Competition To Buy Physical Gold Is Fierce

King World News interviewed the "London Trader" to get his take on gold and silver markets. He states the competition with buying gold is extremely fierce right now as central banks want out of their dollars and euros. In the past, central banks were able to wait for price drops, but this is no longer the case.

Eric King
October 16, 2012
King World News

With many global investors still concerned about the recent price action in gold and silver, today King World News interviewed the “London Trader” to get his take on these markets. The source assured KWN that “... we are not going to see a waterfall decline in the gold market.” The source also said, “... the competition to buy physical is extremely fierce right now.”

King World News will be releasing a total of three written interviews with the London Trader today. Due to recent market action, these interviews covering the gold and silver markets will be released as soon as possible.

Here is what the source had to say: “In the past we have seen waterfall type declines when small speculators are heavily leveraged. But the market has changed. When the physical market was not as strong as it is now, these corrections would go $200 to $300 in gold. As an example, we went from a previous peak of about $1,900 down to around $1,500, or roughly $400 in that case.”

The London Trader continues:

“We are not going to see that this time. It’s not going to happen that way this time. Back then, the central bank buyers and these sovereign buyers were quite happy to sit and wait for a lower price. Now they are not. These buyers want out of their dollars and euros and they want physical gold and silver.

In the past, central banks have had the luxury of sitting back and waiting for the price to come to them. Right now you have different central banks and different sovereigns competing with each other to buy gold, and in some cases silver as well.

There are simply too many buyers right now, and the competition to buy physical is extremely fierce right now....

“We are continuing to see the bids get raised in these markets. This has become a competition for the central banks and sovereign buyers to get rid of their dollars and euros as fast as they can, and swap it for something of real value.

Meanwhile, the bullion banks run the COMEX and they are not stupid. They are going to ring the register on this managed money. The commercials have been doing extremely heavy short covering into the weak-handed longs which have been selling, but they are also covering into fresh shorts from speculators and managed money.

The question now is, where is the inventory going to come from to fill all of these physical orders? The physical market is already tight as a drum. I would be surprised if there is much more downside in this environment. Yes there is this game of the commercials covering into weak-handed longs, and fresh shorts, but there is reality here, and reality is the physical market, and these buyers have moved their orders higher, and will continue to do so.

Remember the old days, Eric, when the Indians would say, ‘I’m not buying at these levels. I will wait for a large pull back.’ Well, those days are gone. The physical market used to be India, and if India was on a buyers strike, the gold market would come down an awful lot in terms of price.

India would just say, ‘We’re the biggest gold buyers in the world, so we will just step back and wait for our price. We will wait for our price because we already have plenty of gold here.’ But now you’ve got too many competing entities all trying to acquire physical gold.

Suddenly China has overtaken India. So India doesn’t have the luxury of sitting back. India is back in the market now. India is back buying in the mid-$1,700s. India was back yesterday. India is back today. They need to buy gold and they are stepping ahead of other entities and becoming a large buyer.

The Indians are not stupid. They know the commercials harvest the weak hands on the COMEX. Once they see open interest get to a certain level, they fully expect a reaction in the price. But your readers have to understand that there isn’t going to be a ‘correction’ this time, there will only be a ‘pull back.’ There is a big difference between a pull back and a correction.

The reasons for this is there are just layers of central bank and sovereign physical buy orders in here right now. Some of it has already been filled. There has been tonnage filled at higher levels than we are currently trading. As soon as we went through $1,760, we started to see central bank buying.

Each layer below current levels there are exponentially larger physical orders. I would also point out that when we have seen smashes in the past from say 2008/2009, the difference this time is that the physical buying is now coming from central banks all over the world. That is what is different this time, and this is why we are not going to see a waterfall decline in the gold market.”

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