Resources Wire editor Kevin Michael Grace interviewed Peter Grandich March 14, 2012. In this first part of that interview, Grandich discusses gold’s poor performance in the first quarter of 2013. (See Part 2 here.)
RW: A lot of people I talked to last year thought we’d see big gains in gold in the first quarter of 2013, and we haven’t. What do you think are the reasons for that?
PG: I think there’s a reason playing out in front of our eyes right now. The investment community, mainly large hedge funds and those types, has decided to make a big bet that gold has peaked. There has been a tremendous amount of shorting, and we can see it from commodity weekly results that large, speculative funds have one of their largest short positions in decades. Ironically, at the same time, the bankers have the lowest short position they’ve had in quite some time.
Placing that bet has pressured the gold market, along with a slew of daily, if not hourly, articles predicting the end of the gold market. At the same time, the general financial markets are doing well, which is normally a negative for gold.
But I don’t think any of the fundamentals that drove gold to the heights has changed; they’re all there. But there are two distinct markets, and in the physical market there are constant reports of countries running out of the ability to sell gold and even some silver coins.
RW: I was going to ask you about that. In the US, they’ve reported all-time record sales of Silver Eagles for both January and February. There is a tremendous divergence in the precious metal markets between paper and bullion. It seems to be reaching a breaking point. What do you think will happen?
PG: What’s really peculiar—and I’m not the first person who noticed it, it’s been the people of GATA who brought it to my attention—is that there’s a news story breaking that regulators want to look at the so-called fixing of gold. It’s ironic they use that word, “fixing,” but for years there has been what is called the London AM and PM fix.
The background simply is it’s five gold bankers that get together literally in a room and based on physical reports of what gold has been selling for they come up with a fixed price, an AM fix and a PM fix.
Now when the AM fix is done, the Comex isn’t open yet, but when the PM fix is done, the Comex has already opened. You can probably get the stats directly from GATA, but at something like 90% rate in the last two months or so, the PM fix has been lower than the AM fix. It’s unusual because there aren’t that many hours difference between them, and there shouldn’t be that much of a change day in and day out over a few hours of what the physical price is, unless when the paper market opens the selling that’s been almost non-stop comes in, and that drives down the physical price for the PM fix.
I think anyone who looks at this sees the divergence. When you talk to the governing agencies that sell the metal or private concerns that sell the physical metal, reports continue to come in from places in the world where we know demand is strong, like China. It’s so strong, yet the paper market seems to not take that into account or ignores it. Or, as some of us believe, the paper market is being abused with the hope of covering and breaking the back of gold, which I really don’t think will happen.
If you think about it, despite this tremendous short position, gold is still $50 higher from where everybody thought it should have been a month ago. I think when we get above $1,600, the shorts are in big trouble.