Tuesday, April 17, 2012

The Gold Wars

There is a war going on right now between the US Fed, gold investors and Asian central banks. As I've pointed out previously, The US Fed is actively selling gold to keep the price low on a relative basis even as central banks in India and Asia are buying by the ton. In the previous story, linked above, I noted that China was strategically buying gold for their long term goals as the US Fed sells gold for its short term goals.

King World News often reports on the gold market and recently posted an interview with a London gold trader had this to say:

With many global investors still rattled by the price action of gold and silver, today King World News interviewed the “London Trader” to get his take on these markets.  Here is what the source had to say:  “Gold was trashed on Monday, while the Fed minutes essentially said nothing.  When a central bank coordinates that kind of attack, it’s war, of course it’s war.  This type of action is coordinated by Bernanke and the Fed and executed by the bullion banks.  It’s actually laughable if anyone thinks that was a legitimate selloff, on what was, in reality, no news.”
“No legitimate market participants were really selling.  Sure there were some stops that were taken out, but it was the bullion banks that came in with their selling and this was what suddenly created the air pockets.

There is massive sovereign physical buying going on right now.  Interestingly, the sovereign buying is being swamped by paper selling.  Sovereign buyers are aggressively buying tonnage every day at these levels.  You have to remember their goal is to pick up physical and get rid of dollars.  Nothing has changed.  

Interestingly, the Asian buyers have figured out the algorithms, like breaking an enemy’s code in war, and they are using the algorithmic trading to get the best prices each day for physical gold at these levels. The trading is just taking place at lower levels because these bullion banks and the Fed, which manage the price of gold, get overzealous in their price fixing.

But there will be a huge price to pay for their activity.  An incredible amount of physical gold has been promised for delivery and the amount of promised gold is increasing every day.  

Meanwhile, back in the casino, the bullion banks don’t know whether it’s day or night.  But out back there are trucks carting off some of the remaining Western gold to vaults in the East. 

There is very little low hanging fruit left for the paper guys to cover into.  Meanwhile, you have the sovereign buyers who are saying, ‘You know what, this elephant herd has kind of stopped now,’ and they want more physical gold at these levels.  

Every day at the fix, regardless of price, sovereign entities are buying physical gold.  They are averaging in at the fixes, as well as during the declines.  On top of that, there are bids for hundreds of tons of physical gold starting at the $1,610 level and below.  This is why the recent decline in gold halted $2 above that level.  

Regardless, these physical buyers will be purchasing at the fix going forward, even if the price of gold rises.  This is why the smart money, the few individuals and entities that are in the know, continue to accumulate physical gold.  These well financed individuals and entities are buying because they know they will be in profit.  

After ten days of the price being pummeled, after seeing these relentless sell orders come in, day after day, I can understand how smaller players can get demoralized.  Many of these smaller players have been in the mining shares, and while gold has risen $1,000 to $1,500, many of the smaller companies are the same price.  

It’s the same bullion banks doing this to the mining shares.  The same players that are manipulating the price of gold and silver.  The bullion banks are naked short these mining shares in an effort to keep the prices capped.

This is why when you look at the OTC Reports, in the latest quarterly report, there are $150 billion dollars worth of certain derivatives.  These are not futures, options or even swaps.  JP Morgan and HSBC control over 97% of all of the gold derivatives.  When you think about it, this is a mind-blowing number.
So this is a war.  This is actual warfare where the central banks and their agents are targeting sentiment.  You think the Fed and the bullion banks don’t monitor King World News?  Of course they do.  There is a war going on here.  This is a war against gold and holders of gold and the gold shares.  They are being targeted.

The bullion banks are so naked short both gold and silver, and they owe so much physical metal to market participants, that this has become like hell for them.  They are starting to prey on each other.  We are now at the point where these bullion banks are forced to fight a day trading battle each day, sometimes against each other.

We are now to the end game.  The bullion banks are so naked short gold and silver it’s unimaginable.  They owe so much physical metal to market participants and more physical purchases are being scaled in every day.  The sovereign buyers are taking down huge size, we’re talking serious tonnage.  

The bottom line here is the leverage by the bullion banks is extraordinarily massive, and players have to remember, eventually it has to get unwound.  Jim Sinclair recently stated, ‘Overvaluation in the gold market will be something to behold.’  I can promise you, his statement will be proven correct.”
 After this interview was posted on King World News, the site was attacked. GATA reports:

Dear Friend of GATA and Gold:
The King World News Internet site was attacked this week in ways that seemed aimed particularly at the network's revelatory interview April 5 with its London metals market trader source.

The major Internet hosting company that maintains the King World News site reported to the network: "The servers you are hosted on are what we call 'under guard' due to external attack. Sometimes there are millions of these attacks. Without these 'guards' in place, the servers would effectively become flooded and would be unable to display your website."

Eric King told GATA today: "The attacks started when the London trader interview piece was released April 5. The attacks continued and intensified when our interview with Jim Sinclair's futures market analyst, Dan Norcini, was published on April 11. A very powerful entity did not want this information out there."
  King World News experienced a similar "distributed denial of service" attack in March 2010 immediately after it carried an interview with three GATA board members.

According to Wikipedia, a distributed denial-of-service attack "is an attempt to make a computer resource unavailable to its intended users. Although the means to carry out, motives for, and targets of a DDoS attack may vary, it generally consists of the concerted efforts of a person or people to prevent an Internet site or service from functioning efficiently or at all, temporarily or indefinitely."

This week's attack blocked access to the King World News site for some of its readers around the world. After many hours of work by the site's staff, access has been restored.

In a way, these attacks are a tribute to the work done by King World News and the sensitivity of the observations made by the people interviewed there.

There seemed to be a similar denial of service attack on the day of the Leap Year Massacre at which is a blog where gold traders discuss the market in gold.

It would seem that not only is the Fed trying to suppress the price of gold but someone is actively using internet attacks to suppress the free flow of information on the gold markets. I have pointed out before that the media, especially CNBC, seems to be following some directive to discourage gold investment while promoting stock investment. This would be exactly what the Fed is trying to promote through quantitative easing, the artificial increase in the stock market while simultaneously discouraging gold investment. Once again, the Fed believes that a higher stock market increases consumer confidence and encourages people to go out and spend more money.

So the war is on. The question that an investor may ask is: "If both the stock and gold markets are manipulated, which market should I invest? Stocks? Gold? Both? Neither? I would say that if your time horizon is long, ten plus years, you probably want to keep at least some money in stocks, despite the risk that Fed support for stocks may end and cause a crash. Sitting in cash for a long period just means you are slowly losing money every year. Investing in gold will protect you from inflation and may have a huge upside if Fed intervention were to end, allowing the market to move it higher. For investors who are focused more on wealth preservation, a larger position in gold than stocks is probably more appropriate.

The gold wars will rage over the next several years, replacing currency wars (which have gone on for centuries). The Fed is fighting  a short term battle in an attempt to keep the economy afloat during a massive deleveraging in the western world. China, India and other Asian central banks are buying with an eye on the long term. If your goal is to preserve wealth, you should too.

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