Today one of the top people in Hong Kong spoke with King World News about a nightmare scenario for the shorts in the gold market. Hedge fund manager William Kaye, who 25 years ago worked for Goldman Sachs in mergers and acquisitions, also discussed what it would mean for the gold shorts if this terrifying scenario started to unfold. Below is what Kaye had to say in this extraordinary interview.
Eric King: “Bill, let’s look past where we are in this cyclical bear market (in gold). When we come out of this and begin to spike to the upside, you’ve described what you expect to see as the greatest short squeeze in history in any market. In the past you’ve mentioned gold getting to $5,000 or above and other people have even higher price targets, but how do you expect that squeeze to unfold?”
Kaye: “That’s a great question. And it’s at levels like today that it almost seems like it’s hard to imagine that scenario, but it will occur. And the way I think this will unfold is when people least expect it — when sentiment readings, as they are now, are exceedingly negative. And we are at levels now from a valuation perspective, we’ve mentioned tightness of the metal in the system, in which we could get a tradable rally and possibly something much more….
Continue reading the William Kaye interview below…
“And this is the type of thing that, because of the construction of the system as we know it, could lead to outcomes to the upside that currently seem unimaginable to most people. By that I mean we have what I call an awful lot of synthetic shorts in the market — unallocated bank accounts in the system, which is basically fractional reserve in nature, that amount to shorts on gold.
And as you hit each important level, first $1,200, $1,300, $1,400, imagine a scenario where we are repeating and going beyond what we saw in 2011, where we pierced the $1,900 handle. But essentially everything goes in the reverse direction, and there is massive short covering by all these institutions, primarily banks, that owe people gold and are beginning to get notice of physical delivery. Also they will need to dynamically hedge themselves, in addition to positive buying, which of course we are still getting even at these low levels from China, India, Russia, and various other places. And there will be excitement again among the retail class, and you would get massive short covering as we got past certain levels.
And this would cause one of two things: This would either add a tremendous tailwind to that buying that I would project would take us through the $2,000 level and far beyond, or we get a freezing of trading with the Comex and other major paper-centric exchanges shutting down. We’ve already had two major houses do that — ABN AMRO and Rabobank — but the whole system could go that way, as opposed to taking the loss in all these unallocated gold accounts.
And that would cause for some period of time gold to go bid-only. I think you would see very little physical offered, and gold at levels much, much higher than we are seeing today, and would likely go bid-only until things could get sorted out. And this would all happen in the context a crisis in fiat currencies generally.” KWN will be releasing interviews all day today, including one with Dr. Paul Craig Roberts. Also, this is one of William Kaye’s best audio interviews ever and it will be available shortly. You can listen to it by CLICKING HERE.
IMPORTANT – KWN has many more interviews being released today.
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The audio interviews with Andrew Maguire, Eric Sprott, Rick Santelli, Bill Fleckenstein, Rick Rule, Michael Pento, Dr. Paul Craig Roberts, Andrew Huszar, MEP Nigel Farage, John Mauldin, Egon von Greyerz, Michael Belkin, and Marc Faber are available now. Other recent KWN interviews include Jim Grant and Felix Zulauf — to listen CLICK HERE.