With hedge fund shorts in gold and silver continuing to battle the physical market in London, today James Turk told King World News that the hedge funds will be overrun as the physical market takes down the massively overexposed paper shorts. Turk also spoke about the wild trading which has centered around the London fix.
Turk: “We are seeing some extraordinary events in the gold market, Eric. One of these was yesterday’s London PM fix, which people are still talking about. Gold was trading quietly around $1385 just before the fix. Then, as the fix commenced, gold rose within roughly 15 minutes to $1414.
It was a real rocket-shot and caught the shorts by surprise. But the shorts regrouped, in order to regain control, and gold then dropped lower in the next 30 minutes. After the fix ended, gold had fallen to below $1370. We have to consider the significance of this extraordinary event….
“The London PM fix, which takes place every business day at 3 PM London time, is one of the most important daily events in gold. It occurs when both the London and North American markets are open, so it has deep liquidity.
The London fix is widely misunderstood because of its name, but if you view it in a nautical sense, to ‘fix’ on a distant point, the term makes sense. What the fix aims to do is discover the price at which buyers and sellers of physical ‘London Good Delivery’ bars are in balance. The dealers keep offering bars for sale or bidding on bars for purchase until there is a balance between them in order to clear the market, which is why yesterday’s fix was so significant, Eric.
Normally the institutions and other big players in the market can get 400-ounce gold bars delivered to them within 2 days after payment, typically called T+2. These two days enable the seller of gold to make sure he has received good funds because he is converting hard money – physical gold – into soft money, namely, the national currency the seller accepts in payment. The currency is usually dollars, but sometimes pounds are used. Soft currencies may be repudiated because banks can reverse wire transfers, which explains the caution the seller requires before releasing the bars.