Never make predictions, especially about the future.
~ Casey Stengel
Last year on September 6, 2011, gold reached a high of $1920; but when bullion banks intervened by pushing gold lease rates deep into negative territory in early September, they made sure enough leased gold would reach the markets to drive the price of gold lower.
By late September, gold had fallen back to $1600; and when gold began to again rise, gold lease rates were pushed even lower forcing gold this time below $1600. The bullion banks one-two punch took the momentum out of gold’s 27% summer rally and by year’s end gold would still be at $1600.
In 2012, between March and August, gold traded between $1550 and $1650 until late August. This tight trading range persisted even as global economic conditions deteriorated; and, gold, a barometer of economic distress, should have risen higher. It didn’t.
WATCHING THE BASIS
I read Sandeep Jaitly’s Gold Basis monthly newsletter with interest and, as gold’s trading range remained intact for much of the year, Jaitly’s advice remained remarkably consistent; his study of the basis indicating gold and silver were moving into increasing backwardation and accumulation of both metals was recommended.
On July 25, 2012 with spot gold at $1602, Jaitly advised: …The message from 4th July’s missive is reiterated. August gold has now moved into actionable backwardation (positive co-basis) – which is progressing higher. September silver is also in an acute backwardation that is progressing higher as well. Both of the metals will be volatile going forward and advantage should be taken on any dips. [bold, mine] Both of the metals are being taken off the market – or equivalently – people’s intention to sell either metal in size is diminishing rapidly. This is what the bases are saying.
What is memorable, however, is Jaitly’s mid- August advice which still recommended buying gold and silver; but, this time, Jaitly wrote the opportunity to buy on dips had passed. Jaitly’s observation was remarkably prescient. The next week gold rose $50 to $1670 – and there had been no intervening dip to take advantage of a lower price.
Whether the latest rise of gold is the beginning of gold’s long awaited ascent is unknown. What is known is that gold has broken out of a protracted trading range, that supplies of physical gold and silver are increasingly tight, that the willingness to sell is diminishing and macro-economic factors, e.g. more Fed bond-buying, rising food and fuel costs and falling global demand, will all contribute to gold’s explosive rise when it does happen.
Note: Sandeep Jaitly’s Gold Basis Service is available by subscription.