Today 53-year market veteran James Turk told King World News that the price target for gold is now a jaw-dropping $10,902. Regardless of how many thousands of dollars higher the price of gold is headed what is happening right now behind the scenes in the gold market is historic and unprecedented.
Ongoing Gold & Silver Short Squeeze Continues
February 6 (King World News) – James Turk: The new year has opened with a bang, Eric, and I expect the good news for gold and silver bulls to continue — provided you own physical metal, which means we need to discuss this ongoing squeeze of short positions in gold and silver that is receiving a lot of media attention.
Tariffs are being bandied about as the cause, but I think there is more to it because it is not logical or profitable to delay delivery on short positions.
Decades ago when I first started trading futures, deliveries by the shorts were made on or near what is called First Notice Day. It is always advantageous for the shorts to deliver as soon as possible, but they have to wait for FND. These dates are announced by Comex years in advance.
The shorts want to deliver because they want to get rid of the metal they sold in advance through futures or forwards and get paid for the metal they are selling. Those dollars they receive from the sale/delivery could then be spent or invested to earn interest, so there is no reason to hold off on meeting their delivery obligation.
Also, once the metal is delivered, the buyer now pays the metal’s storage. That cost savings is another advantage for the shorts to deliver as soon as possible on or immediately after FND. And that’s the way it works in normal markets.
So the delays to deliver physical metal – which news reports are saying is several weeks – is not normal. But it is not tariffs that are causing these distortions in my view.
It’s happening because there are vastly more promises to deliver gold than there is physical metal available at current prices, and maybe even more promises than there is existent gold. The same is true for silver.
Consider this comment in London’s Financial Times. The flow physical of physical metal out of London to New York:
“is causing disruption to the gold market, and has increased the cost of borrowing gold.”
Let’s unpack this sentence. If you are short gold and need to deliver, you must deliver. If you don’t, you default, which could put you or your business if you are a dealer into bankruptcy. That’s what happened to Volume Investors back in 1985, but its collapse was an isolated event with limited knock-on affect.
Volume Investors failed to deliver cash on a margin call, but dollars can be easily borrowed if you are creditworthy (Volume Investors wasn’t). Banks create dollars when they make a loan, but banks cannot conjure up physical gold and silver. So metals have to be borrowed from existent stock, and the shorts are discovering that physical metal is being held by strong hands unwilling to lend their gold – even at these abnormally high interest rates – because they don’t want to take the risk of dealer defaults and never seeing their gold again.
But there is also another type of strong hands. It is the holders of physical metal unwilling to sell at current prices because they expect prices to rise much further. It’s the same thing that happened in the 1930s. People moved their purchasing power (money) out of banks into paper currency initially, and then as those promises became doubted, out of dollars into gold. The fractional reserve system of more gold promises than existent physical metal is contracting.
So the shorts have a serious problem, Eric, that is apparent in this gold chart.
King World News note: The lack of available physical gold has kept pullbacks in the gold market very shallow, despite the blistering upside move from $1,800 to $2,900
Gold had been stair-stepping higher throughout 2024 until a brief shakeout in November. That drop was probably engineered by the shorts because they knew what was coming. So they were no doubt hoping to pick up some physical metal before getting squeezed, which began in earnest during December deliveries.
That month the shorts – namely the dealers – discovered that it was a hard sell to convince buyers to roll their position into some London paper gold scheme, even when offered enticing rates. Since December the squeeze on shorts has tightened, and as the chart shows, gold is rocketing higher.
Silver Price Preparing To Rocket Higher
I expect a similar rocket in silver, and probably a steeper ascent because its market is so much smaller and the availability of physical silver is even tighter than gold. As I’ve mentioned before, silver’s launchpad is being built, and I expect the silver rocket to launch with a weekly spot price close above $32, which is so tantalizingly close it’s not a stretch to say it might happen this week. We’ll see.
Last, for everyone who has been following my advice to accumulate physical metal with dollar-cost averaging, I recommend that you keep following the same strategy. Both precious metals are undervalued in my view, as we can see in this gold chart.
King World News note: Gold Remains A Jaw-Dropping $8,000 Undervalued. Gold Will Have To Rise To $10,902 To Reach Fair Value
This chart compares the monthly gold price to historical levels by dividing central bank foreign currency reserves by the weight of gold they report to be holding in their vaults. Note how gold was overvalued in 1974 and 1980, but is undervalued today – and even more undervalued than this chart indicates if central banks have less gold in their vaults than they say they do.
Gold Price Set To Surge Another $2,000+
To listen to Nomi Prins’s remarkable predictions for the price of gold, silver, mining stocks, uranium and much more CLICK HERE OR ON THE IMAGE BELOW.
JUST RELEASED! Gold Price Hits All-Time High
To listen to Alasdair Macleod discuss gold and silver breaking out and more surprises CLICK HERE OR ON THE IMAGE BELOW.
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