Spectacular Short-squeeze in Silver Price coming, says James Turk

Our friends at King World News recently posted two interviews from two blue-chip sources, who report the possibility of an imminent and massive short covering by the government-supported cartel in the gold and silver markets.

As the premiere Web site for breaking interviews from the best informed in the gold and silver market, Eric King’s King World News (KWN) has been atop the drama and inside ball in the metals as it breaks.

James Turk, a frequent guest of KWN, as well as the founder and president of Goldmoney, got word (confirmed by the KWN’s anonymous London trader) of a massive short squeeze potential developing.  If gold and silver were to achieve prices north of $1,600 and $40, respectively, and hold above these benchmarks for a day, or two, many of the oversized number of short contracts will have to cover to cut losses from the adverse move higher—a move, said Turk, that could rival the monster rally of August through April.

“I wouldn’t be surprised to see $2,000 (gold) very quickly,” Turk speculated  in his KWN interview.  “It’s just a question of how the European bank crisis unfolds or the U.S. debt limit unfolds or any one of these number of trouble spots around the world unfolds. Any one of those could light a fire under the gold market and you could see $2,000 very, very quickly.  You could also see silver over $50 very quickly.”

Brief panic set in the Italian 10-year note at the close of trading in Asia today, which culminated in a sell off in the 10-year to above a 6% yield.  Last time Italy’s 10-year reached the 6% handle, an emergency gathering of Italy’s upper legislative body was assembled to vote on Finance Minister Giulio Tremonti’s austerity package to ward off a Greece-like run on its sovereign debt.  The passage of Tremonti’s plan occurred last week, briefly triggering a rally in the 10-year.

But here we are again at the precipice of another sovereign debt collapse, in no less than a week’s time from the last threat.  As the EU fights the bond vigilantes of Italian debt, the gold price correlated strongly with the yield on the 10-year following the NY close.

As the 10-year punched through 6%, gold and silver surged to intraday highs of 1,609.92 and $40.85, respectively.  But as buyers (central banks?) aggressively bought the notes above 6%, the yield fell back to 5.72%, taking down gold and silver to the $1,600 and $40.15 levels, respectively.

All of that comes on top of a PM market already tight from the escalating buying since the aftermath of the March 2009 meltdown.

“Because the market is so tight still, any kind of huge buying of physical metal is going to send these prices much higher,” added Turk.  “Then if you add in what the London Trader is talking about, short-covering coming in, it’s got the potential for an upside explosion.”

And to add another pinch of drama to the ongoing bullish story for silver, Reuters reported Monday the Hong Kong Mercantile Exchange is set to launch a silver futures contract on Friday, in the hopes of tapping into the “growing demand for the metal in China.”

The contracts will trade in lots of 1,000 ounces, as apposed to the 5,000-ounce contracts traded on the Chicago Mercantile Exchange.

Eclipsing a 17% increase in global demand for silver, China’s 67% rise in demand for the gray metal will enable Chinese investors an additional market to trade 2011′s hottest metal without falling prey to rapid-fire CME margin hikes and other maneuvers to protect the JP Morgan-HSBC price suppression scheme.

“The new contract will enable buyers and sellers in China to trade effectively with their counterparts across the world, while at the same time, allowing investors to gain exposure to silver price movements and broaden their investment portfolio,” said HKMEx president Albert Helmig in a statement.

Some analyst say the HKME is another nail in the coffin of the Anglo-American monopoly of the silver market, and that the HKME’s extended hours session will pose an additional problem for the manipulators of the silver price at customary 10 a.m. attack.

Though, typically a seasonally slow period for the precious metals market, this summer has been anything but slow.  Turk believes a perfect storm is on the horizon, and expects moves in gold and silver to rival the 1982 blastoff in the metals during the Mexican debt crisis.  Gold soared approximately 50% during that summer.

And if the previous 177% run in silver during the 25%  rally in gold between August and late April is any indication of things to come for silver, a blow up of the shorts could trigger another breathtaking rally in silver.  A similar move to the last silver rally calculates to $100 silver.

“People are looking for the safety of gold and exiting national currencies,” Turk said. “Exiting the dollar, exiting the euro, exiting the British pound, gold is at record highs against all three of those currencies.”

“It’s all very positive Eric, it’s still within my bigger point of view that the summer is going to be spectacular.”

$100 Silver in 6 Months, says $9B Sprott Asset Management

Here we go again.  Silver is on the move in chunks of up to 7% moves to the upside, yesterday, and as high as another 3.4% in European trading this morning.  Silver reached a peak of $39.36 before JP Morgan’s earnings report brought in some sellers at 8 a.m.

Sprott Asset Management’s John Embry told King World News he believes that when the investing public comes into the precious metals market, in earnest, the price of silver could go hyperbolic.  While the silver market is razor thin to begin with, adding the effect of the largest concentrated short positions in history will explode the price of silver, according to Embry.

“I totally agree with James Turk.  I think the thing (silver) has been abused on the downside and it’s just like a coiled spring ready to explode,” he said.  “I think silver will go back to those highs we saw before that May raid faster than most people can imagine.”

Unlike other beloved hard-money advocates Jim Rogers and Marc Faber, Embry is as fearless as James Turk and Jim Sinclair when he’s asked to put a price tag on the mercurial gray metal.

“We haven’t even really seen money start to significantly flow into hard assets, when that occurs and it will occur, it’s going to have an outsized impact on the price of these things,” explained Embry.  “The gold price should be $2,000 within the next six months and I believe the gold/silver ratio will decline tremendously in that environment.  I have no problem with $100 silver, none, and that might just be jacks for openers.”

The implications of Embry’s suggestion of a 20 to 1 ratio between the prices of gold and silver appear, on its face, extraordinary or apocalyptic.  A move of 25% in gold that sparks a 150% in silver may be hard to take in for newcomers to the bullion market.  But let’s consider the last gold and silver rally.

In August 2010, gold and silver traded at approximately $1,150 and $18, respectively.  Eight months later, in late April 2011, gold reached $1,575 and silver spiked to nearly $50—a 37% and 175% moonshot, respectively, in the price moves of gold and silver.

As gold knocks on the door at $1,600, and for silver, at $40, a move of 25% in gold to $2,000 and another blast of 150% to $100 for the price of silver isn’t that crazy—it’s an aggressive call, but not a crazy one at all!

Embry cites an important point of leverage as an explanation for his enthusiasm  for silver.  Several competent analysts have worked the numbers (including Bill Murphy and Chris Powell of GATA), and have come to the conclusion that for every ounce of silver in known inventories there are approximately 100 paper contracts trading (a fractional bullion system, if you will) on various exchanges across the globe.

To put the ratio between the paper and physical silver market in better prospective, a 1 percent silver “reserve” betters Lehman Brothers’ ridiculously low (criminally low, some say) reserve of 1.6% just prior to its implosion.  It just took one hint of a breakdown in confidence in Lehman that took it down so quickly—through its use of the over-the-counter derivatives market.  The same scenario could play out at the Comex, according to Embry.

“What’s been fascinating, and what was unappreciated by me in the early stages, was the enormous number of derivatives that have been created in the financial system,” said Embry.  “Because of the derivatives they’ve been able to keep this thing going for infinitely longer than any rational mind would have thought possible.

“Because the balloon was blown up so much, I just think the aftermath in its finale is going to be extraordinarily unpleasant.”

James Turk: just “several more days of silver in the 30s”

With silver and gold rallying strongly against the tide of the risk-off trade, bullion expert James Turk forecasts that silver is about to launch into the 40s, as more nervous investors come to terms with the inevitability of further devaluations and/or sovereign defaults, forced upon the world’s central banks by investors and weak politicians.

“One never knows exactly how the markets will unfold, but my sense is that we only have several more days of silver in the 30s,” Turk told King World News. “Once silver clears $38 on a closing basis, you are going to get back into the mid 40s in a heartbeat.”

Turk, the founder and president of overseas precious metals storage firm Goldmoney.com has warned long ago of the events playing out in Europe today, so his words carry significant weight among the bullion community.  The timing of his call back in January for silver to reach $50 by June 30 was considered reckless and daring at the time.  But history has proved him correct.  Silver reached an intraday high of $49.70 on May 2, just pennies shy of $50 and a month sooner than he expected.

Recently, Turk (along with another PM giant, Jim Sinclair) has differed with another hard-money advocate, Marc Faber, on the direction of precious metals prices during the months of July and August.  Faber expects the precious metals to meander in the hot summer months, which is a bet that the long-standing historical record of weakness during that time is most likely.  On the other hand, Turk anticipates a repeat of 1982, the year of the Mexican peso devaluations.

“The action in gold and silver so far this summer indicates to me that this is in fact poised to be explosive on the upside,” Turk explaind.  “Nobody is talking about this, but it could be a reality in short order.  Here it is nearly 30 years after the breathtaking summer of 1982, and history is about to repeat all over again.”

Turk’s battle with Marc Faber in the fight to be right on the outcome of precious metals during the summer months favors Turk, at the moment.

Gold and silver took center stage during the flurry of bullion-friendly news coming from both sides of the Atlantic, yesterday.  The timing of the news releases from both sides of the Atlantic seemed contrived, timed and salvo-like, as the dollar and euro battle it out in the race to cut sovereign debt loads through currency devaluations.  Gold reached new highs in the euro and new closing high in dollars.  Overall, gold was the winner in the scramble out of euros.

Tuesday’s news of widening spreads between the German and Italian 10-year notes, as well as soaring CDS pricing of Italian debt; an IMF warning launched by the new French (but Ameri-centric) chief, Christine Lagarde, at Italy, chiding the Italians for dragging its feet on implementing its own austerity plan; Moody’s downgrading Ireland to junk; FOMC minutes release, which strongly hints at the possibility of further stimulus from the Fed is coming; the posturing war that’s broken out between Democrats and Republicans over the U.S. federal budget; and the timely strengthening of the Japanese yen to save the day from a dollar breakout of 76 on the USDX have demonstrated the desperation among the officialdom and the equally fearful investor who searches for a truly safe haven.

“Eric this is the start of the next big leg higher in the precious metals,” suggested Turk.  “We’re at a new record closing high in gold today, that is extraordinary considering it is happening against the headwind of a stronger dollar.  There is an important message here, Eric, money fleeing the Euro is not just going to the dollar, it’s flowing into the metal of kings.”

As the public enjoys summertime vacations and respite from the daily slew of bad economic and political news, Turk sees the investor public mostly unaware of the theft of purchasing power currently in progress.  But for the precious metals stalwarts and recent converts, this summer could be a very profitable one.

“People are recognizing that the only true safe haven is the precious metals,” said Turk.  “There are still so few people talking about gold and silver having an explosive summer.  The only place I’ve heard it is on KWN.  The fact that there is still so little bullish sentiment just reconfirms my view that gold and silver are ready to rocket higher.”

It will be mighty interesting to see if silver does indeed exceed $38, and if an assault on the May 2 high is in store for the silver faithfuls.

3 Gold Stocks to Watch: AngloGold Ashanti (NYSE: AU), Goldcorp Inc. (NYSE: GG), Kinross Gold Corp. (NYSE: KGC)

3 Silver Stocks to Watch: Silver Wheaton (NYSE: SLW), Coeur d’Alene (NYSE: CDE), Helca Mining (NYSE: HL)