London Trader - Massive Physical Floor in the Gold Market

With gold hovering near the $1,800 level, a trader out of London told King World News, “China is trading gold at a $17 premium today vs COMEX futures.  Silver is trading at a premium of $2.48 vs futures price (COMEX).  What this tells you is that these people in China are willing to pay the equivalent of roughly $12,500 more per contract than what silver is being traded for on the COMEX.”

London Trader continues:

“As soon as China closes trading each day, that is when the selling starts in the paper markets.  These raids on the price are designed to get weaker players flushed out of the futures markets so they (commercials) can cover some of their short positions.

If there is that strong of a bid for gold out of the Eastern hemisphere, what that tells me is that all of the heavily leveraged paper manipulation in the West will not have much more downside impact.  All the manipulators are doing at this point is compressing a spring, but at some point this market is eventually going to gap up incredibly hard against them.

Two weeks ago there were some indications that the gold market was going to be taken down, an example being the sharp drop in lease rates.  You know how this works, a central bank(s) are selling some gold into the market and the bullion banks, which act as agents for the central banks, take that gold and sell it into the market and even use leverage at weak technical points....

“They also do this when trading is thin, such as during the access market when no one is around, and they drive the price lower in an attempt to create panic by the longs.

After lease rates had dropped and the gold market was attacked, we find out after the fact that the central banks decided to raise dollars by leasing gold.  The central banks had not done that for two years.  Central banks have been preserving central bank gold and overall the central banks have been net buyers, and then all of the sudden they lease it, thus selling it into the market. 

For what it is worth, this gold goes right into an Asian vault and it is gone from the West permanently.  This is having the effect of transferring Western solid assets over to the East, in size.  This has the appearance of desperation because in the end this is really an attempt to save the too big to fail banks that are on the wrong side of a derivative play yet again.  That is the reason this is being done. 

Western central banks don’t really want that gold to disappear like that, they don’t want to sell that gold.  They had to raise dollars in a hurry to pump liquidity into the system, but in the end, as I said, the gold is gone.  In the old days the gold would be floating around the LBMA system, there would be a little bit of erosion, but today that gold is being sucked into the East.

This price action has had the effect of creating bearish sentiment, but meanwhile the physical buyers are just sitting there and constantly accumulating physical gold.  There are massive orders for tonnage of gold, incredible amounts between $1,715 and $1,760.  This has the effect of putting a physical floor under the price of gold.  If they make a push to the $1,715 level that would be suicide in my opinion.  There are simply too many massive orders for physical gold down to that level for that to be breached.

During this quarter this leased gold is supposed to be paid back, but how?  As the central banks come to grips with the reality that the leased gold is gone, there may be a religious experience to the upside in gold and you will see the gold price break the $2,000 level.

As far as silver goes, the paper price is becoming increasingly irrelevant.  It is possible there could be a spike to $37 or $38 in thin access trading, but the bottom line is that serious physical buying will be taking place anywhere below $40, so this is a losing game for the paper manipulators.”

This is the same trader that told King World News on August 10th with gold trading near the $1,800 level, “The physical buyers still have not been filled and they are getting nervous.  The buyers in size have not been filled and they are underpinning this gold market.  If gold pulls back the buyers will get some fills, if not they are going to have to start chasing this market.  In fact, don’t be surprised to see a $100 move in gold if they lose patience.”

Within days the price of gold spiked more than $100, breaking the $1,900 level.  Now the London Trader is telling King World News to expect this massive physical floor on gold to hold and that we should also look for gold to take off to the upside through the $2,000 level.  If sentiment is any indicator, the pessimism in gold could be signaling this market is in fact ready to turn, let’s see what happens.

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