Art Cashin Warns Of Massive Gold Short Covering & Contagion
August 31, 2013
Today 50-year veteran Art Cashin warned King World News that the recent short squeeze in gold may continue and possibly even intensify. Cashin, Director of Floor Operations at UBS ($650 billion under management), also warned that about the potential of a dangerous contagion developing in the currency markets.
Eric King: “Art, you had warned (on KWN back on July 12th) about a short squeeze in the price of gold, and we have certainly seen that (since then). But the interesting thing is that even into the early part of this week, that squeeze (in gold) was continuing. Gold is still in backwardation, which you bought up (July12th), and the physical market is incredibly tight. Is it possible that this short squeeze (in gold) may continue and even intensify? Your thoughts on where gold is headed, Art?
Cashin: “It’s hard to see exactly where it’s headed, but that short squeeze and the backwardation are two key problems (for the shorts). Let’s go back to those emerging markets that we talked about. With the (Indian) rupee and the Indonesian currency dropping sharply, if you are a major businessman in those areas you say, ‘Wait a minute, my wealth and buying power are dissipating rapidly. I’ve got to protect myself.’
So one could readily see increased demand (for gold) in all of those areas where the nations are now dubbed ‘The Fragile Five,’ and it (demand for gold) could expand (because of contagion). Now, in line with that, and take this with a grain of salt because I haven’t been able to do all of the extensive homework that this takes, but there is some thought that the backwardation and some of the rates that we are seeing which don’t seem to be consistent with what is going on, may be because some gold is not being sold and lent out in the normal fashion.
It may (instead) be getting shipped overseas. And what I’ve been trying to do for a week or so, and I intend to do for a couple of more, is to see if I can get any track of transit to see where it (the gold) is going. Because you would have some of these effects if the gold was in fact being sent overseas, be it to China, India, or wherever. And that might cause some of these unusual shortages that we are seeing, and a thing like backwardation that normally would solve itself by people just extending a little further out the curve.”