James Turk tells that a “buying panic” is underway for real gold and silver and it may be accelerated if Barrick Gold is unable to restart its Pascua-Lama mine project on the Chile-Argentina border and the bullion bank that allowed Barrick to hedge so much imagined production from the project asks for its metal back.
Turk : “I think the most important thing that has happened since we last spoke two weeks ago, is that gold has risen $148 from its low, while silver is $2.25 above its recent bottom. Those are jumps of 11% and 10% respectively. It is an indication that precious metal prices were pushed to a such an extreme that those bargain-basement prices were simply not sustainable.
Further, I think it is fair to say that there has been a buying panic in the precious metals, which is exactly the opposite view that one would receive by reading the mainstream media….
We have surely seen a buying panic in GoldMoney, and it has been the same situation for other metal dealers based on information I have received.
It is all very similar to what happened in 2008 when gold and silver were pummeled to low prices that were clearly not sustainable, and then quickly rebounded. And it is worth remembering that a year after the 2008 low the silver price doubled, while gold made a new record high above $1000 an ounce.
There may be less volatility the next few days. The market may take a breather because China is out of the market until Thursday, with a national holiday, and other countries will be on holiday when they celebrate May Day this Wednesday. These holidays will mean reduced trading volumes, so it will be interesting to see how the shorts react.
The short position in both gold and silver is now so huge, it won’t take much to push the shorts into a buying panic. I have been looking for possible triggers that could panic the shorts, and we got a hint last week of one possible event which may do this. Because of various problems, there have been news reports that Barrick is considering what to do with its huge Pascua-Lama deposit after a Chilean court ordered it to stop development work.
The project is already well behind schedule, with big cost overruns from its initial plan, but here’s the important point: The market has been expecting that when production begins, the mine would produce 800,000 ounces of gold and 35 million ounces of silver annually. Those ounces will of course never materialize if development work remains suspended.
But also consider that according to its 31 March 2013 financial report, Barrick has hedged 65 million ounces of silver, which is 8% of the world’s annual silver production. What is the bullion bank, who sold that hedge to Barrick, going to do if those 65 million ounces don’t get mined and delivered to it?
What is Barrick going to do if the bullion bank forces it to deliver physical silver to close the hedge? What are the shorts in silver going to do when they realize that there is a potential time bomb here that could substantially reduce the near-term forecast of silver supply?
In other words, it is pure insanity to be short silver here, and for that matter, gold as well. Round two of the buying panic may be just around the corner when the paper shorts rush to the exits. They will learn the age-old and time-proven adage about the precious metals, namely, that it is easy to sell gold and silver in large quantities, but very, very difficult to buy in size.”
Source : KWN