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July 8, 2017
I received an email from one of my readers on the July 4th holiday. He expressed dismay at the recent gold take-down that occurred at the end of June and on July 3rd. I am sure he is even more distressed, now, with the huge take down that happened on July 7th. He wondered how bankers can still have the power to pull off big reductions in gold prices whenever they choose? It is a question that is flowing through the minds of many people. They are still doing it, in spite of a relatively successful ongoing lawsuit against manipulation of the London gold fix, and in the face of a gold-friendly Presidential administration.
All I can say is that patience is a virtue that is always rewarded. The people who are orchestrating these market manipulations, in the gold market and elsewhere, are extraordinarily ruthless and well-connected. The bullion banks are deeply enmeshed with governments throughout the Western world, and they’ve been doing this for a long time.
On top of that, they receive an average of about 7 tons of new gold every single day from the mining companies. It can be used to fill the extra demand caused by their shenanigans in the very short term. Also, it seems likely that they will continue to draw gold out of the US Gold Reserve. The fact that the gold market is tight, however, as illustrated by backwardation between the futures and the physical gold price in London, does imply that their access to the US Gold Reserve is not unlimited.
The reason they get 7 tons of new gold to play with, every day, is that mining companies are foolish enough to sell to them, at whatever price is created by the London “fix.” Regardless of the outward trappings, and even when it is cured of whatever corruption recently went with it, the fix is largely determined by manipulations on the paper gold market in New York (a/k/a COMEX). If mining company executives developed a backbone and took joint action to reject the legitimacy of COMEX pricing, the power of the banks over the gold market would end. Miners could refuse to sell their product at a fake price. If they did that, everything would change.
Unfortunately, these same miners also rely on these same banks to finance their operations. The banks are a source of ready cash to pay executive salaries. In addition, a bad recommendation from a major bank’s research department torpedoes a mining company’s stock price and cuts into the personal wealth of mining executives who are paid in part by stock bonuses. Adding to the problem, many of the banks are directly or indirectly represented on mining company boards of directors. In other words, the mining companies are not likely to take a stand against the manipulating banks.
The game would also come to a screeching halt if the flow of sovereign gold from America dried up. The fact that the not-so-elusive “gold supplier of last resort” is the US government is so obvious that it is almost laughable. US Treasury is supplying a huge amount of gold into the world market. No other entity could do it. Someone is supplying the massive gap between supply and demand that has existed since gold prices were taken down from their equilibrium point between $1,500 and $1,600 in early 2013.
I don’t want to get into the details of the gap between supply and demand. Nor do I have space to describe in detail exactly how gold is manipulated. Doing so would make this article too long, and I’ve already done it. My past articles and the thriller novel, “The Synod” (eBook) (paperback), provide the information you need. But, to put things in context, I will say this. The US government is supplying location swaps on gold stored inside the official US gold reserve to the Bank of England. The British central bank, in turn, is releasing gold bars into the market in London. Those gold bars do not belong to the UK. They belong to customers of the Bank of England. That’s why they need the location swaps.
The policy of occasionally using the US gold reserve to suppress gold prices is an old one, going as far back as the 1970s. There is documentation of a huge swap that happened between the US Treasury and Bank of England in 1980, just about a month before the collapse of gold prices from their height of $850. However, the huge gap between supply and demand since 2013 means that the policy was vastly expanded under Obama. Again, I can’t triple the size of this article by going into the specific details here, and you can read my past articles and The Synod (eBook) (paperback) to find out everything you need to know.
When the Trump administration finally gets around to reversing Obama’s secret executive order, which began authorizing this liberal gold swap policy in April 2013, the price of gold will soar. At the moment, it seems, that is not going to happen overnight. The attention of the Trump administration has been diverted into a myriad of squabbles. Key players, who might otherwise be active in reviewing matters that would bring an end to this short-sighted foolishness are too busy putting out petty political fires. An enormous flow of American treasure continues to flow out of the United States.
That said, the manipulating banks know that the game ends when US gold swaps end. That means they must allow prices to rise before that happens. Otherwise, they’ll be at risk of holding enormous short positions at the worst possible moment. Right now, they are continuing to make money by painting the tape and trading gold as non-connected people react to it. They are also very busy ridding themselves of legacy short positions. In other words, they are “making hay while the sun shines.” Plenty of money can be made by artificially inducing movements in the paper gold market.
Bullion bankers are getting rid of legacy short positions by carefully orchestrating their price attacks. The basic game is simple. Manipulators initially sell enough additional short positions to cause a price decline sufficient to trigger the stop-loss orders of leveraged speculators. They know the price points at which speculators have concentrated those orders. That’s because the speculators are either directly or indirectly (though a clearing broker) customers of the manipulating banks.
Once the first set of stop-loss orders is triggered, prices are catalytically dropped much further than the manipulators could achieve directly. The bigger fall in prices also catalyzes further drops because it causes more automated stop-loss selling, and finally the triggering of automated margin call selling. This adds to the downward pressure. Prices drop still further. That leads to more stop-loss selling, more declines, more margin call selling and, finally, after the process burns itself out, the tape ends up painted with a spectacular price drop.
The price instability causes panic among speculative long buyers in the futures markets. Secondarily and temporarily, it will also catalyze some physical buyers to lower their bids, in the hope of getting a cheap buy. That relieves some physical demand pressure ordinarily caused by a massive price drop, in the very short run. Meanwhile, in the midst of the chaos, the manipulating entities slowly and deliberately liquidate the new transient short positions and also get rid of huge numbers of the legacy short positions they may have been rolling over for years.
The most recent “Commitments of Traders” report, issued by the CFTC on July 7, 2017, proves that the bankers are doing exactly what I have described. By the end of trading on July 3rd (the date the data was collected) the so-called “commercials” (a/k/a bullion banks) had shed 10,176 and the swap dealers (divisions of those same bullion banks) had shed a whopping 27,701 short positions. That’s a total reduction of 37,877 short positions as of the end of trading on the July 3rd smack-down date!!
The price smash allowed bullion bankers to shed 3,787,700 troy ounces worth of bets that gold will decline. In other words, that one day of “playfulness” allows them to avoid losing more than $1.1 billion dollars on COMEX alone, assuming the price of gold rises by $300 by the end of the year. Indeed, we have no way of knowing what they were doing in the London market, because the information is kept secret. The over-the-counter leveraged forwards market is five times as big as the more visible COMEX. That means that the bullion banks probably avoided more than $6 billion dollars in losses by pulling their stunt on July 3rd.
It didn’t stop there. They did the same thing on July 7th. You can be absolutely sure that they shed tens of thousands of additional short positions on that day, too. That’s because the tape was painted again, in virtually the exact same manner, resulting in the same type of panic and forced liquidation among leveraged long speculators. The so-called “managed money” (a/k/a hedge fund managers) took on a lot of the short positions. Some of them are going to be called upon to deliver a lot of real gold come August. It is gold they don’t have, obviously.
Let’s take a look at the Commitments of Traders report…
The bullion bankers would not be shedding huge numbers of short positions if they thought the price was going to go down a lot further. They obviously know that prices are about to go up. Meanwhile, the hidden gold flow from America to the rest of the world keeps the scam in play. That hemorrhage of gold, from the USA, is partially illustrated by data that is publicly released. From January to April 2017, for example, a net 88 tons of gold flowed out of the USA, according to the US Geological Survey. If this pace continues, and it has been very steady month to month, a net excess of 264 tons of gold will leave the USA in 2017. That is more gold than all the mines in America will produce!
Note that the vast majority of gold exported from the USA is NOT in the form of gold ore or dore (gold that hasn’t been fully refined yet). Yet, a vast majority of the world’s refining companies are based in Switzerland, not the USA. In spite of that, the United States is mostly exporting pure gold bullion. I believe that part of that comes from deliveries on the COMEX exchange, which may be directly supplied by physical gold in the Federal Reserve’s basement vault in NYC. Once delivered on COMEX, apparently, that gold is probably being shipped overseas. Another part may be gold bars provided directly to big New York banks to fill orders by customers overseas.
At any rate, these statistics ONLY account for visible gold outflows in the form of bars of gold that are leaving the USA because they have been shipped directly to commercial buyers. “Monetary” physical gold transactions (gold passing between central banks) and gold “swaps” are not accounted for. Gold swaps, which are almost certainly the main method by which gold is delivered from the US Gold Reserve to the world market, via the Bank of England, are also absent from the statistics.
A “location swap” is an agreement to supply gold in one location in exchange for a lien on gold in another. The gold upon which the lien is placed is usually located in an inconvenient location (a/k/a Fort Knox, West Point, The Denver Mint etc.). Taking the gold directly out of the US holding areas would involve demobilization of army units, a public spectacle. The public nature would insure a huge political fight and the inability to keep the activity a secret. In contrast, at the Bank of England, gold bar movement can be kept entirely secret under British law, and its vaults are convenient because they are located in London, where all the bullion banks are headquartered.
The gold swaps are a proven fact. In 2009, in responding to a Freedom of Information Act request, the Federal Reserve admitted to having extensive gold swap records, but refused to provide them. It claimed that “exemption 5 of the FOIA” made them exempt “confidential communications with another federal agency.” No doubt, the “other agency” is the US Treasury, which actually owns the gold. In subsequent litigation, a final order was issued by a federal judge requiring the Fed to produce one document which did not directly relate to gold swaps.
The Fed’s successful resistance to the FOIA request does NOT mean that there are no gold swaps. On the contrary, it proves that there are gold swaps. The judge examined them, and the plaintiff’s attorney was not allowed to do so. Apparently, the need to keep the information secret is considered so important that the powers-that-be literally were willing “to make a federal case of it.” But, the bottom line is that the Great Game will end as soon as the very liberal Obama-era gold-swapping policy ends.
In my opinion, the big price drops in late June, July 3rd, and July 7th all revolve around a concerted and coordinated effort to reduce legacy short positions in the gold market. Something big is about to happen. There is panic within the banksters’ ranks. In response, they do what they always do. They launched a coordinated attack, sowed fear into the hearts of non-connected speculators and investors and succeeded in massively reducing their overall short position. Collusion to smash gold prices worked out beautifully. And, working hand in glove with deep state bureaucrats, no regulator will ever question what they did.
Keep in mind that the biggest banks in the world continue to gobble up gold. In June, for example, the Bank of Nova Scotia, one of the biggest bullion banks, bought a net 44,900 ounces or just under 1 and a half tons of pure gold bullion on COMEX alone. That adds to the huge quantities of physical gold already purchased by the likes of Goldman Sachs, JP Morgan Chase, HSBC and Scotia in the past.
CME, Inc., which runs the COMEX exchange, was also a big buyer, again. It bought just under 1/10th of a ton of gold this past June. That is a huge amount of gold for an exchange operator to buy. It is also bizarre for an exchange operator to be buying it. CME has made large purchases in virtually every major delivery month since June 2016. That is NOT normal activity. As recently as 2015, the CME didn’t purchase gold. There is no reason to buy it now because CME, Inc. is not an investor, a bank or a gold dealer. Clearly, the exchange is acting in a manner that implies that a major supply disruption is on the way. Major disruption will be the inevitable result of a cessation of US government sponsored gold swaps.
At the current price, supplying the gap between supply and demand, the “gold supplier of last resort” would have to spend something like 1,000 tons of gold to support the bankers. I don’t think the Trump administration is willing to do that. Even under the Obama administration, the physical market was tight. That implies, as I have said before, that access to the US Gold Reserve is not open-ended. When the American gold swaps finally end, we will start seeing a significant price spike.
From the standpoint of the foolish hedge fund managers who are taking on the short positions, difficult delivery months lie ahead. There will be a cash settlement of non-allocated claims in London. There will be a myriad of delivery defaults by dealers at COMEX. However, CME, Inc. is going to be using the gold it is now accumulating to backstop some of those failures. If they cover most of them, unfortunately, the dishonest price setting mechanism that is COMEX will retain its credibility.
Attempts to control the rising price of gold will periodically continue. “Shock and awe” campaigns facilitate short covering and gold accumulation by insiders. I continue to believe, however, that gold prices will go up this year until they reach the point of natural supply/demand equilibrium, which I estimate to be somewhere between $1,500 and $1,600.
The take-down style we’ve seen in the last two weeks tends to be followed by delivery of large quantities of physical gold to the banks in the subsequent delivery month. I expect some major fireworks by August even if the Trump administration still has not cut off the flow of American gold by then.
“It moves fast, kind of like Robert Ludlum’s “Jason Bourne” trilogy…”
– Josh Pullman –
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