Wednesday, April 17, 2013

Will A Physical Gold Squeeze Lead To A Rapid Retracement in Price?

One of the few aspects of the markets that seemingly makes sense is that the price of gold is stabilizing. Given the competition among central bankers around the world to win the money printing contest, it seems bizarre that the price of gold is heading toward the production cost of marginal producers. Further, the daily dose of bad economic news from the Euro Zone could also be bullish for the shiny metal.

Over at Zero Hedge, they are suggesting that a shortage of deliverable gold is starting to develop. Assuming that the Zero Hedge post is accurate (and since it is posted on the Internet, it must be true), then the potential develops for a rapid increase in the price of gold as those short of paper gold scramble to cover their positions.
I have no idea where the price of gold is headed in the short term, but suspect that over the long term this will turn out to be a nasty correction in the midst of a multi-year bull market. The risk/reward ratio for shorting paper based gold at this point in time seems abysmally skewed toward being risky. I am most certainly not taking any of my gold jewelry over to the cash for gold shops as long as the price remains close to the marginal producers cost of production.  

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