Are Gold and Silver Set for a Parabolic Move Similar to the 1970s?

Gold
Gold was unchanged yesterday and remained near record nominal highs as equities fell and the dollar staged a moderate rally. Gold appears to be attempting to consolidate at these higher levels and the unchanged close will encourage the bulls and support is now at $1,130/oz. Gold has moved back up to $1,144.70/oz and remains near record nominal highs in euro and sterling - €770/oz and £690/oz.

It is interesting to note that while government mints are working flat out to provide investors with gold and silver bullion coins, the shortages and surging premiums seen in the small coin and bar market of last year are no longer to be seen. Many retail investors are under financial pressure and many have had to sell their liquid precious metal investments (including coins and bars) and some have sold as they are wary that gold is a bubble. What is interesting is that the tightness in the small bar market seen last year appears to be more evident in the large bar market with the futures market close to backwardation (spot price or price of gold and silver for immediate delivery becomes less than price of front futures contracts - for delivery at a later date).

This indicates that demand for larger bars remains immediate and substantial. This makes sense when one considers the increasing high net worth, pension fund, hedge fund, institutional and central bank demand for gold. Paul Walker, CEO of GFMS, said in September that gold was going up because of some "large lumpy transactions in a market with a degree of illiquidity." There have been many cries of wolf in recent years but this does bear monitoring and could lead to a short squeeze that could propel the precious metals into a parabolic move upwards as happened in the 1970s.

Silver
Silver has also rebounded after a bout of profit taking moving back from below $18/oz to $18.50/oz, €12,43/oz and £11.15/oz.

Platinum Group Metals
Platinum is $1,437/oz, palladium is $366/oz and rhodium is $2450/oz.

Disclosure: no positions

Comments

[Roger Knights]

"a short squeeze ... could propel the precious metals into a parabolic move upwards as happened in the 1970s."

A hundred points lower, I commented that gold's performance suggested a "slow-motion short squeeze." How big is the remaining short interest? Are the shorts really scared and looking to get out, or are they figuring that this runup is just a spike that they can wait out?

2009 Nov 20 09:59 AM

[The Recusant]

chris coonan wrote: "I would be interesting in knowing what the street price is to purchase small vs large silver and gold bars, and what kind of "fee" is involved in the average sale..."

Check out ebay sales, they are pretty close to what you can get at most coin stores.

2009 Nov 21 06:14 PM

[Hans Gruber]

Please don't go parabolic yet! I'm not done accumulating!

2009 Nov 21 06:42 PM