ASIA TO WEST - "THANKS FOR ALL THE CHEAP GOLD - NOW WE'RE IN THE DRIVING SEAT"...

originally published December 4th, 2013

You may recall the following important chart that was posted on the site earlier this year, showing huge gold imports into China, with the Chinese evidently not put off buying by lower prices – on the contrary they have been buying huge quantities of gold. The conclusion that we can draw from this chart is that there has been a massive transfer of gold from west to east over the past couple of years.

Thus it is interesting to read the following points made by coghlancapital.com which have been sent to me by a subscriber…

• Each fall in gold has been precipitated by paper short selling leaving footprints that could only have come from the Fed.
• Much of this has been taken up by Chinese, Russian and Indian buyers who then call for delivery.
• One outcome has been a steady depletion of bullion banks’ reserves which are now all but empty.
• The Fed’s purpose is asserted to be a defense of the dollar as a global reserve currency.
• The outcome has been a huge increase in foreign Central Bank gold reserves, especially in China.
• It seems that China has not been hiding its intention to float the RMB/Yuan with gold backing and has not been saddened by the opportunity to acquire very large quantities of gold at less than production cost – especially as it allows them to unload its too large reserve of US dollars.
• Meanwhile China has (recently) secured trade deals with almost every major global player to be able to trade directly in RMB without having to convert international transactions into US dollars as was previously the case. [This is huge!] With the result that the US$ hold on international trade is now seriously undermined.
• The Chinese are opening a gold exchange in London where contracts will be fully backed by gold!! Serious competition for Comex? What will be the long term future of contracts that do not have full backing?
• Conclusion: the short selling is running out of gold with which to fulfil obligations and we have reached or are close to a bottom for the simple reason that more short selling is becoming unsustainable.

Maund comment – if all this is true, and we have no reason to suspect that it isn’t, then the game is about played out because the cupboard is bare – there is no more gold for western anti-gold forces to use for short selling, because eastern buyers demand delivery. Once the game is played out we have an explosively bullish setup for gold.

A good analogy is what happens to the ocean before a tsunami strikes – it pulls back, exposing areas that are normally always covered in water, encouraging fools to make a fatal trip looking for crabs and shells etc, before the massive tsunami wave comes rushing in and engulfs them. This is what is likely to happen to those shorting gold at and below current levels.

To those who have been bullish on gold and silver and the Precious Metals sector in the recent past, the continued weakness has been very hard to understand, given that competitive devaluation of currencies and QE etc has continued unabated over the past couple of years, and in fact all this means that gold now has a lot of catching up to do. He who has the gold calls the shots, and pretty soon both the Fed and the Comex will be impotent to beat gold down any further, for the simple reason that they will have none, and thus no credibility and no power to determine gold’s price. The Chinese and other eastern nations will have the gold, and they will determine its price, and can also suit themselves whether they decide to trade in US dollars or not, and since they have nukes they cannot be bullied into using the US dollar and invaded or laid waste if they attempt to do otherwise, unlike Iraq or Libya.

Yes, gold and silver can drop some more, maybe $100 or so, but the point to grasp is that we are getting very close to a bottom here, and the rise out of that bottom is likely to be stunning. Holders of gold and silver bullion who have even the minimum level of sophistication will know that they can rest easy, and insure themselves against any further downside by means of cheap puts, perhaps in easy to trade proxies such as GLD and SLV, knowing that they can get the best of both worlds by cashing in the Puts for a profit if gold and silver drop any further, because they will be silly cheap if they do.

We will be watching closely for signs of the turn, because we sure don’t want to miss this next major upleg, which promises to be spectacular. Fortunes will be made in the better mining stocks, which are absurdly undervalued. Just take a look at the following chart – can it get much more silly than this??...