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Fiat Paper Is Crashing Against Gold


May even get an extra boost on Friday, when a huge chunk of contracts stand for delivery.

As we near the end of the month with gold now closing in on another all-time high around $1200 in US dollars and nearing or already at new all-time highs in all the other G-7 currencies (see the chart below), I thought it was worth pointing out that despite gold appearing "extended" in the short run by any definition, that's what happens during a "crash." And the ongoing "crash" of all fiat paper against gold appears to be set to potentially accelerate.

Why is the world suddenly hungry for gold and defying the numerous "top callers"? The answer is complicated as always, but when you boil it all down, it really comes down to the fact that gold is the only truly hard currency that can't be actively debased in an attempt to prop up the dollar like the rest of the major fiat currencies.

In essence, the gold market appears to have finally reached a "recognition point" with respect to the global "race to debase" that continues to unfold, as the world's fiat dollar-based monetary system continues to implode right before our eyes.

Click to enlarge

That's the big picture, but it may be worth pointing out that an opportunity may be approaching even in the short-term for gold bulls to potentially take advantage of.

As you can see below, each leg up in gold and especially in the gold the stocks (GDX) since September has begun on the first or second day of the month, as the dollar index has correspondingly begun a move to new lows.

Click to enlarge

I can only assume this phenomenon may have something to with beginning of the month investment flows, and make no mistake, it's investment demand that's driving the current rally in gold.

But whatever the exact reason, the fact is that this beginning of the month phenomenon has been a trend, and while gold has obviously never corrected during mid-November as it did during mid-September and mid-October, it's a good bet that the metal and the gold stocks are creeping steadily higher in anticipation of upside acceleration early next week during the first couple days of December, when these beginning-of-the-month investment flows once again hit the market.

We may even get some extra rocket fuel on Friday when the 19 million ounces of open interest in the December gold futures contract could potentially stand for delivery this month, which would be nearly three times the amount of gold available for delivery in the COMEX warehouse.

For that many contracts to stand for delivery is always a low probability event, but with the world currently hungry for gold, it certainly wouldn't be all that surprising. After all, December is by far the worst month for the dollar index from a seasonality standpoint, and it's been the second best month of the year for gold over the past nine years of its secular bull market, so to see somebody actually want to take physical delivery next month would certainly make sense.

In any event, the stars seem to be aligning for another leg higher in the gold complex to begin early next week in my view, and this time the gold miners should be the real stars because they have never really discounted the last $180 of gold's rally.
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Position in gold, gold stocks

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