Art Cashin Warns Of Potential Massive Short Covering In Gold

"Today 50-year veteran Art Cashin warned King World News that if the gold market holds its recent lows we may see a massive upside spike in gold because of panicked short covering.  Cashin, Director of Floor Operations at UBS ($650 billion under management), also warned that the Fed’s position is becoming increasingly desperate.

Eric King:  “What about the gold market?  We are seeing record short positions by hedge funds and the public.  What could this mean for the gold market going forward, Art?

 

Cashin:  “It could be dramatic.  You’ve got a couple of things going on:  You saw what is called a ‘backwardation’ in the gold futures.  That has occurred, don’t hold me to this, but I think about four times over the last 10 years or so, and it’s usually been at or around a bottom in gold.

 

So you’ve got the possibility of that working for you.  Then, when Bernanke made his speech that caught some of the (gold) shorts off base.  It could have a dramatic effect because there are a lot of shorts in gold.  I personally would like to see if we get another retest of the bottom.  That could be truly dramatic if we go down again and retest that bottom and it holds.  These already nervous shorts could react.

 

Remember, short covering is rarely a rational, thought-out event.  It is nervousness.  It tends to come from near panic, and it’s always emotional.  That’s why it always looks so dramatic when it’s on the tape.”

 

Eric King:  “Art, you were one of the youngest traders ever to earn a seat on the exchange.  You’ve been doing this for half a century.  What are your big worries going forward?  What has you concerned?”

 

Cashin:  “Obviously the geopolitical.  I am thunderstuck that the markets have virtually ignored it for a while, except now that oil is beginning to catch on.  But secondarily, the very, very tenuous hold that the Fed seems to have on the bond market and which way things are going.

 

If the bond market begins to move irrespective of the Fed’s efforts, if in essence the bond vigilantes come back, this could be very, very dramatic.  As I said earlier, the key here is that if we get an economic disruption, if we were to lapse back into some kind of a recession, the Fed doesn’t have any more tools.

 

They’ve used every tool they have.  Could they repeat what they’ve done?  Yes, they could try to do that, but we see it’s had very little effect.  So it makes you wonder, how will they put out the next fire should it arrive?”

 

at http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2013/7/12_Art_Cashin_Warns_Of_Potential_Massive_Short_Covering_In_Gold.html