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BookmarkToday James Turk told King World News that the gold and silver markets may be set for the mother of all short squeezes that will send prices skyrocketing.
“This Kind Of Trading Action Is Rare”
Eric King: “James, you’ve been discussing the possibility of a short squeeze in gold as we approach the end of May. Are you still seeing it develop as you expected?”
James Turk: “Yes, I am, Eric. I can’t say anything but positive things about gold after what it did last week. Gold rose $25, or 2%, but it’s action is what I find important. It’s what I was hoping for…
James Turk continues: “Gold jumped higher early in the week, and after briefly falling back and retracing its advance, gold bounced right back. That was good news. But even more importantly, gold held its ground, and now today we are seeing upside follow through. This kind of trading action is rare. Typically after a big advance, gold gets whacked by its price manipulators. So it is not only refreshing to see what gold has done, but it is also a significant change in the way gold has been trading. I can’t stress enough the importance of a change like this.”
Eric King: “Let’s assume for a moment that you are right and a short squeeze continues to develop. What can KWN readers expect to see?”
Gold Will Rocket Higher
James Turk: “Well, if I’m right, they can expect much higher gold prices. Remember, I am expecting a different kind of short squeeze. It’s not just about price. I am expecting a short squeeze where the shorts do not have the ability to deliver physical gold to meet the growing demand for metal. In the squeeze, the longs will be clamoring for metal, not paper. Keep in mind that I have been expecting gold to rocket higher as we enter into the delivery period for June gold options. The delivery period for over-the-counter options doesn’t end until next week. But the first clues as to how expiry will develop are likely to appear Thursday morning in New York with the expiry of Comex options that day.
I can’t count the number of times we have discussed over the years how the gold price gets crushed during option expiry. So it is natural to ask ourselves, will that happen again this time? I don’t think so, but no one really knows because we can’t predict the future. But we can look for clues on Thursday. If we see shorts scrambling along with a surge in Exchange of Futures for Physical (EFPs) as the shorts entice longs to wait for delivery by rolling-over positions with high prices in return for accepting over-the-counter forwards, it will be a good indication that a short squeeze is underway.”
Silver Will Be Skyrocketing As Well
If the gold price rises because of a short squeeze in the demand for physical gold, you can bet on the silver price rising too, and probably even faster than gold. There are a couple of reasons for this, but the main one is that the paper shorts in silver are even more unbalanced than they are in gold. The silver short positions have been building for a long time and are massive.”
Eric King: “Could this get out of control on the upside?”
James Turk: “Yes, but it is rare. For example, back in March 1987 the price of silver began a sharp advance in which the price doubled over three weeks. I’ll never forget that episode. But that squeeze was something that was dealt with and eventually unwound. I am expecting something more earth-shaking this time. The last time we saw the kind of earth-shaking event for gold that I am looking for was the collapse of the London Gold Pool in March 1968.
The London Gold Pool was a central bank cartel that did everything it could to cap the gold price at $35 per ounce under the old Bretton Woods international monetary system. What became clear in the years preceding the collapse of this central bank cartel and its price capping was that the fixed price of $35 could not be maintained because the debasement of the dollar from credit expansion had become too great. The dollar was overvalued, so one ounce of gold was worth more than $35.
“They realized Their Scheme Was Ending”
So the natural market reaction was to dump the dollar and exchange thirty-five of them for one ounce of gold. As the momentum built, the London Gold Pool central banks capping the gold price were faced with a tidal wave of demands for physical metal the central banks didn’t have. So what did they do? They realized their scheme was ending. So rather then let their gold vaults be drained dry, the scheme came to a abrupt end when the central banks threw in the towel. They no longer honored requests for physical metal. They defaulted on their obligations.
There was no prior warning by them. It just happened. The only warning came from watching what was happening to gold flows behind the scenes, which is the key evidence to me this time around in my expectation for a repeat of what happened back then. The collapse of the London Gold Pool in March 1968 marked the beginning of gold’s 13-year ascent from $35 (in 1968) to $850 in 1980.
The difference this time, Eric, is that the central banks are in an even worse position. Their short position far exceeds that which existed back during the period that eventually caused the collapse of the London Gold Pool. As a consequence, I think this time around we will be counting rapid increases in the gold price over months – not years, but I hasten to add, if I’m right. I might not be, and the tipping point may still be down the road, rather than with the option expiry starting later this week.”
Eric King: “You mentioned the Western central banks will fight this with everything they have. Is there anything you would like to add regarding what they might try to do in the paper markets, James?”
Stay Strong And Expect More Paper Price Smashes
James Turk: “Yes, one point. Just like what occurred back in the 1960’s, the central banks will fight their losing position until the absolute end. So you can expect them to flood the market with paper-gold over the next few days as we go into option expiry in an attempt to paint-the-tape and shake out some physical metal. Notwithstanding what gold has done since its low price was reached early this month, we could see some downside action over the next day or two. So don’t bet the ranch here, particularly because I expect gold price volatility to jump. And stay out of the paper market. Own physical gold instead, and hold your physical metal with strong hands. By doing so you will be on the winning side when central banks again admit defeat and throw in the towel.”
King World News
5/23/2017
