With gold above the $1,650 level and silver near $31, a trader out of London told King World News, “The hedge funds I have spoken to were saying they have lost so much money on their stocks, that they were selling the only assets which were in profits and that turned out to be their gold and silver holdings.”

The London Trader continues:

“They were not happy about taking the only good performing asset they had, in order to offset the losses on their common stocks. This was done for the purpose of end of the quarter window dressing. The indication was that they wanted to get back in as soon as possible and we may be seeing some of that reflected in today’s action.

With regards to silver, you are back to commercial short interest levels last seen when silver was trading in the $9 range. The interesting thing is there was a lot more liquidation after the COT cutoff on silver, so the levels should be even more extreme.

The commercials have been covering off of the longs, but recently they have also been covering into fresh shorts by speculators and other traders who believe silver will continue to drop. This is what you normally see after a washout. Gold and silver will begin to rise with the least amount of people on the long side.

The Asians have been buying like crazy, all through this takedown they have been buying. We have seen massive premiums and bottlenecks in supply, they simply cannot get enough physical metal as the prices have dropped. The demand has literally been insatiable. As I have stated before, the central bank gold, which was used to sell the market down, has gone to vaults in Asia. That’s a one way trip, it doesn’t come back into the market....

“There is also strong demand from India. If we get a pit close above $1,705, there are a massive amount of shorts that will be tripped up and be forced to cover. This will give additional impetus to the upside.

So the Western central banks got together, leased out some gold and the bullion banks sold the gold. The central bank gold being unloaded by the bullion banks is not to get the best price, but to smash the price. The smartest way to sell the gold would be to do it in the liquid sessions. But the pattern during the decline was they were selling it in the overnight session when things are quiet. This was no different that what we saw at the end of April, beginning of May on that coordinated smash.

You have to ask the question, why would anyone sell at the most illiquid times? It is not to get the best price, it is to move the market in the direction you want to move it. The commercials are now competing with funds that are coming in to buy and they are continuing to compete with the physical buyers and those buyers have been accumulating in size during the entire decline since gold dropped below $1,775.

As it stands today, there are an unbelievable amount of physical orders that have not been filled. Some of the buyers might have believed there would be more downside action. When gold was briefly down at $1,530, almost no one got any physical gold. No one was even getting fills at $1,585 on the second and third dip, the orders down there were not filled. Those physical buyers are watching right now and if they lose patience, they may very well move their orders higher. If that turns out to be the case, it will put even more pressure to the upside in gold.”

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