As we've noted several times over the past several weeks, the fundamental backdrop of precious metals market remains extremely firm with a plethora of global monetary and fiscal issues producing massive tailwinds for both gold and silver, and we continue to believe long precious metals remains the best bet in all financial markets at this time. What we'd like to add to this thesis now is that we believe sometime over the next 6-12 months, we will in fact see gold futures become undeliverable as demand for physical gold bullion far outstrips available supply (i.e. long gold futures holders looking to take delivery at expiration will not be able to take delivery due to insufficient supply).
We believe this scenario will take hold due to significant hoarding of physical gold bullion by literally every type of major market participant from global central banks, hedge funds, endowment funds, investment banks, all the way down to the retail investor which will in our opinion produce a massive supply shortage relative to demand. Note when central banks (biggest buyers of precious metals at this time) take delivery of hundreds of tons of physical gold, this supply will not see the light of day for years as central banks are now clearly committed to diversifying out of major fiat currencies (i.e. this gold investment is not a trade, but a long-term investment). Secondly, with demand for gold and silver remaining extremely high due to ongoing eurozone sovereign debt/banking issues, potential U.S. credit downgrade, voracious demand out of China as it looks to up its gold allocation of foreign exchange reserves from 1.7% to likely 10% , and most importantly the threat of continued dollar printing by the Fed (aka QE3) in order to stimulate an economy which has yet to show any signs of achieving sustainable growth, we expect demand for physical gold will significantly outpace supply sometime over the next 6-12 months and produce a major parabolic move in both gold and silver with gold likely to hit $2,700-3,000/oz, and silver $60-65/oz.
We really see no way around this thesis coming to fruition as we believe large amounts of physical gold continue to be taken off the market every single day by major long-term investors, and moreover we see demand for physical gold continuing to increase at an extremely rapid pace such that prices must invariably go significantly higher from even these elevated levels.
Disclosure: I am long GLD, SLV.