[The latest week, reported after this essay was written, makes this case even more bullish. -Bob]
By Adam Hamilton – Re-Blogged From Gold Eagle
Gold and silver were thrashed this past summer, relentlessly pounded to deep new lows. That has fueled extreme bearishness, with traders convinced the precious metals’ fundamentals are rotten. But epic all-time-record futures short selling by speculators was the real culprit. These unprecedented shorts must soon be covered with proportional buying, which is super-bullish for gold and silver prices in the coming months.
Traders generally assume fundamentals drive short-term price action, that real imbalances in supply and demand push prices to market-clearing levels. Unfortunately these core underlying dynamics are heavily distorted in gold and silver. Futures speculators who never own these precious metals are able to wield wildly-disproportional outsized influence over their prices. The main reason is extreme leverage inherent in futures.