News From the "London Trader"

Things are picking up in the markets and you will be seeing more frequent posts here over the next week. I only try to post when I either have something to say or want to point out something important that I have read. Recently there have been a number of things I think are important both to gold and the overall macro economic environment. More physical gold is being bought and delivered to the East, almost certainly including China. Though gold may not be available on the London exchange for delivery, Central banks can use the reduced "paper price" on sell offs to lock in orders from refiners who are backlogged on orders for physical delivery. The following is a description of what's been going on behind the scenes in the last two wild weeks of trading in gold.

Now to the "London Trader".

From King World News:

With many global investors still rattled by the recent price action in gold and silver, today King World News interviewed the “London Trader” to get his take on these markets.  The source told KWN that not only was a shocking amount of paper gold sold in just 4 hours yesterday, but it was also confirmed that the mainstream media is not reporting the staggering amount of physical gold that has actually been purchased by China recently.  Here is what the source had to say:  “China has purchased hundreds of tons of gold in the last couple of months.  China is not disclosing what their true reserves are.  Russia is delaying disclosure and so is Iran.  We saw record gold imports of over 100 tons through Hong Kong to China in April, as reported by the mainstream media, but what has been reported is just the tip of the iceberg.”

The London Trader continues:

“What we've seen is a dramatic acceleration of physical gold purchases as the price has been drawn down. Staggering amounts of physical gold are being purchased.  The acceleration of physical purchases, at these lower levels, is the reason why gold has been holding firm and building such a nice base.  

I want to be very clear about this, in addition to what is being reported by the mainstream media, we have seen hundreds of tons of additional physical gold being purchased by China over the last three months....

 

 

“What happened yesterday in the gold market was very interesting.  One full hour before Bernanke's testimony, the bullion banks started selling.  Over the next 4 hours, the bullion banks sold the equivalent of 515 metric tons of paper gold.  This was in just 4 hours, and again, the selling started one hour before Bernanke’s testimony.  

The selling went on for another 3 hours after the Fed Chairman began to speak, and as I said, over 515 metric tons of paper gold was sold.  During this entire takedown, there was zero physical gold available for sale in the market.  However, this action did create tremendous supply for the Eastern buyers to lock in the spot price of gold.  This will patiently be converted to physical in the coming weeks. 

The real question here is, how could an entity begin selling such a massive amount of paper gold when there hadn’t been any news (starting to sell before Bernanke's testimony)?  

During this coordinated attack on gold, hedge funds and managed money were being forced out of their paper positions.  A large wave of selling entered the paper gold market and traders saw the price of gold drop $40 in a matter of minutes.  So the action was orchestrated by the Fed, and Fed-speak was used to assist in the takedown.  

On the opposite side, the rise we saw last Friday was not a natural rise, it was a squeeze of the hedge fund shorts. After squeezing the hedge fund shorts on Friday and actually getting them to take on some long side exposure because gold took out key resistance levels, they then dropped the gold market like a stone yesterday.  So the commercials are ringing the register at both ends of the tape.  But in reality, what the bullion banks are trying to do is to get out of some of the massive naked short positions that are on the books.

During all of the chaos of the last couple of months, the Eastern hemisphere has been vacuuming physical metal out of the market.  However, supply is very tight out there.  As I mentioned earlier, no physical gold was for sale yesterday during the takedown, just paper gold.  Gold actually went into backwardation, and silver has actually been in backwardation for weeks.  For immediate delivery of gold, in size, we are seeing delays, but silver is extraordinarily backlogged.  

Also, there was an absolutely staggering amount of silver that was purchased by an Eastern buyer three weeks ago near the $27 level.  This order was breathtaking in terms of the size.  It is currently queued up at two refiners, but has been backlogged for the last three weeks and running.  In other words, we are looking at serious backlogs for physical silver.

So as I said earlier, the bullion banks are ringing the register at both ends, while trying to extricate themselves from their short positions in the paper market.  They are attempting to do this before transparency comes in to the market.  They do not want a situation where the aggressive hedge funds actually get evidence that these bullion banks are naked short.  

They are concerned that if it is discovered they are naked short gold and silver, those hedge funds will aggressively target those banks.  This is what happened to JP Morgan, recently, when the London Whale got caught.  As soon as Jamie Dimon was forced to admit a $2 billion loss, the sharks realized they were vulnerable and came in to attack.  That has greatly magnified the size JP Morgan’s loss.  The last thing powerful entities want to see is for this to occur in the gold and silver markets.”