Physical Gold Market In Disconnect As Premiums Hit Record

With gold and silver getting smashed, today John Hathaway told King World News that premiums for gold have now hit all-time record levels as the physical market has completely disconnected from the paper market in gold.  Hathaway also spoke about the gold and silver smash and provided an incredible chart as well.  Hathaway, of Tocqueville Asset Management L.P., is one of the most respected institutional minds in the world today regarding gold, and his fund was awarded a coveted 5-star rating.

Eric King:  “John, we have this smash continuing in gold and silver, your thoughts here?”

Hathaway:  “Right now it’s just piling on by momentum players.  Remember, it’s also the end of the quarter so this is window dressing in reverse.  People want to show big profits in short positions.

All along this has just been naked shorting by the usual suspects -- trading desks, the big banks, and hedge funds.  There is very little physical gold that’s being sold.  The mechanics (of shorting) are basically you post margin, and you short X amount of gold.

“Some of these (down) days you have seen volume that equals more than the annual mine production of the global (gold mining) industry.  That’s ridiculous to think that much gold could be acquired, positioned, and then shorted in such a short space of time.

It (the manipulation) is being done by the same guys who were messing around with LIBOR and are now being prosecuted.  There are allegations they are doing the same thing in FX (currency trading).  You know gold is a big, liquid market, so the capacity for a lot of players get into it and exploit technical weakness, which is what they are doing, is great.  So that’s what appeals to these same people.

You couldn’t do it in hogs, pork bellies, tin, or anything like that.  So the blessing and curse of gold is that it’s a big, liquid market.  Now these short-sellers have the upper hand, but the good news is they are at record short levels and very vulnerable to a violent short squeeze (chart included below).

We know that the physical markets are a complete disconnect with the paper market for gold.  The demand in Asia, as evidenced by the premiums for physical gold, are at record levels.  There is a shortage in the physical markets and the paper markets are very short.

The (gold) market short position is greater than it was at the bottom in 2008.  So I would just expect a violent recoil in this extremely oversold market.  I wish I knew when, but I kind of think it’s being exaggerated here at the end of the quarter.”

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