An Interesting Forecast by James Turk

James Turk, author of The Collapse of the Dollar and How to Profit From It, has written a very interesting article about the current condition of the dollar and the gold market (the two are inseparably related).  Here are his insights:

“Conditions are ripe for another short squeeze, which was a key element of my forecast for this year.  Several big banks and others owe physical metal, but there is not sufficient metal available at current prices for them to purchase to enable them to cover their short positions, which is the important point.  Physical metal cannot be conjured up out of thin air like dollars, euros, pounds and the world’s other fiat currencies that are merely intangible bookkeeping concepts.  When a bullion bank owes physical metal, it must repay real – i.e., tangible – physical metal or default.There is a huge naked short position out there.  Much metal is owed, but not enough metal can be bought at the current price to enable the shorts to repay their gold debts.  In fact, a squeeze has already begun.  It began last summer when Greenlight, a large US hedge fund switched out of GLD – the large gold ETF – into physical metal, and I expect the squeeze to continue.  A price surge in gold and silver will be the inevitable result.

Soon central banks will once again be looking “into the abyss.”   We can therefore expect more interventions from them that may buy them more time, but they are losing the war against honest money.

A higher gold price is needed to entice present holders of physical metal to sell their metal and hold irredeemable fiat currency instead.  How high?  Before even considering parting with any of my physical metal, I will wait for something around my longstanding forecast of $8,000 per ounce, which I still expect to be reached no later than some time between 2013 and 2015.”

An interesting forecast, wouldn’t you say?

Last week, the junior gold miners were the best performers.  The ETF (Exchange Traded Fund, or index of small gold mining companies) GDXJ performed the best, up 7%.  It may also benefit in the future from acquisitions of the junior miners by larger gold mining companies as the price of gold increases.

The technical breakouts continue to look good on gold and silver miners and I anticipate they may be some of the best, if not the best, performers of the second quarter.

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Disclosure:  I own GDX and GDXJ.


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