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As Gold Rebounds Over $1600, Some Thoughts On Why The Liquidation Snapback Is Here

Yesterday when gold was trading in the $1570 we suggested that based on the very volatile shifts in the funding environment for gold, whereby the gold lease rate had moved from record negative to borderline flat, the plunge in the yellow metal is likely coming to an end. Less than 24 hours later, gold has just passed $1600 yet again. And as the following note from Sandeep Jaitly of First International Group (whose interview with Max Keiser exposing economics for fraud back in June was quite the hit) observes, by analyzing the continued funding unwind pressure, the recent liquidation move in gold is one that has to be taken advantage of. To wit: "The movements in the bases confirm that the recent downward move in gold against Dollars was as a result of Dollar funding pressures. Gold was lent on the swap against United States Dollars. This swap must be unwound and where a bid for gold was sought to raise Dollar liquidity, an offer of gold will be sought to unwind the swaps. The co-bases for Feb-12 and Apr-12 gold contracts are starting to advance – an exceptionally bullish signal following the selloff and a sign that physical buying is being prompted by these lower prices. It would be very prudent to accumulate gold against United States Dollars aggressively over the next fortnight."

From First International Group, Gold Basis Service

LONDON, Thursday 15th December, 13:43 HRS BST. Spot gold is currently $1,584.25/45, and the gold/silver ratio is currently 54.56/54.63. The conclusion from the last missive sent on 23rd November read:

“The movements in the December gold bases are still pointing to further upside for the gold price in fiat currencies – especially the Dollar, Euro and Pound Sterling (note the drop of just referring to the United States Dollar.) The ratio of the December gold/silver bases is pointing to downside for the gold/silver ratio.”

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