5 Reasons for early 2014 Precious Metals Rally
By Andy Hoffman
As for the reasons I believe Precious Metals will rally in early 2014 - aside from the fact they are historically cheap, amidst the most bullish fundamentals of our lifetime - are the following, potentially near-term catalysts...
1. Massive short covering by so-called "Commercial" COMEX traders; i.e., JP Morgan and friends. In the last five weeks alone, Commercials have covered a whopping 84,488 gold contracts, and 13,971 silver contracts. Per the charts below, the Commercials are now short just 22,229 gold contracts, and 12,165 silver contracts; and thus, once again approaching a
net long position. Throughout the entire 13-year PM bull market, theonly time the Commercials' short positions were this small was in late June; i.e., just before gold and silver embarked on 22% and 32% rallies over a two-month period.
2. As I have been reporting for some time - particularly, in August's "COMEX registered inventories can disappear at any time"; we are dangerously close to a COMEX default - or at least, a short squeeze. The December gold options contract is now in its delivery period, to be closed out by year-end; and as of Friday, contracts representing 395,600 ounces of gold have been served for delivery, while contracts representing another 313,600 ounces are still outstanding. Thus, with the typical "cash settlement" period in the rear-view mirror, we have the potential for 669,600 ounces to stand for delivery, compared to current registered inventory of just 697,840 ounces.
3. GOFO, or Gold Forward Rates, are on the verge of going negative yet again; i.e., a rare scenario indicating extremely tight physical markets.
4. This Friday, December 13th, is the deadline for Congress to pass a budget, as part of October's agreement to end the "government shutdown" and forestall the "debt ceiling" breach. However, as I predicted, there has been ZERO concrete discussion between House Democrats and Republicans; and thus, a consensus is forming that no deal will be made. Incredibly, John Boehner insists the House will take its planned three-week recess on the 13th, irrespective of whether a deal is made or not; yet again, demonstrating why Congress has its lowest approval rating in U.S. history. Consequently, the House will likely return after the new year with no budget whatsoever - setting up the possibility of a second government shutdown January 15th, and debt ceiling breach February 7th. Moreover, if they again attempt to "kick the can" with new stop gap funding, it could trigger heightened global fears of government's creditworthiness - and the dollar's value.
5. Last, but not least, the Fed meets on December 18th to again decide whether or not to "taper" Quantitative Easing. Yet again, the MSM is talking up tapering due to the bogus, "better than expected" NFP report on Friday; plus, meaningless "diffusion indices" depicting little connection with economic reality. Remember, both Bernanke and Yellen last month indicated near-term tapering is unlikely; while just yesterday, Chicago Fed President Charles Evans - immediately after the NFP report - said he prefers waiting to see a "couple of months of good numbers" before pulling the trigger. I still maintain that meaningful tapering is impossible amidst the global fiat Ponzi scheme; and even if the Fed were foolish enough to attempt it, would only do so in immaterial amounts. Frankly, I believe a tiny amount of tapering is widely anticipated; and thus, if they again "kick the can" by delaying it - perhaps, using the budget uncertainty as a ruse - you can bet Precious Metals will launch higher.