RECENT GOLD PRICE DECLINES = THE CUSP OF A MAJOR UPWARD MOVE

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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.

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9 thoughts on “RECENT GOLD PRICE DECLINES = THE CUSP OF A MAJOR UPWARD MOVE”

    1. One only needs to listen to Smaulgolds description of what will actually occur. Basically not gonna happen. Sure wish it would , my investments are down a whopping 70%.

  1. What a choice phrase for London gold price called London “fix.” Someone had real sense of humor. I guess they couldn’t really say the London “fix” is in.
    Agreed, metal prices will eventually head much higher and perhaps this year. The question or elephant in the room is at what dollar amount will the government step in and impose capital controls. At some price point it unlikely government remains a bystander saying to holders of metal:
    “Wow, aren’t you smart by buying all that metal and holding it until the price went way up. Lucky you!”
    That don’t seem to be in government DNA no matter who is in charge.

  2. I don’t see the conspiracy, just the price action. I was trading silver on the trading session of 7/5, looking to scalp long, but the prices were stuck (Nov silver) @30/35, with 10 as the low to break, which I was patiently waiting for. Then, in sort of a preview for the next session, like all of a sudden, and I am used to prices methodically, and slowly churning to break lower, but here the prices spiked to 15900 or something, in like 1 second. Since I never place limits or stops (market only) by the time I reacted, the prices were trading 2 seconds later @5980/85/90. For my purposes, I was under 010, so I just reacted and got long @85, but I knew that was a s- fill.

    When the market plunged back under 900 I got more, etc.

    The point is, here we are in July. The prev year settlement was 16275 (Nov). The first session of the year (1/3/17) Nov silver touched 6165, and BOOM, THAT was the low for the year. However, on May 9, the market poked below that, after trying to stay long all year. Breaking new yearly lows months into the year is a VERY significant technical event. I suppose because of all the buying from 1/17 to 5/17 might have explained the rally off the 5/9 low – after all, the high for the year (4/17) was 18780. A poke under yearly lows was prophetic, but perhaps it was too early for follow through. After all, the market had just made a ~2700 point bee line from the highs of the year. I was buying those lows and made a few bucks, bailed ~16650, and sat still, watching that rally hit 178, June 7.

    Anyway, on the 7/5 session, now we are once again dangling above yearly lows, in fact, by that time trading below them, and also, now, after all the buying overhead, we are trading down for the year, with one last ‘hope’ that maybe 16010 (Nov silver) will hold somehow, and silver will be ‘rescued’ from totally breaking down and going full negative for the year.

    Well, as I sat there waiting for the break (not sure if it would, but I would not even think of buying until I was pretty far away from 160), all I was thinking is major reversal DOWN was in play for the year. And even though I lack the cajones to sell low like that, preferring to play with the volatility on the breaks, with that set up, there was no way I was coming in over 160 long. No.fng.way.

    My point is, there is no big ‘mystery’. I think everybody was expecting 2017 to be all screwed up, the stock market would sell off, etc, because of the change of administration after 8 years, from one party to the next, rates were going up etc, so as the market ‘crashed’ PMs would get the bid, and everybody makes a fortune.

    Well, on 7/5 it was pretty clear to anybody who was long, and holding long, esp if they had a big trade on, their bet was wrong, and with July starting down and under water – sets the tone not only for a negative month, but a pretty bad (for buyers holding [not scalping volatility – that is a different story]). So, after the holiday, and seeing the spike to 9 even the prev session, it was just too clear to somebody who was holding a big fat position on silver they were f-ed. As soon as the market opened, first thing, they just said f- it, I am out, I don’t give a f-k whose on the other side, where they are, or where the bid is, I am OUT.

    All it is is good old fashioned capitulation. A monster trade at a critical juncture like that produces that kind of move. If you do not understand your context when trading (as noted above) the action of the 7th will seem ‘shocking’. But the set up was the perfect storm for that event.

    As for me, I have to admit, while I was expecting some form of capitulation coming in from somewhere, I sort of thought a lot of that was played out 7/5-7/6. But the excessive whack to 14340 put me in WTF mode – and I have seen a lot over the last 25 years I have been trading.

    The bottom line is, like it or not, 14340 printed. CME came up with 15540, but that doesn’t matter, because the market broke down to 15330 later on. British Pound flash crashed to 120 futures (117 cash), but look where the prices went to – those lows BROKE, and the market was down and heavy into the end of the year, because the market was DOWN for the year, etc.

    Silver has just dramatically reversed, confirming May 9, and is DOWN for the year. 16000 is going to be one heluva wall to break back over. Anyway, NEXT year, MAYBE, but 2017 is off the table for an up year, MAYBE a tiny bit up with a close at 162 or something, but only because the cur yr high is 187. Still, right now, the bias is down and very negative, so I would not be expecting any big rally anytime soon.

    1. I forgot to mention that first bar of the 7th really messed with my mind. I had a little confidence crisis in the exchange’s ability to manage its s-. But once they announced the 15540 floor, and the bid sinking under that later on in the day, it seemed like the rest of the market was getting over the shock and i got longs in the mid 154s and covered at the close.

  3. 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.

    Is there a link or executive order number?

    Thanks!

    1. There is no order number that is publicly disclosed. There can’t be. If there was, the policy would not work. However, under the Gold Reserve Act of 1933, only the Secretary of the Treasury, with the consent of the President, has authority to release US-owned gold into the market. Remember, the Federal Reserve admits that the gold swaps exist. In the absence of a new Act of Congress, they can only occur (and this includes the swaps under both Obama and previous administrations) pursuant to an order of the President.

      All the big players in the gold industry, along with the then-Secretary of the Treasury met with President Obama on April 11, 2013. That was only one day before the biggest price attack on the gold market in history. The meeting, which is documented in White House meeting records, is very strong circumstantial evidence that a new executive order was issued that day, authorizing a far larger tonnage of gold swaps. You will never be able to get the executive order number of any of the Presidents who have authorized gold swapping. Even when this one is eventually reversed by Trump, the likelihood that it, or any of its predecessors will ever be declassified is nearly zero percent.

  4. Great article but all these distracting social media buttons will make me very hesitant to visit this site again.

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