Hathaway – ‘Paper Gold’ Short Squeeze Underway
Tocqueville Gold Fund’s John Hathaway says the rally underway in precious metals is due to a short squeeze of 100:1 levered paper gold traders being squeezed for actual physical delivery of the metals when supplies are tight.
Hathaway, who runs roughly $10 billion in investor funds, also mentions this morning’s call by JP Morgan Chase analysts John Bridges and Anant Inani to ‘Buy Gold’ on short term valuation and seasonal factors.
That gold bullish call by Morgan-Chase should not be any surprise to GGR readers given that U.S. bullion banks reported the largest net long position for gold in our records, according to the CFTC Bank Participation Report data from August 6 (as we reported in our recent full Got Gold Report on August 11).
In response to the question of why gold is going up, Hathaway begins: "The first thing is that there is a big short squeeze taking place. ... People who have paper claims on gold, which would be futures, derivatives, ETFs and so forth are demanding settlement in terms of physical gold. Why that's important is because the paper gold market is leveraged more than 100 to 1 versus the underlying bullion. So it looks like to me that people are losing confidence in the traditional intermediaries between the paper and physical markets. And you can see that with the dramatic drawdown in registered COMEX warehouse stocks..."
Hathaway reasserts that, taking a long term view, the reason for being in gold is monetary debasement, to which, given the actions of the world's central banks, there is no end in sight.
Hathaway’s contention that a short squeeze is underway is supported by backwardation on the COMEX, a negative gold forward offered rate or GOFO in London (currently negative out to 6-months), a dramatic downdraft of registered gold stocks in COMEX warehouses and by the price action of both gold and silver in our opinion.
Right after Hathaway’s interview the CNBC talking heads took a dim view of gold. No surprise there, but it is very comforting to gold bulls to see it!
Video, about 3.5 mins below.