What a wild day this has been. The volatility and the huge price swings remind me of the 1970s, but here is the important point. After getting smashed in the frenzied selling in the aftermath of the defeat of the Swiss Gold Initiative, both gold and silver had key upside reversals. Gold has climbed above $1210 – well above key support at $1180, which was temporarily broken early this morning – while silver is back above $16.50. It is hard to believe that silver touched $14.10 in the early Asian trading hours this morning.
I actually stayed up to watch what was happening, and one thing was clear: the selling was driven by the paper markets. At one point, I actually saw a quote for spot silver 20 cents above the March contract. I don’t ever recall seeing a backwardation like that, but there is a clear message here — the buyers of physical gold and silver were waiting last night with open arms to scoop up whatever physical metal they could. This buying was a big surprise for the shorts who piled on after the news about the Swiss vote and thought they were in control. In reality, the shorts had their heads handed to them.
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