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Will Gold Explode Higher in Next Few Days?
 | By Patrick A. Heller, Market Update
October 14, 2008 |
In the past three weeks, central banks and governments around the world have wreaked havoc on financial markets with daily changes in policies and actions. Yet we are told that this extreme financial instability is being done in the name of creating financial stability!
" On Monday this week the governments of Germany, France, Austria and Spain announced that they were setting up a $1.5 trillion fund to guarantee newly created European Union debt. This action was taken to supplant steps of individual nations to guarantee deposits in their banks, which had the potential to draw accounts away from banks in other European Union member nations that do not offer this guarantee.
" Also on Monday, the British government announced that it was taking majority ownership of Royal Bank of Scotland and HBOS (Halifax Bank of Scotland), two of the four largest United Kingdom banks.
" In a side note, safe manufacturer Sentry reported that recent sales had increased by 20 percent over year earlier levels. However, in the last week volume has jumped to 50 percent above previous levels. One retailer of safes said that in normal markets his company was able to deliver safes within one week. Currently, demand is so strong that delivery times are now 2-4 weeks after purchase. Obviously, there is demand to store valuables by people who no longer feel secure depositing or storing in banks.
" Morgan Stanley Chief Economist David Greenlaw has just forecast a $2 trillion U.S. federal government deficit for the current fiscal year.
" Depending on definitions, at least 20 national governments are on the brink of bankruptcy, including Iceland, Hungary and Pakistan.
While this turbulence has been building, there are two huge developments in the world gold markets plus a surprising prediction on global television:
" One-month gold lease rates jumped to 2.649 percent last Tuesday, its highest level since May 2001 and more than 20 times the average rate of 0.12 percent over the past seven years. Gold lease rates for two, three and six months and one year are also at their highest levels in the past seven years. As reported in last Tuesday's issue of London's Financial Times, a number of central banks, especially in Europe, have stopped creating new gold leases in the past few days. They are also asking for return of the gold on maturing leases instead of rolling them over into new leases. Analyst Monty High estimates that this could reduce physical gold supplies by 20-25 percent. (Remember, in 2007 when the closing of a single mine reduced global lead supplies by 3 percent but resulted in the price rising more than 100 percent.)
" In the past week, the largest volume of gold trading has shifted from the New York Comex to the London Metals Exchange (LME). Where the Comex strictly trades paper contracts for gold, the LME trades physical metals. In other words, someone who sells a gold contract in London is promising to deliver physical gold. The U.S. government, and its trading partners who are trying to manipulate the price of gold downward by selling paper gold contracts, cannot work the same strategy on the LME.
" Last Tuesday, CNBC interviewed Jurg Kiener, CEO of Swiss Asia Capital. In understated language, Kiener explained that there is significant risk of a collapse in the gold paper contract market. He further predicted that if this event were to occur, the price of gold would at least double in price in the extremely short term.
These factors point to a huge possibility that the price of gold could skyrocket within days. As insurance against further calamities in the fiat currency markets, I recommend that individuals establish a position in gold (and silver) promptly.
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