December 2, 2022

Physical Gold Inventories Plunge As Gold Market Crashes – How Can That Happen?

worldKyle Bass recently summed up the thoughts of many gold investors when he said “the largest central banks in the world, they have all moved to unlimited printing ideology.  Monetary policy happens to be the only game in town.  I am perplexed as to why gold is as low as it is.  I don’t have a great answer for you other than you should maintain a position.”

Gold investors can easily be forgiven for being perplexed, especially when considering that gold prices are plunging at a time when stocks of physical gold are being rapidly depleted at the COMEX warehouses.  Is this just one of life’s unsolvable mysteries or is the gold market being manipulated?  Bill Downey at Gold Trends lays out a solid case on how market manipulation caused last week’s gold collapse and why it makes more sense than ever to increase holdings in physical gold and silver.

 

There’s been a recent huge draw down of physical gold at the New York COMEX and at the JP Morgan Chase depository. Look at the physical market draw down on the charts below. It has taken a drastic plunge.HOUSTON — we have a problem.Physical inventory drawdown at JPM
Charts by Nick Laird of www.sharelynx.com

GoldInventoryJPMAPril2013
Physical Drawdown at COMEX
Charts by Nick Laird of www.sharelynx.com
GoldInventoryComexApr2013
You can imagine the dilemma this is causing for the market interests behind these inventories. If the inventory runs out and one cannot meet deliveries then it has to be bought on the open market. Not only that but it could cause a run up in prices that would hurt the shorts in the market.So what to do?There is only one way out of this for the market controllers would be to devise a plan that would collapse the market and trip up all the stops at the correction lows in gold of 1525 thereby setting off the stop loss orders under this important market low. And what if the plan included a way to stop the physical market from purchasing gold under 1525 while that correction was underway?

And how can that happen?

They have to hatch out a plan and carefully orchestrate it in a series of events that takes the gold market by surprise and force the players out of their positions.

Read on for today’s lesson in market manipulation and allow me to relay my speculation about what transpired last week.

A successful ambush usually involves surprise.

One of the main new weapons in the FEDS arsenal is TRANSPARENCY.

After a lifetime of silence the FED all of a sudden has come out of the closet and has decided that the best thing for the market is to be transparent and to that end they now have televised communication meetings with the general public so chairman Bernanke can explain the FED policy and answer any questions that the market has on its mind as well as the usual minutes that get released to the markets that review the policy decisions and discussion of prior meetings.

Why does the Fed need to explain what they are doing now?

Well it isn’t because everything is going just fine. Put it this way. They must figure when you have 50 million people on food stamps and the Dow Jones is going up a few hundred points a week and making all time highs and you have 16 trillion dollars in debt and interest rates are zero, its best to have a communiqué every month before someone asks you to explain what is going on. It’s called staying ahead of the curve if you will. If you tell them what’s going on it makes it look like you know what you’re doing. Otherwise all we have is the statistics and by themselves they tell you something is wrong, something is terribly wrong. So they have become transparent.

During the last communiqué the chairman made it abundantly clear that QE was here to stay until the unemployment rate reached acceptable levels. This communiqué whether by personal appearance or by releasing the FOMC minutes of the prior meeting is something the FED relies on so market participants can remain comfortable and abreast of Fed monetary policy.

Three strikes and you’re out

The FOMC minutes from the last meeting were due for release during last week. But a funny thing happened. They got released EARLIER than expected. It was all a big mistake and the FED let the SEC and the CFTC know right away that the error had occurred. And lo and behold even with all its transparency there happened to be some language we didn’t get updated on until the FOMC minutes were released. The notes say that several members have been discussing cutting back on the stimulus. That was strike one. It got the gold market thinking that stimulus cuts might be coming.

Strike one

Surprise number two

Then a bombshell was released from news sources. It was reported that Cyprus would have to sell 400 million Euro’s of gold as part of the bailout package of raising money for their failed banking system. Gold prices came down to 1550 on the news and the day passed by. Even though Cyprus bankers tell us the next day that they didn’t discuss selling any gold, market jitters seemed to remain and Friday was just around the corner. This was strike two.

Now we need a strike three and you’re out. Gold is a nervous market to begin with as a lot of people have already lost a lot of money in the last six months.
With Gold at 1550, all that is needed for the market to drop is to get one more push where all the stops are (just below the 2 year low of 1525).

The selling began in the Friday sessions overseas. By time we got to the New York COMEX gold open, the price was down to 1542. Now all the players are there and the volume and liquidity is there to create the final blow to the market.

And then the attack began. Wave after wave of selling until gold got to 1525. Then they break down the price below the two year low and all the stops that have been accumulating there start getting tripped up and the selling accelerates as it begins to feed on itself. The physical market for gold sees this as a gift and gets ready to make their move and buy up the gold.

Now comes the part that is pure genius or a total coincidental thing that just so happens to be a gift to those who are short the market and those who would be responsible to deliver gold should the inventory deplete.

ALL OF A SUDDEN THE LONDON PHYSICAL PLATFORM THAT BUYS AND SELLS PHYSICAL GOLD GETS LOCKED UP. THE SYSTEM FREEZES.

continue reading here.

 

GATA Finally Gets The Recognition It Deserves

Every gold and silver investor owes a debt of gratitude to the Gold Anti-Trust Action Committee (GATA).  Long fluffed off by the mainstream media, GATA has been a voice in the wilderness in exposing the manipulative schemes of governments and central banks to suppress gold prices.

With printing presses running wild world wide, the issue of gold price suppression will become ever more critical as the public eventually realizes that the only viable alternative to paper money backed by nothing is a gold backed currency system.

The tireless efforts of GATA, spearheaded by Secretary/Treasurer Chris Powell,  in documenting surreptitious gold price suppression schemes by central banks has finally been recognized by a major mainstream financial publication.

The Financial Times, in an article regarding the repatriation of gold from the Fed by the Bundesbank, talks about the lack of transparency by central banks in the gold market.  (Read the full article here.)

The gold market barely shrugged when the Bundesbank announced it would move 674 tonnes of the stuff from Paris and New York to Frankfurt.

But the move is important: not for what it says about Germany’s faith in French or American vaults; nor for the cost of shifting 674 tonnes of gold; but because it is a major victory for transparency in the gold market.

Central banks are notoriously secretive about their gold-trading activities.

Most report, on a monthly basis, their gold reserves to the International Monetary Fund. But these data fall a long way short of full transparency. They tell us nothing about derivative positions in the gold market — for example, gold loans, agreements for future sales, or options transactions.

The historical lack of transparency among central banks is somewhat understandable.

With 29,500 tonnes between them (a decade of global mine supply) they have the ability to disrupt the market significantly if their trades are too public. See, for example, the reaction to the UK’s announcement that it would sell a large part of its reserves in 1999.

Maybe at some point, the rest of the mainstream media will finally decide to take a critical look at the dealings of central banks in the gold market.

Gold and Stocks Diverge As Central Banks Pledge Unlimited Money Printing

Both the Federal Reserve and the Bank of Japan have gone all in with their attempts to revive weak, debt burdened economies with a pledge of unlimited money printing.

Japan’s incoming Liberal Democratic Party Prime Minister Shinzo Abe, who ran on a platform of unlimited quantitative easing and higher inflation, has quickly forced capitulation by the Bank of Japan to surrender its independence from political influence.

The Bank of Japan pledged Thursday to review its price stability goal, admitting that the move was partly in response to incoming Prime Minister Shinzo Abe’s aggressive calls for the central bank to step up its fight against deflation.

At its two-day policy board meeting, the BOJ decided to expand the size of its asset-purchase program—the main tool of monetary easing with interest rates near zero—and promised to review next month its current inflation goal, something Mr. Abe demanded during Japan’s parliamentary campaign.

Countering speculation that the board’s decision-making process is being driven by politicians, Gov. Masaaki Shirakawa said the bank reviews its price goal every year. But he acknowledged that the policy board had taken Mr. Abe’s request into account.

The Bank of Japan’s quick surrender of monetary policy independence reflected the fact that they had little choice in the matter.  Mr. Abe had previously threatened a  “law revision to take away the BOJ’s independence if it didn’t comply with his demands.  Mr. Abe said the election shows that his views have the support of the people, and, on the night of his victory, he specifically said he expected the BOJ to do something at this week’s meeting.”

The policy of unlimited money printing by Japan came shortly after similar actions were announced by the U.S. Federal Reserve in early December.  Fed Chairman Ben Bernanke, architect of the U.S. “economic recovery” announced that the Fed would purchase $45 billion of US Treasuries every month in addition to the open ended monthly purchase of $40 billion of mortgage backed securities.  The Fed’s expanded “asset purchase programs” will be monetizing over $1 trillion of assets annually, effectively funding a large portion of the U.S. government’s annual deficit with printed money.

The impact of blatantly unlimited money printing by two of the world’s largest economies surprised many gold investors as the price of stocks and gold quickly diverged, with gold selling off and stocks (especially in Japan) gaining.

Why would gold, the only currency with intrinsic value that cannot be debased by governments, sell off as governments pledged to flood the world with freshly printed paper currencies?  Here’s one insight from John Mauldin.

When you reduce the amount of leverage in the system, you’re actually reducing the total money supply. So the Fed can come in and print money, and the money supply – the total amount of credit and leverage and material that’s going through the system – really hasn’t increased.

A lot of monetary economic theories say “the money supply is directly related to inflation.”

It is, but the amount of leverage and credit in the system is also directly related to inflation. It becomes a much more complicated mix. What happens at the end of the debt supercycle, as you’re reducing that leverage, you’re actually in a deflationary world. That is the whole debate between deflation and inflation.

If you read the polls in the United States, we’re just totally dysfunctional. We want to pay less taxes and we want more health care – that doesn’t work. We are going to have to be adults and recognize that problem.

The reason is the Fed is going to do everything they can to fight deflation. The only thing they can do is to print money. They’re going to be able to print more money than any of us can possibly imagine and get away with it without having inflation.

Mr. Mauldin may have a valid point, but a more likely explanation is the suppression of gold prices by governments and central banks as voluminously documented by GATA.

“Those who follow GATA may not be surprised when the monetary metals markets don’t make sense, since they really aren’t markets at all but the targets of constant intervention by governments.”

Did Central Bank Coordinated Easing Also Include Manipulation of The Gold Market?

On a day when coordinated central bank monetary easing sent stocks and commodities soaring into orbit, the price action in the gold market was curiously muted.

The Dow Jones, S&P 500 and Nasdaq all increased by over 4%.  Gains in various S&P sectors ranged from 4.75% for the transportation sector to 7.51% for the financial sector.  Gold, by contrast, rose a mere 2%.

INDEX PERCENTAGE INCREASE
DOW 4.24%
S&P 500 4.33%
NASDAQ 4.17%
S&P 500 DIV FINANCIAL IX 7.51%
S&P 500 AUTO & COMP IDX 6.99%
S&P 500 BANKS INDEX 6.92%
S&P 500 MATERIALS INDEX 5.91%
S&P 500 INSURANCE INDEX 5.60%
S&P 500 SEMI & SEMI EQP 5.62%
S&P 500 ENERGY INDEX 5.49%
S&P 500 CAPITAL GDS IDX 5.32%
S&P 500 REAL ESTATE INDX 5.17%
S&P 500 TRANSPTN INDEX 4.75%
GOLD – CLOSING NEW YORK PRICE 1.98%

The massive monetary easing by central banks should have sent the price of gold into the stratosphere.  It has become crystal clear that central banks will continue to create whatever amount of money is necessary to prop up a collapsing, debt saturated system.

Why would central banks collude to restrain the price of gold?  GATA has explored this question in depth and in a recent exchange between Lawrence Williams of Mineweb and GATA, Williams writes  “If one assumes that governments as a matter of course manipulate currency exchange rates, then there is logic in their manipulating the gold price too, as many throughout the world consider gold as money (currency) and a rise in the gold price thus equates to a depreciation in currencies — notably the U.S. dollar.”

Most of the world already suspects that the “emperor has no clothes” when it comes to central bank money creation.  Had the value of gold been allowed to soar hundreds of dollars per ounce today, under free market conditions, the entire crumbling edifice of fiat currencies would have been exposed.

Gold is the only currency that central banks cannot destroy.  If central banks did not suppress the price of gold, the true extent of the debasement of paper  currencies would become blatantly obvious and thereby threaten the entire system of fiat currencies.  Central banks have every motive in the world to suppress the price of gold.  How long they can remain successful at it (as they engage in blatant, massive and world wide money printing) is the question on most gold investors’ minds.

More on this topic:

Where In The World Is The Gold?