with LIBOR rates next to zero, central bank room to maneuver is limited. Either gold goes into backwardation, meaning that gold interest rates are higher than dollar rates, or gold interest rates go negative, which would imply that central banks need to pay to get someone to borrow their gold. Both these alternatives are signs of abnormal market conditions. And conditions in pretty much every market around the world are indeed abnormal because of central bank monetary policy and their constant interventions.
Regardless of the LBMA report, there was backwardation on some quotes I saw earlier today. It is sort of fictitious reporting, just like the fictitious Comex reporting that never shows any backwardation – ever. What’s important is market action itself, not the reporting of it. Consequently, we may yet see a flurry of activity and more demands for physical metal before the slowdown that typically occurs as the yearend holidays approach. This is the most likely reason for the spike higher in gold and silver after the Comex close, and may be an indication of what’s to come.
Gold didn’t close above $1220 last week, Eric, which I thought was a reasonable target given the huge upside reversal that occurred on Monday. But I am continuing to watch this level. That’s where the central banks have drawn a line in the sand. So gold needs to hurdle that resistance level to confirm that last Monday’s key reversal did indeed mark the low of gold’s 3-year correction. Hurdling that $1220 level will also confirm that gold’s multi-decade bull market is back on track.”
IMPORTANT – KWN has many more interviews being released today.
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The audio interviews with Stephen Leeb, Andrew Maguire, John Embry, Gerald Celente, Rick Rule, Bill Fleckenstein, Ben Davies, Greyerz-Turk-Stamm, David Stockman, William Kaye, Eric Sprott, Rick Santelli, John Mauldin and Marc Faber are available now. Other recent KWN interviews include Jim Grant and Felix Zulauf — to listen CLICK HERE.
