Could this really happen? Will the gold market see a historic and massive short squeeze?
This certainly doesn’t look like speculative excess that could lead to an imminent crash. More intriguingly, the rise in trading in “financial” gold — without taking physical delivery of any bars or coins — might bring with it the seeds of a big rise.
The theory, which gets technical, is explained here. The issue, in short, is that far more investors are opting to take physical delivery when contracts end, rather than roll them over. This chart from Longview Economics shows the number of contracts that are being converted into physical deliveries. Gold futures are a handy way to hedge financial risks. But they have never been used to buy bullion on this scale before:
As the next chart from Longview Economics shows, the same trend is at work for silver, although it isn’t as extreme:
Why is this happening? This behavior is coming particularly from the group labeled “other reportable” in commitment of traders disclosures, which includes family offices and high-net-worth individuals. Worried about protecting the value of their fortunes, they are opting for the perceived safety of physical gold.
This creates a specific problem for swap dealers, which are run by the bullion banks that make a market in gold. At present, as the following chart shows, they are very “short” gold, meaning they need the price to decline. If gold doesn’t fall, and investors ask for physical delivery, the risk is that they will have to buy bullion they don’t yet have. Longview calculates that the bullion banks have a short position worth $39 billion at current prices, the highest since records began in 2006:
King World News note: It will be interesting to see how gold trades ahead of the Fed Meeting. Is everything under control in the gold market or is the price about to be unleashed? We will soon know the answer.
Legend Pierre Lassonde gave an an incredibly powerful interview to King World News discussing where the gold market, gold industry, and mining stocks are headed, and what he had to say will surprise a lot of people around the world. To find out why legend Pierre Lassonde says the upside on gold is unlimited and much more click here or on the image below.
Look At What Is About To Fuel The Next Leg Higher In Gold & Silver
***ALSO JUST RELEASED: Look At What Is About To Fuel The Next Leg Higher In Gold & Silver CLICK HERE.
© 2020 by King World News®. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed. However, linking directly to the articles is permitted and encouraged.