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With spot gold trading near $1,260 US, veteran trader Tres Knippa says investors should consider accumulating physical gold to take advantage of a delivery squeeze.
Pointing to recent Comex futures data, Knippa says there may not be enough gold to go around if everyone with a futures contract insists on taking delivery of physical bullion. He believes gold shot through $1,900 in 2011 before plunging last year because of an explosion in the amount of gold futures contracts – setting up separate markets for “real” and “paper” gold.
“Maybe the reason gold prices went up is an expansion of that multiple of the amount of paper gold versus real gold,” Knippa tells BNN. “So maybe the market has come back down as the people who are holding the paper gold start to liquidate it.”
“But the underlying story here is that the people acquiring physical gold appear to be continuing to do that. And that’s what I think is important,” Knippa adds, noting large investors like hedge fund manager Kyle Bass are taking delivery of the gold they're buying.
Knippa says he would buy physical gold in yen as opposed to U.S. dollars to take advantage of the Bank of Japan’s plan to increase the money supply.
“That is a trade that I think somebody could have on literally ten years, put it in a drawer and pull it out ten years later,” Knippa says. “I think the yen has nowhere to go but down.”
(Originally published January 17, 2014. Updated January 24, 2014)