With gold sentiment quite negative and shorts at extreme levels, upside price risks cannot be ignored especially amid evidence of consistent physical demand. Historical seasonal patterns suggest that this is likely to strengthen later in the quarter, which in turn could prompt a short-term squeeze. - UBS, London Metals GroupThe physical market is starting to overwhelm the paper market. The premiums reflect scarcity and greater awareness of the fractional nature of the paper market. This awareness is debasing the trust in paper currencies. Possession of physical gold (and silver) is now being valued more highly than possession of paper dollars. This is reflected in the premiums being paid all over the world for 400 oz. gold bullion bars. Wealthy entities, Central Banks and sovereigns are will to pay a lot more in paper currency for an ounce of gold than is being reflected by the "spot" price of physical gold (as set by the paper market). The 10-day run of a negative GOFO rate is also direct and unmitigated proof that market values physical possession of gold more than U.S. dollars (GOFO = the cost of doing a gold/$ swap - a negative GOFO means that dollar holders who need gold are willing to pay a gold-holder for short term use of that gold).
Here's my latest analysis of this situation, published by Seeking Alpha: LINK I review several factors that will trigger the next move up in gold, which could be a monster move.
One of GATA's main platform themes going back to like 1998 is that eventually the paper market would be revealed as the fraud that it is and the physical market would completely blow through the price levels set by the paper market and the shorts would be forced to cover.
Old-time commodities traders refer to this is a "commercial signal failure." We are starting to see that and the negativity of the GOFO is evidence of it.