(Commodity Online) : Is a massive short squeezing potential seen on the horizon for silver ?, Yes, says James Turk, founder and president of Goldmoney.
If gold and silver were to achieve prices north of $1,600 and $40, respectively, and hold above these benchmarks for a day, or two, many of the oversized number of short contracts will have to cover to cut losses from the adverse move higher—a move, said Turk, that could rival the monster rally of August through April.
“I wouldn’t be surprised to see $2,000 (gold) very quickly,” Turk speculated in an interview to KWN .
“It’s just a question of how the European bank crisis unfolds or the U.S. debt limit unfolds or any one of these number of trouble spots around the world unfolds.
Any one of those could light a fire under the gold market and you could see $2,000 very, very quickly. You could also see silver over $50 very quickly.”
In an earlier article, James Turk said Bullion markets do not move in a straight line, nor do the price of gold and silver. Theirprice advances, and then retreats to ‘correct’ the previous advance. For the past fourweeks, gold and silver have been going through one of these periodic pricecorrections.
During these corrections, underlying support is tested. If support holds, preciousmetal prices eventually climb higher, putting in the rear-view mirror the pricesreached during the test of support as well as the correction itself.
This pattern of ebb-and-flow has recurred time and again over the past ten years,during which time both gold and silver have achieved spectacular price appreciation. Some corrections have been long and deep, like the one that occurred after theLehman Brothers collapse. Others though have been short and shallow. But they all have one common characteristic, he added.
As the 10-year punched through 6%, gold and silver surged to intraday highs of 1,609.92 and $40.85, respectively. But as buyers (central banks?) aggressively bought the notes above 6%, the yield fell back to 5.72%, taking down gold and silver to the $1,600 and $40.15 levels, respectively.
All of that comes on top of a PM market already tight from the escalating buying since the aftermath of the March 2009 meltdown.
“Because the market is so tight still, any kind of huge buying of physical metal is going to send these prices much higher,” added Turk. “Then if you add in what the London Trader is talking about, short-covering coming in, it’s got the potential for an upside explosion.”
Eclipsing a 17% increase in global demand for silver, China’s 67% rise in demand for the gray metal will enable Chinese investors an additional market to trade 2011′s hottest metal without falling prey to rapid-fire CME margin hikes and other maneuvers to protect the JP Morgan-HSBC price suppression scheme.
Though, typically a seasonally slow period for the precious metals market, this summer has been anything but slow. Turk believes a perfect storm is on the horizon, and expects moves in gold and silver to rival the 1982 blastoff in the metals during the Mexican debt crisis. Gold soared approximately 50% during that summer.
And if the previous 177% run in silver during the 25% rally in gold between August and late April is any indication of things to come for silver, a blow up of the shorts could trigger another breathtaking rally in silver. A similar move to the last silver rally calculates to $100 silver.
“People are looking for the safety of gold and exiting national currencies,” Turk said. “Exiting the dollar, exiting the euro, exiting the British pound, gold is at record highs against all three of those currencies.”
“It’s all very positive Eric, it’s still within my bigger point of view that the summer is going to be spectacular.”
