It's obvious that a great many people all over the world have been adding to their physical gold and silver positions or taking positions for the first time. This really is an incredible battle that is taking place right now between the physical market and the paper market in both gold and silver. - Trade/market analyst, Dan Norcini on King World News
Currently, I don't think it's possible for the media reporting and investor sentiment to get any more negative toward gold. But quite frankly, given the extreme negative sentiment, in addition to the numerous other contrarian indicators I've outlined in previous articles, I have never in my life seen a market set up technically for a big bull move as gold/silver and the mining stocks are now.
When I woke up this morning, I turned on Bloomberg News to catch the news headlines and see where the futures were in all the markets and I saw a news scroll headline proclaiming that Soros and John Paulson had unloaded gold and mining stocks during Q1. As it turns it out, the news headline scroll was egregiously misleading.
I went to my computer to pull up the actual news story and discovered that Soros had indeed sold a little of his GLD position, but he moved several times the amount of GLD he sold into what is now a $239 million bet on mining shares. Not only did he buy $25 million in call options on GDXJ, the junior mining stock ETF, but he kept a $32 million stake in individual mining shares and added 1.1 million shares of GDX, the gold mining stock ETF. In fact, with GLD he only sold down 70,000 shares of his original 600,000 share position: Soros SEC 13f filing.
As for Paulson, he sold down positions in Barrick Gold (NYSE:ABX), Novagold (NYSEMKT:NG) and Iamgold (NYSE:IAG). I said back in 2009 when he first reported these holdings that these three companies were terrible specific mining share bets. As for GLD, he left it completely untouched.
If you read through this entire Bloomberg News report, you'll see that the Bloomberg TV headline scroll was completely misleading, further demonstrating the negative sentiment and bias toward gold and mining stocks that is all-pervasive on Wall Street right now: Bloomberg: Soros Dumps Gold
Contrary to what's being reported in the financial media and by market gurus in the U.S., it's common knowledge abroad that the demand for physical gold globally has reached extraordinary, unprecedented levels. In fact, after yesterday's price take-down in the paper Comex market, premiums for gold bars in Hong Kong and Singapore reached all-time highs:
Chinese gold imports are likely to swell further after more than doubling to an all-time high in March, supported by a lack of investment alternatives. "But the delivery is not immediate. The thing is that kilobars are not easy to find. They seem to take time to make," said Ronald Leung, chief dealer at Lee Cheong Gold Dealers in Hong Kong Gold Bar Premiums Hit Record In Asia
It is this premium and unprecedented demand for physically deliverable gold by the large gold-consuming eastern hemisphere countries like China, India and Russia that will ultimately ignite an extended move higher in gold/silver. This move will feature a short-squeeze/short-covering dynamic in the paper futures market that will take the gold bears, and even most equivocating gold bulls by surprise.
Here's a great visual representation of the physical demand vs. paper selling that is occurring presently in the gold market (source is Zerohedge.com):
Please bear in mind that this chart is only through the end of Q1 2013 and does not capture the big spike in physical demand, as reported by Honk Kong, India and Dubai since the mid-April price hit. As my article linked above reports, record price premiums being paid for deliverable bars is being fueled by record demand.
Finally, the CFTC's gold Commitment of Traders (COT) report last week showed that the small speculator category of gold futures traders had positioned themselves net short gold futures by a little over 1700 contracts. This is quite extraordinary in that this is the first time since 2001 that the small spec category has taken a net short position in gold futures. You have to go to the long format of the disaggregated COT report to capture the "non-reportable positions," which are the online brokerage retail accounts: Gold COT. Needless to say, 2001 marked the very bottom of the long bear market in precious metals and the start of the bull-market-to-date 12-year bull run.
While many media pundits and Wall Street advisors are grabbing headlines by proclaiming that the bull run in gold is over, I have shown several reasons today and over previous articles why I strongly believe, both technically and fundamentally, that the metals market is set up for another big move ultimately to new all-time highs.
Once I'm certain that the mining shares are back on solid bull-market footing, I will publish some junior mining stock ideas that I believe have considerable price appreciation potential. One of my ideas and current holdings has over 30 million proved gold ozs in the ground and currently trades only slightly above its projected year-end cash/share value. For now you can start "legging" into gold, silver and mining stock positions via GLD, AGQ and GDX/GDXJ. Of course, as always, I recommend "stacking," or accumulating as much physical gold and silver as you can that you keep under your own safekeeping.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: The investment fund I manage is long physical gold and silver bullion, AGQ and mining shares.