Monday, May 16, 2011

London Trader - Massive Asian Buying of Physical Gold & Silver
“What we are seeing this morning is long gold/short silver by hedge funds who are moving on this play once again.  Many of these hedge funds are run by kids who are only out of university for three years now and don’t know what they are doing, they are literally just chasing a dot up and down a screen.  They don’t look at what is happening with inventory levels at the Comex or what’s happening with SLV where real metal is being pulled out of that ETF.

Some are beginning to believe this is a sign of weakness on the part of the bears at this point.  At these prices we are seeing serious buying out of Asia and the buying is consistent.  Whether or not we have seen the bottom as of yet, large physical buyers are now buying the dips aggressively.

The US side on the paper market at the Comex it appears that all of the specs are washed out, and the last time we had open interest at these levels was when silver was $28 or so on its way to $50.  The smart money as I said earlier appears to be dealing with this setback in prices by buying huge amounts of physical metal, continually accumulating it at this point. 

Any time we get into silver into the $33’s we get very, very big, high volume buying.  This buying we are seeing out of Asia is thought to be continued diversification out of dollars, so the physical gold and silver which is being taken out of the market in that case is not expected to return. 

This physical buying is part of an increase in hard asset reserves for China and other Asian countries who are underweight precious metals and it is expected to continue for quite some time, most likely for many years.  Right now, each time we see gold under $1,500 the demand out of Asia is massive, they are huge physical buyers.

Some would say the paper market is diverging from the physical market and that is probably accurate at this time.

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