Today James Turk spoke with King World News about Germany repatriating their gold and the impact on the gold market. He also discussed the recent price action in both gold and silver. Here is what Turk had to say: “By now most people have heard that a newspaper in Germany has reported Germany will be repatriating gold held in France and the United States. If true, an upcoming Bundesbank announcement has the potential to send shock-waves through the gold community.”
James Turk continues:
“We just have to wait and see exactly what the Bundesdbank says tomorrow about their plan regarding gold repatriation. The key here is that although the newspaper in Germany is considered credible, the reality is that we need to see an official statement from the Bundesbank.
The question here has always been, how much gold has the United States leased out? In other words, how much gold has already left the vaults and been sold into the market?
“I will have more to say as soon as an official announcement hits the wire. In the meantime, it is a very important indicator of market strength to see gold again moving above over-head resistance in the $1670s, with silver at the same time trying to confirm its breakout through its resistance level at $31.
It was only seven days ago, Eric, that gold was pummeled all the way down to $1625, while silver was smashed to $29.25. So both precious metals recovered from that one-day downdraft very quickly. We now know it was a head-fake, which provides us with a clear example of how the central planners work.
They use the paper market to gun for stops at critical levels. These were critical levels because the prices were just below the December low in both gold and silver. So they were price levels that were just loaded up with protective sell-stops.
These sell-stops are sitting ducks when you have essentially unlimited resources to move the paper market. In other words, the central planners and their agents can pull-off these raids by loading up their commitments by selling gold and silver through various derivatives, which are off their balance sheet and therefore hidden from view. The central planners and their agents then cover as many of their shorts as possible and take big profits by buying all the paper from traders getting stopped out of their positions as their sell-stops are hit.
But here's the important point, Eric, and it is one we have seen time and again over many years now: There is a real limit as to how far the price of gold and silver can be driven by these deliberate paper market interventions. Given how quickly the precious metals have bounced, it seems to me that this limit was reached for gold and silver at $1625 and $29.25 respectively. These price levels represent the new floor in the precious metals market. At those prices, the demand for physical metal simply overpowers the selling from the central planners and their agents.
Now that we are at the beginning of a new year, I would also like to make a point, Eric, that looks at the big picture. I want to draw a comparison to 2005, 2006 and 2007. In those three years, gold rose 18.2%, 22.8%, and 31.4% respectively. Together they represent a huge move upward for any market, and big moves result in corrections. We got that in 2008 with the selling of gold and silver surrounding the Lehman collapse, but when all was said and done, it wasn't much of a correction. Although silver ended the year lower, gold actually rose 5.2% in 2008. Now compare these years to what we have just gone through.
Both gold and silver did very well in both 2009 and 2010. We can correctly say that silver actually soared, rising 49.3% and 83.7% respectively in those two years. It was another big move. So again, the precious metals corrected. Silver dropped 9.8% in 2011, but rose 8.2% in 2011. Gold actually rose both years, 10.2% and 7.0% respectively. So looking back, we can say that the precious metals were simply correcting the big gains in prior years, just like they did earlier in the decade.
And when you look at this performance unemotionally over the sweep of years, we can conclude that the 2011-2012 correction was hardly a correction at all. The precious metals basically moved sideways within a trading range, and here's the important point, this type of sideways movement is a sign of strength. After all, look what gold and silver did after what was essentially a sideways correction in 2008.
So we need to ask ourselves, Eric, will history repeat? Will gold and silver follow the same pattern twice-repeated over the past decade so that we can expect outsized price gains in the precious metals the next two years? Yes, I think so because gold and silver remain undervalued, and the world's monetary and financial problems have not been solved. The correction is now over, the new floor is in place, and investors should expect to see spectacular moves for gold and silver over the next two years.”