-- Posted 15 May, 2011 | | Discuss This Article - Comments:

Last summer ArabianMoney was rife with rumor about some serious short covering by the major bullion banks and an unwinding of their short positions. Once the shorts were out of the market we saw the impact on prices with a spectacular jump from $17 to $50.

Now it looks as though the Comex has given the bullion banks another chance to square their short positions this summer by raising margin requirements so dramatically this month, and thereby breaking a spike in the silver price that would have been ruinous to these banks.

Protecting shorts

It is not a repeat of the Hunt Brothers and their Arab investors in 1980. That was about bringing down a huge long position that had cornered the market. This summer has been more about protecting a short position, which would hardly be necessary if the bull market was really broken as market forces would have been sufficient.

Thus we are more than likely set for another take-off in the silver and gold markets in the autumn. This time it could be gold’s turn to take the lead with a spike from $1,500 to $2,000 an ounce, albeit after further price weakness over the next two months as global financial markets continue their current correction phase.

Silver would rebound back above the recent $50 high and close the year above its 1980 all-time high. Then we would all be looking at 2012 forecasts and asking whether precious metals could manage such a sharp rise for yet another year.

Monetary policy

Only if the conditions of loose monetary policy change will the outlook for precious metals dim. With interest rates held below inflation, which is a mounting concern from China to Gravesend, and a money printer in charge of the Federal Reserve the script is still set for much higher gold and silver prices.

There have been many corrections in this 11-year bull market, and buying on the dips has paid off every time. One day the fundamentals that have set gold and silver prices on this uptrend will stop but until then it is not likely to be any different this time.

How soon will the current dip have bottomed, if it has not already? After an ongoing correction in stock markets is done would seem a reasonable suggestion, for margin requirements in that process will take down precious metals too.

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