Market Update: Short Squeeze on Precious Metals Imminent?

It wasn’t enough that our mysterious traders struck again last Wednesday, throwing speculators of paper gold into a frenzy, thus driving down precious metals prices for the close of the week, gold at $1696.25 and silver at 32.52. Nor was it sufficient that fiscal cliff conversations have now gone completely behind closed doors while light is finally shining on the Libor scandal, which got this entire party started to begin with. No, we still needed more news of the wild as the Tankan survey in Japan marks the country’s 5th straight year of recession, the rupee in India has strengthened a bit to ease anxiety over the price of gold, and China swears it’s not in a bubble – it’s not in a bubble. So with all this wild news and uncertainty still swirling around the domestic and global markets, coupled with sales of gold American Eagle coins reaching a 14 year high and the precious metals market heading for crisis due to US banks’ huge short positions in gold and silver, Egon von Greyerz proclaims, “A major short squeeze could be imminent.”

Precious metals on the move

London Fix price at week’s end, and change over previous Friday:

• Gold: $1696.25, down 0.3%
• Silver: $32.52, down 1.0%
• Platinum: $1,613.00, up 0.8%
• Palladium: $700.00, up  0.3%

In the news

Calling a peak for gold price could be premature
“Market sentiment towards gold has been much more uncertain in 2012 than was the case in previous years. Yet, we expect gold to achieve a new record high in 2013 due to further monetary easing, less tail risk related to a break-up of the eurozone and ongoing support from physical demand.” — Anne-Laure Tremblay, analyst at BNP Paribas (link)

Ben Bernanke announces additional monthly purchase of $45 billion of longer-term Treasury bonds
“I think the negative concern is that [the fiscal cliff] might push the U.S. in to recession, and recessions generally are bad for gold; and of course Bernanke increased those concerns by saying: ‘Hey, we can’t do enough to stop a recession if Congress and the White House don’t agree.'” — Adrian Day, president of Adrian Day Asset Management (link)

US lawmakers look to reform the ‘no royalty’ 1872 Mining Law to find pennies to balance the budget
“We are giving our gold and silver for free and don’t even know how much we are giving.”  — Senator Tom Udall of New Mexico (link)

Spotlight on Silver

The Silver Institute releases report on Chinese silver
“Investment demand from Chinese silver investors has jumped in recent years, making China the world’s biggest market for both physical investment and paper trading of silver futures and other similar contracts. Of note, during the first full year after the liberalization of the Chinese silver investment market in 2009, net demand for silver bars and coins doubled to 9.8 million ounces (Moz). In 2011, the figure soared to 17.0 Moz, accounting for 8 percent of global net purchases of silver bars and coins.” — Silver Institute (link)

Weak-handed silver traders are an easy mark for the deep pocketed
“The participation of individuals with weak hands in a market like silver’s are sometimes seen by the larger and more unscrupulous traders as providing the opportunity to make quick and easy profits.” — Jeffrey Lewis (link)

The week ahead

• The slow drag to the fiscal cliff must break into a sprint in this final week to get anything done
• Knowledge is power, and excluding key players in the precious metals markets might be creating a “trading cliff”
• Global quantitative easing a fiscal trap?
• Will heads roll from the Libor scandal report?  Don’t hold your breath.