Thursday, October 15, 2009

Is Shortage of Physical Bullion the Real Reason for the Recent Sharp Rally in Gold?

Although we here at The Firecracker Report have been gold bugs (especially of physical gold) for quite some time, we however are puzzled by the sudden and sharp rally in physical gold prices that occurred over the last several weeks (September-October time frame). Most of the media reports have ascribed the probable cause as seasonal demand from India and the gold-dollar inverse relationship (gold rises as the dollar weakens). While both these points are true they do not give a full explanation as to why gold rallied so spectacularly, breaking through the $1000 ceiling in September.
Instead we believe that a more likely cause is a developing shortage in the physical bullion market. In the paper below we present evidence to support our thesis. If our scarcity thesis is true, then the gold market is setting up for a short squeeze of historic proportions. Which is why we strongly urge investors to get their share of physical gold bullion sooner rather than later.

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