Has Gold Price Hit its Low?

Saturday, July 20, 2013

Gold Jewelry Necklace with Golden Coins (Photo credit: epSos.de)

We have examined many predictions, price targets, and charts for both gold and silver. For example, Gary Wagner's forecast for $1030 gold. However, what if these forecasts are incorrect and the low is already in for gold?

Two interesting possible events were suggested by Zero Hedge and Zeal Speculation and Investment that could significantly boost the price of gold.

1. The bullion banks run low on gold and cannot deliver enough to meet their obligations. JP Morgan has seen a serious amount of gold flow out of its vaults recently. This scenario has been discussed for many years, but - should JPM and other bullion banks be forced to default on their obligation to deliver - the price of gold should move higher.

2. Either independent of, or in conjunction with, a failure of bullion banks to deliver, higher gold prices could result in a short squeeze. It wouldn't take a huge rally in the price of gold to wipe out the shorts.

At maximum leverage, a mere 6.4% gold rally would wipe out 100% of the capital risked by gold shorts! While not all futures traders run with minimum margin, plenty do. The faster that gold rallies, the more pressure it puts on these guys to buy offsetting futures longs to cover. Short squeezes are born when just a small fraction of traders are forced to cover, unleashing buying pressure that sucks in many more.

With gold significantly oversold, it seems only a matter of time before the price rebounds.

The extreme price levels often present the greatest risk, and the potential for the greatest reward. While gold could certainly drop lower - to somewhere around $1,000 (give or take), you should not take for granted that it's a foregone conclusion. Markets are nothing if not unpredictable.

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Terry Kinder's Gold and Silver Prices