Gold in backwardation and about to soar, Turk tells King World News

Today James Turk told King World News that gold is now in backwardation and about to rocket higher. Turk also warned, “The bottom line is we are in a fiat currency bubble.  Eventually this bubble is going to pop because we are using this fiat currency, backed by nothing, not just in one country, but throughout the world.” 

Here is what Turk had to say:  “This is exactly the kind of action I had been hoping for, Eric.  When I had the KWN blog interview on Wednesday, I had mentioned that we probably missed the last chance to buy gold at $1,580, and silver under $27.”

“The way the metals traded yesterday and today illustrates the important point I was making when we did that interview.  There’s a ton of money on the sidelines waiting to buy the dips.  This is exactly the type of thing you see at the beginning of a bull market.

I’ve been talking about a summer rally, and here we are at the beginning of August, and I think the summer rally is actually beginning now, Eric.  I think it’s becoming increasingly clear that the central planners are bluffing.  They are holding a losing hand....

 

“People are starting to understand they are being played with by these guys.  Draghi came out last week and said he will do whatever it takes to preserve the euro.  Then he said something to the effect of, ‘And believe me it will be enough.’

But there was an important proviso in his statement.  He said, ‘Within its mandate.’  Within the ECB’s mandate he would act.  The question is, what is the ECB’s mandate?  They still haven’t decided that.”

Turk also added:  “Interest rates really are a function of risk.  There has been a lot of talk about gold’s swap rates, lease rates, contango, backwardation and all of that stuff, but it’s really pretty simple, Eric.  The dollar has an interest rate, the euro has an interest rate, gold has an interest rate.  They are all money.

Interest rates are a reflection of risk.  Normally, the lower the interest rate, the lower the risk of holding that particular type of money.  Historically, gold’s interest rate has always been the lowest.  The reason (for that) is you can’t create physical gold out of thin air.

So interest rates for currencies are always higher than gold’s interest rate.  But because of this LIBOR scandal, and the fact that we are seeing interest rates being manipulated by central banks, for the past year we have had dollar interest rates lower than gold interest rates and that’s a huge anomaly.

A lot of people are misinterpreting what that means.  It’s really just a temporary phenomenon.  It’s really just a reflection of all of the interventions we have in the market today. 

What we really have to consider is, is gold in backwardation?  I think it is, even though the gold forward rate doesn’t show it simply because dollar interest rates are manipulated.  I think to a large extent gold interest rates can’t be manipulated any more than they have been.

So the true reflection of the market is you have a backwardation, but it’s not obvious because of the various interest rate manipulations that are going on.  That’s very bullish.  Whenever you get the metals in backwardation it’s a very bullish situation.  I think that’s what we’ve got right here, Eric.

The bottom line is we are in a fiat currency bubble.  Eventually this bubble is going to pop because we are using this fiat currency, backed by nothing, not just in one country, but throughout the world.”