Today I'm going to point out something that I normally reserve for subscribers but I think it's important enough to put on the blog for everyone to see. So far the COT reports for gold and silver have continued to build larger net short positions as the price of gold and silver move up. That's about normal as miners use the futures market to lock in high prices. However there are also bullion banks that use the futures markets to suppress the precious metal prices. If gold was allowed to rise to $1000, $1200 or $1500 it would be readily apparent that we have an inflation problem. Rising oil can be written off as limited supply for the escalating price. Which to some extent is true. However all the gold ever mined is still around so it's not like we have a supply shortage. The major cause of the rise in gold is solely the fault of excess liquidity created by central banks around the world. I've stated many times that I'm not brave enough to short gold. If it corrects then I will be happy to buy more but no way will I short. It's just too risky. Now let me show you what I mean. I'm going to use Platinum and oil as an example. Both had extremely large short positions in the COT's at the beginning of Jan. For oil the commercials used any weakness to drastically reduce shorts. What has happened oil's decline was halted and it's now in a trading range and apparently back on its way to test $100 again. Keep in mind this is happening as the economy is at the minimum in a drastic slow down and likely in a recession. I don't buy the idea that commodities are going to take a huge hit in a recession. Nope not for one minute. The Fed is printing too much money to allow commodities to fall much. Now let's take a look at Platinum because I think it shows us extremely well the danger of being short when the commercials have a large short position. Since Jan. the price of Platinum has refused to drop no matter how much the commercials shorted it. Then the news about mining delays in South Africa surfaced. The price of Platinum started to move up even faster. What did the commercials do? They panicked and started to cover into strength. A short squeeze followed. What has happened to the price of Platinum? It has now gone parabolic which has caused the commercials to cover even more.The bullion banks are in the exact same situation in the gold and silver markets. They have a huge short position on. They have been losing billions as the price of the metals move up. If this continues they are going to panic also and have to cover into strength. If this happens we are going to see the same parabolic move in gold and silver as we've seen in Platinum.This is why it's so dangerous to try and short the metals at this time. If there is a pullback then use it to buy more but this thing is a ticking time bomb and I don't have any idea whether the powers that be will get it defused before it goes off or not. Let's just say I want to be in the rocket chair just in case it does.
I'll elaborate in this weekends update.
Gold Miners - What next?
6 months ago