One of my reliable sources has told me that there are a massive amount of pre-positioned buy orders for gold in the London market, the world’s largest gold trading venue. Some of the orders are for multiples tons of the yellow metal. Pretty much all of the buyers are Asian, with buying trigger levels between $1,715 and $1,760. He said that if gold were to somehow make it down to $1,715 that there would not be enough physical gold in the world to meet demand, no matter whether central banks decided to unload. My source commented that any time a central bank might release any gold that it is immediately purchased and put into storage for an Asian buyer. This certainly tells me that there is little downside for gold’s price, and almost certainly a lot of upside.

I don’t have quite the same depth of information on the silver market, but there are also large orders being exercised today with the price dip. In Asian markets yesterday, physical silver for local delivery was trading about $2.50 above the world spot price, which is a clear sign that there is a shortage of physical supply. I’m confident that demand will take metal off the market at much higher than current prices, but it is still susceptible to a further dip before that happens.

One other factor to consider is the shortage of vault storage for gold and silver bullion. Some storage facilities are so close to capacity (either in physical space or the limit of their insurance coverage) that they cannot accept any new customers. There are current plans to expand or build new storage vaults in Britain, Switzerland, Singapore, Hong Kong, Australia, the US, and elsewhere. Annual storage rates have increased to as much as 1% of value. Some of the planned new storage facilities are likely to impose limits on their insurance coverage.