The prices of gold and silver were smashed last week, to their lowest levels since Brexit.
Although some reports attribute the smash-down in prices to the Chinese markets being closed for a weeks’ holiday and speculations of the Federal Reserve raising interest rates later this year, the truth lies in the fact that 3.2 million ounces of paper gold or close to a staggering 1,000 tons of paper gold was dumped on Comex.
Now to put things into perspective, this is equivalent of the total amount of gold produced by the top three gold producing countries in a year based on 2015 production figures. And, to think that this selling took place in the first few minutes after the opening of Comex.
Last year China produced 490 metric tons, followed by Australia with 300 metric tons and then Russia 242 tons. Now if you actually believe that these countries conspired to sell their annual production in a few minutes, you will believe in the tooth fairy.
This takedown is a complete joke. This is one of the tactics the bullion banks have been using for years. They often sell on the opening of Comex, or at selected a time when the markets are exceptionally quiet and when there are only a few bids in the market.
In this case they used the opening of Comex and also made sure that the selling occurred during the Chinese national holiday, also called the Golden Week, which started October 1th, 2016. During this week, the Shanghai Gold Exchange did not trade, which meant that the largest physical gold market was closed.
For sure, there is no ways delivery will take place for this quantity of gold. This being the case, you know that this is simply a desperate attempt by Western bullion or the Bank for International Settlements (BIS) to push the price down.
I suspect that these banks were short prior to Brexit and like most financial institutions around the world they were betting against a Brexit and were thus short in the market. If this is the case, this ploy has helped them to get back to their pre-Brexit short positions, and thereby contain the losses these short positions must have incurred in the recent run up of prices.
Obviously, the sellers have no physical gold to sell and have no intention to deliver either. But, in order to fabricate this trade they would have needed to sell, 32,000 one hundred ounce contracts. And, since each contract requires a margin of around U$5400, the amount they would have needed is in the vicinity of $172 million. This is clearly the action of the bullion banks.
In the physical gold market it is unlikely that anyone or any company has this quantity available for sale. And, I doubt very much it was any central bank. I believe that many Western central banks, in particular the US Federal Reserve does not have the gold they claim to have, if any at all.
No central bank has ever had an official audit of their physical gold. The last time the US gold was audited was in the 1950s. If they were audited, they would be exposed for declaring false numbers as well as revealing the true position of their gold lending or leasing. Most of the gold they have left has been leased to the market in order to depress the price.
Meanwhile as the major western central banks continue with their shenanigans, the central banks of China, Russia and India are taking delivery of as much physical gold as they can.
This transfer of gold from West to East will ultimately act as a hedge against a massive currency collapse which is imminent. But, in the meantime, unfortunately, as the prices of physical gold and silver are influenced by the prices traded on the paper market of Comex, the consequence of this latest sell-off has negatively impacted on the holders of the physical metals. And, what is so frustrating, virtually none of these contracts will ever reach maturity and will be closed before they do so, so no physical gold changes hands.( Between 95% and 99% of contracts on COMEX never reach maturity or involve such physical contracts). However, I believe that prices will soon rebound.
Now that the ‘Golden Week’ is over and with prices looking for the bottom, I expect to see Chinese investment demand for gold to pick up after the current selloff.
Despite, ample empirical evidence, the US regulators have consistently denied that these banks are manipulating prices of gold and silver. It is bewildering how these regulators turn a blind eye to this yet have fined banks for manipulating Libor and currencies…not to mention a whole list of other crimes that these banks have committed. I have no doubt that the CME are complicit in this price manipulation of gold and silver prices. When I was an active trader, I can recount many instances when the CME suddenly increased the margins for gold and silver contracts as soon as prices moved higher. While they claimed it was to stabilise the market, nothing could have been further from the truth. They were merely attempting to suppress the price. If I recall correctly, in 2011 they increased margins 6 times in less than two weeks!
Unfortunately, in current times, Western bankers – US banks in particular – are seldom interested in protecting customer assets, and instead take every opportunity to use customer money in reckless speculative trades. Apart from some of their risky trades, American banks are notorious for cooking the books and massaging data. But, this is not exclusive to American banks as revealed by the crisis at Deutsche Bank, Germany’s largest bank.
A collapse of this bank would have far reaching effects. Given Deutsche Bank’s major role in financing fragile Southern European nations and is considered so systematically important, some are speculating that a Deutsche Bank failure would lead to the total collapse of the Euro as a currency and with it, the Eurozone itself. So not only would German taxpayers be on the hook — if Germany doesn’t bail out the bank — the EU Central Bank will be on the hook too, which further spreads the cost of the Justice Department’s fine over all the EU member states.
In the end, the only losers are the taxpayers who end up backstopping the loss through various government banking insurance schemes or direct bailouts.
In these insane times where the tax payer is penalised for saving while being responsible for losses incurred by reckless trades made by their own banks, individuals need a way to hedge against this criminal activity while also hedging against currency depreciation.
Gold and silver are the ultimate form of financial insurance and in these uncertain times all investors should allocate a portion of their wealth to these precious metals.