Unprecedented set of fundamentals scream a strong rally in gold and silver

Posted | 19/07/2013 / Views | 1648
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Whilst unnerving for those who bought higher it appears to us that this plunge in gold and silver prices may have set up a structural opportunity way beyond a normal ‘correction’ on fundamentals hard to ignore.  Today we will outline a few of these very briefly and then explore them individually in the days to come.

Tapering QE – a lot has been written but just consider that whether they do or don’t doesn’t change much in the medium term.  Do – continued debasement of fiat currency.  Don’t – recall this is the 4th QE program since 2009, each of QE1 and QE2 etc when stopped lead to the need for the next.  It is no different now. If they stop, they will need QE5 etc etc, period.

Weak to strong hands – The well documented outflows from ETF’s and futures is simply the speculators getting out and strong, long term investors buying (when available) physical metal. They are even paying substantial premiums over the paper set spot.  Eastern central banks buying physical in record amounts and Western central banks suspected of having leased too much to bullion banks with questionable physical holdings

Bullion Banks – into manipulation territory but the evidence is extremely compelling.  A lot happening here – out of shorts in gold and moving that way on silver, GOFO rates negative, backwardation now for over a week, not delivering physical to clients on demand, only cash.  The key question remains – did they force down the prices to get out of their naked or leased shorts mess.

Supply – be it miners not producing at sub profitable prices or the physical scarcity of refined product due to over zealous paper selling and record consumption by the East (and even US Mint) at depressed prices.  Whilst yes gold is not ‘used up’ the fact so much of it is now in strong hands means supply to others is becoming tight.