“[O]n Friday, April 12, the Fed’s agents hit the market with 500 tons of naked shorts. Normally, a short is when an investor thinks the price of a stock or commodity is going to fall. He wants to sell the item in advance of the fall, pocket the money, and then buy the item back after it falls in price, thus making money on the short sale. …
“…with naked shorts, no physical metal is actually sold…
“Consider the 500 tons of paper gold sold on Friday. Begin with the question, how many ounces is 500 tons? There are 2,000 pounds to one ton. 500 tons equal 1,000,000 pounds. There are 16 ounces to one pound, which comes to 16 million ounces of short sales on Friday.
“Who has 16 million ounces of gold? At the beginning gold price that day of about $1,550, that comes to $24,800,000,000. Who has that kind of money?
“What happens when 500 tons of gold sales are dumped on the market at one time or on one day? Correct, it drives the price down. Investors who want to get out of large positions would spread sales out over time so as not to lower their sales proceeds. The sale took gold down by about $73 per ounce. That means the seller or sellers lost up to $73 dollars 16 million times, or $1,168,000,000.
“Who can afford to lose that kind of money? Only a central bank that can print it.”
“Assault on Gold Update,” Paul Craig Roberts, frmr asst Treasury sect. Reagan Administration, PaulCraigRoberts.org
The recent dramatic Gold and Silver Price Takedown revealed the playing out of Mammoth Market Forces with Effects far beyond the Precious Metals Market. Monitoring these Forces is Essential for Investors going forward.
Among other Effects the Precious Metals Price Takedown demonstrated that the Prospects for certain Key Commodities Price launches soon are better than ever (but of course from lower levels).
It also demonstrated that even higher Price Targets sooner are now in store for these Key Commodities and Gold and Silver.
Why? The recent Cartel (Note 1) coordinated Takedown was effected by the selling of 500 tons ($25 billion) of paper Gold – representing 15% of all annual mine production. Total contracts traded represented about 3,000 tons. If all that were Physical, it would not be feasible, and probably not possible, to make delivery. Only The Cartel or a Major Catastrophe could have created such an 8 Standard Deviation Event!
But in the Real Market, the Physical Market, the Premiums for Physical (over the Paper Spot Price) have been increasing both before and after the Price Takedown. Indeed, Precious Metal Markets Professional Bill Haynes reports that Physical Gold at recent prices is flying off the shelves at a record clip – Buyers exceeded Sellers by 50 to 1. This report is consistent with others from around the World indicating that this Takedown has had the Unintended Consequence of dramatically increasing the demand for Physical.
Thus our recent forecast of “inevitable Takedowns” has been proven correct, although the magnitude of the Takedown surprised us a bit. But we should not be surprised and considering The Cartel’s Extraordinary motivation for the Takedowns. This Extraordinary Motivation reveals much about the Prospects for the Precious Metals and Commodities Markets, and, indeed for Markets in general.
London Bullion Dealer Andrew Maguire provides what is probably the Key Clue. He reports that, after Cyprus, the demand for Delivery of Physical Gold skyrocketed and the London Gold Market had nearly run out of Physical Metal and could not honor contracts for Physical Delivery. Thus Key Central Banks and Governments felt they had to undermine enthusiasm for the Metal (and wipe out speculative longs trading on Margin) by taking down the price. But instead of undermining enthusiasm for Physical, the Cartel Takedown has increased it.
One correspondent’s analysis is probably spot on.
“Andrew McGuire, hospitalized some time ago by a London hit-and-run driver after stating that the gold price was artificially suppressed by …, now says that the latest attack on gold occurred because the London metal market was short gold and unable to honor contracts that called for physical delivery. At around $1350/oz, it suddenly becomes much easier, of course, because many “long” speculators have been ruined.
“Another sender writes:
also, from another trusted source, there is no gold left in Turkey, sold out, coins, bars, etc
“Elsewhere, one hears that physical silver is hard to come by in the US; orders placed now, by best customers, cannot expect delivery for 2 to 4 weeks. The Comex paper price bears little relation to the price of physical metals, which sell at significant premiums.
India and China continue metal purchases.”
Private Communication, 4/17/2013
Clearly, the Fed’s (and other Central Bank’s) Promiscuous Printing of the $US (and other Fiat Currencies) has resulted in an obvious and continuing weakness in the $US purchasing power in terms of Gold and Silver, were these Precious Metals (and Commodities prices in general) prices not suppressed.
And to a considerable degree the same motivations exist for other Central and allied Mega Banks. The Banking Cartel cannot afford weakness in the World’s Reserve Currency or indeed in other Major Fiat Currencies at this time because they know that the flight into Real Assets would turn into a Major Move toward abandoning their Fiat Currencies.
And if/when the $US (and/or other Fiat Currencies) falls they lose Power and Wealth. From their perspective, their suppression of Real Asset Prices must succeed at all costs. But the fact they acted so dramatically now, demonstrates they are increasingly desperate to prevent obvious commodities price inflation and especially a Gold and Silver Price Spike up. Thus, we still forecast Gold and Silver’s launch should occur no later than our earlier Forecast and quite possibly sooner.
The motivation behind the Precious Metals Takedown is clear. In addition to the usual one of not wanting competition for their Treasury Securities and Fiat Currencies, The Cartel clearly wants to hide the structural weakness in the $US, and in their other Fiat Currencies vis-à-vis Real Assets such as Gold and Silver.
Short-term, the Takedown has achieved its desired effect in the Paper Precious Metals Market, but has boosted Premiums for Physical. And the $US is bouncing around just under 83 basis USDX. We recently Forecast when its downtrend likely resumes.
That structural US$ weakness derives mainly from the Central Bank’s orgiastic QE and from the fact that the U.S., Eurozone, Japanese, Chinese, and indeed the International Economy is not recovering. Statistics revealing China’s slowdown are yet another indication of that.
The Falling Price of Dr. Copper, THE Main Economic Health Indicator, and Crude Oil along with weak employment and PPI numbers in major nations around the world, tell us that once again it behooves Investors to methodically begin to move out of $US and Euro denominated Assets and into Real Money (Gold and Silver), and the Aussie $ or Swiss Franc, and carefully selected Real Estate and Essential Food Commodities and related businesses (Stellar Price Prospects for these! -- See notes below re. Recommendations).
Longer term, U.S. Treasury Securities are The Great Bubble. We reiterate: the most telling feature of recent market action was not the recent weakness in the Equities Markets. Rather, it was the flight to the Ostensible Safety of U.S. Treasuries. Were one to short long-dated U.S. treasuries here and hold for the long term, one would almost surely profit. Perhaps the Greatest Mammoth Force in Months to come will be the Bursting of the U.S. Treasury Bubble.
The Bernanke Bond Bubble is not immortal. The current choppy almost imperceptible rise in the yields trend in recent months will accelerate as the months wear on. Thus another Key Signal has been sent recently. The beginning of the end of the $US as the World’s reserve currency is coming ever closer; a matter of months.
Australia and France have already agreed to deal directly with the Chinese in Yuan. And the Chinese have become the World’s largest Gold Importer and Producer.
Regarding Equities, until recently they have kept levitating in spite of weak overall Economic numbers.
It is old news that Fed and other Central Bank liquidity is doing the levitating. But Equities cannot stay pumped forever when the fundamentals do not support them.
Five out of every six S&P companies have issued Negative Guidance.
And the “China Slowdown” news was the catalyst for this week’s Takedown.
Indeed, our Four Wave Equities forecast for 2013, correct thus far, appears to be playing out. The first quarter’s Up (Wave 1) now appears to have topped and to be reversing down as we earlier forecast into Wave 2.
We reiterate, we forecast a (Wave #2) choppy down Move of 5% to 10% over the next few weeks, probably contemporaneous with U.S. Battles over the Budget and Debt Ceiling which are just beginning to heat up. Could it be that The Administration via the “President’s Working Group on Financial Markets” (which, per the 1987 Act, has legal Authority to Move Markets) has an interest in keeping Equities Prices boosted except when Takedowns are useful to pressure Congress? It would not surprise us to see sharp Takedowns as the Budget and Debt Ceiling battles heat up.
The Equities Market is “artificially” elevated as PIMCO CEO El-Erian said. And Chairman Bernanke recently said the QE would keep coming… That is a very Dangerous Situation which may well lead to a Stagflation-induced Crash likely beginning sometime late in 2013, or early 2014. The Fed and other Central Banks cannot keep money pumping as Inflation obviously intensifies.
From a technical perspective, the aforementioned Prospective Bull Rally Top coming later, would complete the Hindenburg Omen Pattern (and Monday’s Equities Drop generated another H.O. Observation by the way), and thus, likely beginning sometime later this year, to be followed by the Cataclysmic multi-leg Crash – the impending Mega-Move of which we speak, and which we think is highly probable. As we successfully did before the 2008 Crash, we will be looking to recommend leveraged shorts prior to that Crash.
In sum, the Economic Fundamentals of the USA, Eurozone, and Japan, collectively 53% of the Global Economy, including Debt HyperSaturation, ever higher Unemployment, and Economic Stagflation have not disappeared. And the Fiat Currency “war” among them has only just begun. And Cyprus Precedent and the Italian Election Stalemate and Portugal’s Continuing Decline remind us that Eurozone problems are still very much with us. Italy has the third largest economy in the Eurozone.
And Dr. Copper’s swoon is telling us the Equities Rally is built on Sand and Fed Paper. This is what the multi-year Hindenburg Omen Chart Pattern is also telling us.
In sum, the Equities Markets are treacherous and we counsel being very careful regarding long positions. As we earlier indicated, a Sector by Sector analysis is best. Some will rise and some fall dramatically. (See Notes 2 and 3 below.)
One Final Caveat regarding the Equities Markets: Several Negative Events could cancel any further Monetary Inflation-induced Rally.
It appears ever more likely for example, that there could be a sudden flight away from the $US – could cancel any such Rally. And war with North Korea or intensified War in the Mideast could do it as well. The flight away from the U.S. Dollar could happen any time (see above).
Contrary to bemused opinion, Wars, especially Nuclear Wars, are not good for long-term Economic or Market Health – Skilled Workers and Valuable Capital are destroyed. Stay Tuned.
One other Key Mammoth Force to observe is the Crude Oil Price. We repeat that the Crude Oil price tells the truth (i.e., is harder to manipulate). And, along with Dr. Copper, (and contrary to the artificially (and until this past week) elevated equities Market) the truth it (and Dr. Copper) has been telling recently that the Economy is weakening.
One should ask: if the Economy is strengthening, why are Crude and Copper declining?
The Rush to buy Physical Gold, even after the Paper Price Takedown and the fact that the S&P recently broke down out of its Uptrend Channel, shows us that Fed Policy is, once again, failing to help the Real Economy, and is instead helping mainly their shareholders/owners, the Mega-Banks.
David Rosenberg capsulizes well one likely consequence of Failed Central Bank Policy.
“The central banks can try to provide as much liquidity as possible to the marketplace, but the problem is that liquidity is already in abundance. The central banks are now resorting to force-feeding an obese man (hence the ‘puking out’). The real risk is actually that investors begin to sense that the central banks are starting to lose their credibility…which is what happens when policy fails.”
David Rosenberg, Gluskin Sheff
It may well be that the Central Banks are boxing themselves into a Corner of their own making –their Excessive Saturation of Sovereigns and citizens with debt leaves Massive Debt Write-offs/Repudiation – the Icelandic Solution – as the increasingly likely Sole Option.
Mammoth Force analysis is immensely useful and indeed essential to Investors.
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