In this short but fascinating interview on Bloomberg TV, Jim Rickards (senior managing director of Tangent Capital Partners and author of the book Currency Wars: The Making of the Next Global Crises) summarizes today’s controversial gold market situation in just a couple of minutes. He says the gold market is technically very bullish, but basically one needs to understand all aspects of the market (not only the declining price). In particular, the key of gold’s bullish situation is related to the physical market which is right now being redefined by China.
The gold price may have come down in 2013, but China is redefining the gold market meantime:
“We all know what happened with the gold price in 2013 but what is interesting is that the physical demand is through the roof. I just got back from Switzerland and met with refiners and gold storage experts (people in the gold business since 1978). They are working triple shifts and, for the first time ever, they have difficulties sourcing gold. All this gold is going to China.
The price has been going down for some technical reasons, probably some manipulation as well. However, the floating supply is disappearing; the gold is coming out of the GLD, it goes to China and it will not see the light of the days for 300 years. So you have a paper short balancing on a very small amount of physical gold.
This gold is going to China. They are redefining the global gold market. They are making the Singapore Exchange the center of world gold trading. They have turned their back to the LBMA (the London Bullion Market Association). The old 400 oz bar is dead, the new standard is the one kilobar (99.99% gold which is purer than the previous standard) They are acquiring everything they can. It is a fascinating play. It is setting up for a huge technical rally. It does not mean it will happen tomorrow. At some point, you would like to have your gold but it will not be there.
The massive exodus from GLD against the massive demand from China has very bullish implications:
“The interesting thing about the SPDR Gold Trust ETF (NYSEARCA:GLD) and the gold ETF’s in general is that the price is down and the metal is moving out of the ETF’s [their warehouses]. Technically that is very bullish for gold. Every time the GLD has been going down, there was a major rally in gold. The reason is the following. People trade the shares but the banks put the gold in, they get the shares and they trade in the secondary market. When the banks want the gold and they can’t find it anywhere else, they cash in their shares and go to the GLD warehouse and they sell it to China. So the disappearance of the gold in GLD is actually a very bullish sign for gold, it means gold is scarce and banks can’t get it elsewhere.”
Jim Rickards increases his gold price forecast to $9,000 in his new book “The Death Of Money”:
My intermediate price target hasn’t change anything. I got a $7,000 an ounce [in my previous book], or an $9,000 an ounce in my new book. It could go down a bit first, but it will go up eventually. Gold is really the inverse of the collapse of confidence in the dollar. The best correlation with gold is not with the stock market but inversely with the dollar. If the dollar goes close to zero because of a loss of confidence, gold is theoretically be infinite. I see gold going much higher and the central banks will have to turn to gold to restore confidence.
This article is brought to you courtesy of Gold Silver Worlds, who advocates to own physical gold and silver outside the banking system.