>Why gold is poised to rally and how to recognise it
By: Paul van Eeden
Posted: 03/29/2001 12:00:00 PM | © Miningweb 1997-2001
A few weeks ago, the gold price had a short-lived rally and then promptly collapsed again to its previous trading range. If you bear with me for a few minutes, I will show you why gold's failure to sustain its recent rally is confirmation that our model of the gold price is intact and that the potential rise in the price of gold, which we anticipate, could occur at any moment.
Around February 20, gold lease rates started increasing, rising from the sub one per cent level to reach as much as 6.3 per cent on March. Analysis of the lease rates showed that this was a short squeeze rally and as such, was unlikely to last very long, or go very far. One-month lease rates increased the most, rising from just over one per cent to more than six per cent. Two-month lease rates increased to over 4.5 per cent and twelve-month lease rates increased to only 2.7 per cent. From this, it was clear that there existed a short-term demand for gold and not a long-term demand, a classic indication of a short squeeze.
Furthermore, this short squeeze coincided with a Bank of England gold auction and there were rumours in the market that gold loans, which were due around that time, would not be rolled over, which means that the borrower would have to come up with physical gold to repay the loan. While I cannot substantiate this rumour, it does not seem unreasonable because on the day of the gold auction, Tuesday March 13, one-month lease rates declined by 24 per cent and by the end of the week, the lease rate had declined by 62 per cent from its high. It appears that whomever needed the gold, needed it badly and quickly. The gold was either bought at the auction to cover the short position, or one of the buyers at the auction made gold available as a loan to cover the short position.
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