Titan Inv Partners – The under the radar super bullish potential gold catalyst
It was brought to my attention this weekend that Switzerland is to hold a referendum on the 30th November regarding its current gold reserves (Switzerland being an exemplary sample of real democracy!).
This is a story that has not in fact received much press. If this referendum is voted into law, the following three circumstances will thus be brought into play:
1. It will prohibit the Swiss Central Bank from selling gold reserves
2. The country will have to repatriate all Swiss gold to Switzerland
3. The referendum will require the Swiss Central Bank to hold 20% of its assets in gold
Repatriation would really set the cat amongst the pigeons (recall the difficulty that Germany had in trying to repatriate its gold from the US. If you cannot, here’s a clue – they couldn’t!) as it is not clear where the gold will come from…
The Swiss presently hold only 10% of their reserves in gold: around 1000 tonnes. So, for the country to raise its reserves up to the minimum 20% gold ratio, they would have to buy 1000 tonnes – this is equivalent to almost half of annual mine production or three times all the gold held in COMEX gold inventories. Go figure how that one plays out but I’m pretty certain that $1220/oz would be a distant memory..!
It is difficult to get a price on the probability of this measure passing but, if it does, then make no mistake this would be extremely bullish for gold as not only would the Swiss have to buy gold in the market – they also could not sell any more gold. That’s a very big deal deal since they’ve been off-loading and leasing their gold for years and that’s the reason why gold reserves have dropped from 30% in 2000 to just 10% in 2013. In effect a marginal seller will be taken out of the game together with so called “peak gold” being hit this year.
A quick snippet on the silver COMEX futures positioning too. Recent stats revealed open interest in the December contract at circa 120k contracts – one of the highest readings on record and equivalent to almost a years annual production.
Given that the majority of the short position is loaded on the managed money side, this is an extremely important point as these guys almost NEVER make or take delivery of the physical. Net effect of this posiitoning? There’s a veritable volcano of buying pressure around the corner unless new selling pressure that allows the managed money guys to close their shorts comes into play. Given that the silver producers are heavily underwater at thecurrent prices and continue to reduce their hedging activities and the swap dealers have moved to a net long positions, I am not entirely sure where this selling pressure will come from. Combined with silver being dramatically oversold we could be setting up for the real short squeeze of which the end June/early July near $3 spike was just a foretaste…
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You should not take this piece as an advocation to trade in any of the instruments mentioned here and you should always take professional advice in relation to your own personal circumstances.
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