Sunday night, sellers continued to smash the metals, driving gold to a low of $1422 and silver $24 on the Globex, an Internet platform for metals trading. Although numerous major banks and investment houses issued bearish reports on gold over the last few weeks, this decline is not warranted. This smash is not the result of market forces, but primarily bullion bank selling on the COMEX.
LC (large Commercials, i.e., bullion banks) short positions in futures contracts and options are at record levels and had been growing larger before this smash, which means that the LCs have benefited immensely because of the price drops. Actually, so far they have benefited only on paper because until the short positions are covered (bought back) the profits are not realized.
Metals holders who get discouraged and think that the metals will never go up, as some metals investors have said, would be playing into the hands of the bullion banks. Sellers at these levels will be providing the gold (and silver) that the bullion banks need to cover.
There is little, if anything, on the financial/economic scene that suggests that any of the world’s problems have been solved. In fact, many reports indicate that economic woes are deteriorating. This issue is so important, let’s note some recent economic data about the US economy:
** U.S. retail sales dropped in March by the largest amount in nine months.
** Only 88,000 jobs were added in March when Establishment economists had predicted 190,000. When the US economy is running at an acceptable rate, about 250,000 new jobs are added a month.
** Much heralded was the unemployment rate in March dropping to a four-year low of 7.6 percent from 7.7 percent the month before. This is a bogus number as the drop came because 496,000 Americans quit looking for jobs. To the Department of Labor, if you are not looking for a job you don’t count.
** Last week’s initial unemployment claims were 346,000, against a four-week moving average of 358,000. This report means that at least 346,000 workers lost jobs last week. The actual number of workers who lost jobs was higher because not every worker who loses a job applies for unemployment.
Much of the reasoning behind the bearish sentiment on gold stems from the perception that the Fed may end early its $85 billion a month “asset purchases program.” Minutes of the recent FOMC meeting revealed that a few members of the committee had voiced opinions that the program could end early. A few weeks earlier, leaked minutes indicated the same. What’s important is that Bernanke’s office came out and said that it would tighten the controls on minutes because they had been misinterpreted, that asset purchases (Quantitative Easing) would continue until the economy had sufficiently improved.
It has now been five years since the Global Financial Crisis, and trillions of dollars have been created to save the world’s financial system and to revive the economy. Perhaps it can be argued that the financial system was saved, but arguments that this massive money creation has stimulated economic activity are weak. The best the money creation advocates can claim is that a depression was averted, but that is a claim that cannot be proven.
We can expect continued money creation as Bernanke promised. If the economy worsens, we can expect an increase in money creation. Money created “out of thin air” is inflation, which results in an overall increase in prices. Just because we have not yet seen huge across the board price increases does not mean they are not coming. Historically, we have always had price inflation following monetary inflation.
Meanwhile, do not be crushed in this gold smash. Nothing would bring the manipulators at the bullion banks more satisfaction than to buy your gold and silver at these low levels.
[Live prices for gold, silver, platinum and palladium from the Globex are now posted on our Spot Prices page below the table that shows prices as of the close of the New York exchanges. To get up to the minute prices derived from the Globex, refresh the page]
Do you think the day will come when “paper gold” and “physical gold” become de-linked–when the metal in hand will trade at a true price and the “paper gold” will be discounted. It seems to me that the advent of “paper gold” in today’s financial markets is simply a replay of what happened to the dollar when paper became to be substituted for it.
It is reasonable to believe that such a day will come. By all economic measures, they should be “de-linked” now because physical possession has greater value than the future promise of a futures contract. This harps back to the adage, “A bird in the hand is worth two in the bush.”
I think you’re right. The “delinking” probably has already begun.
Well, it seems the crooks are working overtime to get we silver and gold bugs to hand over our hordes. Eventually the unyielding laws of supply and demand will overwhelm this group of high speed computer algorithm paper driven prices to reach the true values for both metals.
Since there is no free market allowed to exist in the PMs, this may take awhile longer. Those of us who have seen and experienced these Banksters driven manipulation before will once again wait for the PM bulls to return. I know it has been said Ad nauseam, but this is an excellent buying opportunity for all PMs (if you can find physical products).
Let the bullion banks buy back the gold, before you buy, since they may again short sale, and buy gold back at lower prices. Recall the Hunt Brothers who attempted to corner the market on silver. They maybe trying that tactic, by multiple short sales of gold, scaring off the gold bulls, who sell, lining the pockets of the banks!
Good article,,, so true , I am holding as I own Randgold.
Thanks for the message, Bill. I believe this dive in the price of precious metals will blow over sooner than later, as the people dumping the metal need it to go back up to make their strategy worthwhile.
Unfortunately, NO ONE in the Gold business warned us of this situation BEFORE it occurred. It is always facile to blithely analyze a situation AFTER the fact — but we count on analysts to give us some insight turned into foresight.
The comment, “Meanwhile, do not be crushed in this gold smash. Nothing would bring the manipulators at the bullion banks more satisfaction than to buy your gold and silver at these low levels.”
…. is just inane, because NOTHING I – or individual owners of gold bullion – do will MATTER to anyone in any position of authority. There is no “satisfaction” to be had by holding gold and silver – only careful hedging that we all do against holding too many dollars, or stocks, or bonds, or …
Not one gold expert has explained to us why YEARS of quantitative easing has not yet shown up in a rise in aggregate prices. In theory, Ricardo and Friedman would assert that an increase in the money supply, ceterus paribus, would result in an increase in aggregate prices due to currency debasement. Models used to suggest that this happened after about 6 – 9 months (maybe as long as 18 months), since information flow is imperfect. Yet NO ONE can tell me WHY this has not YET occurred!
I’m going back to hedging my bets the old fashioned way: by investing in my own skills, business, and SHTF provisions. EVERY single “market” these days is MANIPULATED. Bah, humbug, gold bugs.
I have asked this question in the past and was ignored. “Why doesn’t gold price soar when the market tanks?”. A precious metal in limited global amounts that has both actual (industrial and retail uses) and intrinsic (hedging) value should solidly move opposite the market, unless it’s being manipulated. Gold has been tracking the markets as though its an enterprise with an economy-linked output.
Brian’s observations are spot on. Gold has been tracking stocks (DJIA, S&P500) as if it’s economy-linked output. Probably what we’re looking at are a couple of things.
Much money is following the Fed’s QE intentions, or more accurately, what the media reports the Fed’s QE intentions to be.
Stocks and gold are anticipating more QE when they go up. A few weeks ago, Bernanke had to make a press release that QE would continue indefinitely or until the unemployment rate dropped to 6.5% or the economy improved substantially because the media had reported a few FOMC voting members comments about ending QE early as gospel.
Now, why the gold smash in April? Brain nailed that one also: manipulation on the CRIMEX.
In the face of the smash, some Americans panicked, but other jumped on the bandwagon. Many products in short supply, some not available at all. Meanwhile, Asian buyers are loading up. Swiss refineries, which supply gold to Asia, are running at full capacity.
Sometimes, there are unintended consequences of manipulations. The bullion banks that engineered the smash didn’t see coming the massive buying of the physical metal.
Where this ends, and probably sooner rather than later, is with all paper becoming essentially worthless. Paper promises are only good if the issuers are honest.
As far as I can see, gold and silver are on sale now and possibly will be through the summer. I’m getting all I can. I’m a contrarian investor. I love buying what the public hates. Right now, they hate precious metals. I’m buying. When the price goes up enough for the public to start liking them, I’ll sell some of my stash and buy more with the profits, when the price goes down again.
Well, friends, I am buying all the silver and a little gold with what little I have left over each month. Have accumulated some the last couple years. Thanks, you all. Love that I found this website!