Is gold going to spike to $3,000 on a short squeeze as China uses gold to buy oil from Iran?Posted on 26 April 2012 with 3 comments from readers
Legendary gold trade Jim Sinclair is seriously suggesting that gold could spike to $3,000 in a short squeeze because of the Chinese decision to pay for oil in gold bullion (listen here). Basically there will be a sudden demand for physical gold that cannot be met and short sellers will be forced to cover and buy gold at higher prices.
He told King World News: ‘You have seen in the last month, a phenomena. If you have eyes in your head, you have to know when the gold banks enter into the gold market, offering more for sale than would be mined in the next five years, they are not in there to sell anything. They are in there to manipulate the price.
Central banks buy gold
‘Well, we’ve seen some V-bottoms during daily operations, where they (manipulators) have forced gold (down) and it just snapped right back. There is no question, it is a matter of record, that multiple central banks around the world have been large buyers of a significant amount of gold in the last two months.
‘As the paper speculators attempt to manipulate the price lower, they have run into the physical buyer who won’t let the physical market follow the paper market. Who is giving gold a chance here? Who’s talking positively about gold, except a very few?’
Mr Sinclair is of course among the very few who understand what is going on here and do give gold a chance. And even his words of wisdom can be somewhat opaque to those who do not follow the gold market on a regular basis.
This latest pronouncement is still based on a big ‘if’. For we cannot be sure that China will actually use bullion to buy oil from Iran. The EU may well not impose its oil buying embargo on Iran this summer if it gets material progress in talks on Iran’s nuclear program, and that looked a bit more likely last week.
Then again a switch out of the dollar to buy oil and into a commodity that is a currency is a fairly natural step in the current environment of global money printing. Basically the holders of two commodities are organizing a barter trade to avoid currency risk.
This is already happening at the national level among the BRICS emerging economies who want to trade between themselves in their own currencies rather than the dollar whose current high is probably coming just before a major fall once the US presidential election is done.
However, ArabianMoney is not convinced either that the Iranian oil embargo will go ahead or that spiking the gold price at this point is in China’s best interests as the world’s biggest holder of dollar reserves. Still logic does not always apply in such matters and Mr Sinclair has his hands on experience of the 1970s to call upon.