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John Authers: A mighty short squeeze may be building in gold

Section: Daily Dispatches

Bloomberg News at last discovers the risk of too much imaginary gold.

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By John Authers
Bloomberg News
Monday, July 27, 2020

There is plenty of talk about a bubble in some new companies with untried business models. Think, particularly, of Tesla Inc. But is there something equally unsustainable going on in a commodity whose virtues have been known for millennia, and remain unchanged?

Spot gold rose to a record of $1,923.2 an ounce in Asian trading today.

... Dispatch continues below ...


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This is the third major spike in the modern era since the Bretton Woods tie of the dollar to gold was abandoned in 1971. Once inflation is accounted for, gold remains below the last all-time high of 2011, and far below the historic summit of 1980, in the wake of the second oil price shock, when investors assumed that endemic inflation would continue forever. ...

This certainly doesn’t look like speculative excess that could lead to an imminent crash. More intriguingly, the rise in trading in "financial" gold -- without taking physical delivery of any bars or coins -- might bring with it the seeds of a big rise. ...

The issue, in short, is that far more investors are opting to take physical delivery when contracts end, rather than roll them over. ...

The concern is that we will see something like an old-fashioned bank run, or the remarkable events in the oil price that saw West Texas Intermediate go negative earlier this year. That was caused by an excess supply of physical oil; in the gold market, the fear is of insufficient supply. ...

... For the remainder of the commentary:

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