By: Tony Daltorio
ETF Daily News
July 25, 2013
Tony Daltorio: After watching some drastic one-day plunges this year for the yellow metal, investors are wondering why gold prices are rising now– could this be the start of a healthy, prolonged rebound?
On Monday, gold enjoyed its biggest one-day jump in more than a year. It hit a four-week high as gold finally broke through the $1,300 an ounce technical resistance level and finished above $1,335 an ounce.
Short-covering by technically-oriented traders and the perception that the Fed will continue QE for the foreseeable future are the short-term answers as to why gold had such a strong day, and why prices are rising now.
One key reason was pointed out several times by Money Morning Global Resources Specialist Peter Krauth.
I’m talking about the growing divergence between the paper (futures, etc.) gold market and the actual market for physical gold – “market dislocation.”
Market Dislocation and Gold Prices
You see, since gold is a quasi-currency, it is rarely in backwardation. That is, the near-term contract for gold rarely trades at a price above the longer term contracts.
But in recent days that has occurred for the first time since the 2008 financial crisis.
This means the physical demand for gold is far outweighing the physical supply of gold.
Economist Guillermo Barba explained to Reuters, “More and more people want their gold today, at a higher price, no matter that they can buy a future much cheaper.”
Just ask JPMorgan Chase (NYSE: JPM) about that.
ZeroHedge reported last week that 90,311 ounces of the bank’s eligible gold was withdrawn in one day. This translates to 66% of the bank’s non-registered gold, leaving it with only 46,000 ounces of such gold in its vaults.
That’s quite a drop from the more than three million ounces held in JPMorgan’s vault just two years ago.