In the wake of the decimation of gold in the futures market this week, Darryl Schoon gives a very interesting and reasoned argument as to what the cause of the fall was. Of particular interest is how it came hot on the heels of reported shortages in gold stocks…
GOLD AMBUSH AT THE COMEX CORRAL
Goldman Sach’s prediction of $1200 gold is similar to Hitler predicting the Reichstag fire
Prediction is an art. Heisenberg’s Uncertainty Principle is as operative in the realms of the unknown as well as in the known. But, sometimes, predictions are a slam-dunk such as the large number of put options placed on United and American Airlines in the days prior to 9/11 through Alex Brown Deutsche Bank, an investment unit with close ties to the CIA’s Buzz Krongard.
Note: Alex.Brown’s former Chairman, Buzz Krongard, was appointed Director of the CIA in 2011. Buzz Krongard’s successor, Mayo Shattuck III, who oversaw the purchases of the 9/11 puts resigned from Alex Brown Deutsche Bank on 9/12. For the story of the 9/11 puts, see Mark H. Gaffney’s series in the Foreign Policy Journal, Black 9/11: A Walk on the Dark Side.
In January 2013, analysts at Goldman Sachs predicted gold would fall to $1200. That Goldman Sachs would make such an apparently lucky out-of-the money prediction given the recent ambush of gold at COMEX wasn’t luck at all. Like 9/11, the COMEX ambush was planned and executed with military precision.
In his article at Sharps Pixley, Gold Crushed by 400 Tonnes of $20 billion of Selling on COMEX, former gold trader at NM Rothschilds & Sons and Credit Suisse, Ross Norman, describes how the ambush was carried out:
The gold futures markets opened in New York on Friday 12th April to a monumental 3.4 million ounces (100 tonnes) of gold selling of the June futures contract (see below) in what proved to be only an opening shot. The selling took gold to the technically very important level of $1540 which was not only the low of 2012, it was also seen by many as the level which confirmed the ongoing bull run which dates back to 2000. In many traders minds it stood as a formidable support level… the line in the sand.
Two hours later the initial selling, rumoured to have been routed through Merrill Lynch’s floor team, by a rather more significant blast when the floor was hit by a further 10 million ounces of selling (300 tonnes) over the following 30 minutes of trading.
This was clearly not a case of disappointed longs leaving the market – it had the hallmarks of a concerted ‘short sale’, which by driving prices sharply lower in a display of ‘shock & awe’ – would seek to gain further momentum by prompting others to also sell as their positions as they hit their maximum acceptable losses or so-called ‘stopped-out’ in market parlance – probably hidden the unimpeachable (?) $1540 level.
The selling was timed for optimal impact with New York at its most liquid, while key overseas gold markets including London were open and able feel the impact. The estimated 400 tonne of gold futures selling in total equates to 15% of annual gold mine production – too much for the market to readily absorb, especially with sentiment weak following gold’s non performance in the wake of Japanese QE, a nuclear threat from North Korea and weakening US economic data. The assault to the short side was essentially saying “you are long… and wrong”.
Futures trading is performed on a margined basis – that is to say you have to stump up about 5% of the actual cost of the gold itself making futures trades a highly geared ‘opportunity’ of about 20:1 – easy profit and also loss! Futures trading is not a product for widows and orphans. The CME’s 10% reduction in the required gold margins in November 2012 from $9133/contract to just $7425/contract made the market more accessible to those wishing both to go long or as it transpired, to go short.
Soon after we saw the first serious assault to the downside in Dec 2012, followed by further bouts in January 2013 – modest in size compared to the recent shorting but effective – it laid the ground for what was to follow. One fund in particular, based in Stamford Connecticut, was identified as the previous shorter of gold and has a history of being caught on the wrong side of the law on a few occasions. As badies go – they fit the bill nicely.
GOLD STOCKS AVAILABLE FOR DELIVERY WERE FALLING
Sandeep Jaitly’s Gold Basis Service confirmed that gold and silver were in ‘escalating’ backwardation prior to the COMEX ambush on April 12th. This means that physical supplies of gold and silver were becoming even tighter when the attack on the gold price began.
A failure to deliver by COMEX has been delayed though not averted by last week’s action. The paper money cartel is trapped in a fight to the death, its death. The ambush of gold at the COMEX corral is but their desperate attempt to extend their ponzi-scheme of credit and debt for a few more years.
THE USUAL SUSPECT: GOLDMAN SACHS
While the fund in Stamford Connecticut may have placed the $20 billion worth of gold shorts but, if they did, it is far more likely they acted as the agent of far-larger entity such as Goldman Sachs which had months before predicted gold would fall to $1200.
Goldman Sach’s January prediction of the fall of gold reminded me of an after-dinner conversation I had a few years ago in Europe. The conversation was with a gold trader at a major European bank and the topic of conversation was gold.
Gold had been falling for several days and I remember his excusing himself the previous evening and saying quietly, “I think it’s time to buy gold”. The next morning the price of gold began moving higher.
What he told me during that evening’s conversation bears repeating, especially after what has happened. He said that he had been watching gold’s movements in real time when a highly anomalous event caught his attention, the bid price of gold had been followed not by an equal or higher ask price but by a lower ask price and, as he watched, the price of gold began to fall.
He said he began watching for this anomalous trade and discovered when it occurred, it was always followed by lower ask prices which meant gold was being driven lower. The source of the anomalous lower gold ask price was always J. Aron & Co., the commodities trading arm of Goldman Sachs.
Note: Lloyd Blankfein, Goldman Sach’s CEO, worked as a precious metals salesman at J. Aron’s London offices before going to Goldman Sachs in New York.
TIME OF THE VULTURE GOLD STAGE III
In 2007, in my book, Time of the Vulture: How to Survive the Crisis and Prosper in the Process, I wrote:
AN ECONOMIC INSURANCE POLICY
FOR A COLLAPSING ECONOMY
THE TIME OF THE VULTURE
AND THE FIVE STAGES OF GOLD
- STAGE 1: THE SUPPRESSION OF THE PRICE OF GOLD Central Banks collude with investment banks and gold mining companies to force down the price of gold.
- STAGE 2: THE PRICE OF GOLD MOVES UPWARD Gold begins to rise, doubling in price even as Central Banks fight its rise.
- STAGE 3: THE PRICE OF GOLD BECOMES INCREASINGLY VOLATILE The price of gold is subject to increasing highs and lows as large investment funds move in and out of gold as global economic uncertainties wax and wane, a sign that gold is increasingly a haven in uncertain times.
- STAGE 4: EXPLOSIVE ASCENT IN THE PRICE OF GOLD A crisis results in a monetary breakdown which drives the price of gold to never-before-seen highs. Investment capital floods towards the safety of gold. Central Banks capitulate.
- STAGE 5: THE PRICE OF GOLD STABILIZES The crisis recedes and order begins to return to the markets. Though losses are substantial, a new order based on new realities slowly begins to emerge.
When I was writing Time of the Vulture: How to Survive the Crisis and Prosper in the Process gold was in STAGE 2. The price of gold was then $650. Today in April 2013, gold is now in STAGE 3 where THE PRICE OF GOLD BECOMES INCREASINGLY VOLATILE The price of gold is subject to increasing highs and lows as large investment funds move in and out of gold as global economic uncertainties wax and wane, a sign that gold is increasingly a haven in uncertain times.
The recent 20% fall in the price of gold indicates we are currently still in STAGE 3. STAGE 4 with its EXPLOSIVE ASCENT IN THE PRICE OF GOLD is next. When STAGE 4 happens is anyone’s guess as prediction is always an uncertain art—unless, of course, you’re Goldman Sachs.
Regarding STAGE 4’s eventuality, I wrote in Time of the Vulture:
When allied troops stormed the beaches at Normandy, it was the beginning of the end for Nazi Germany. But between Normandy and Berlin was a great distance in miles, blood, and time. So it is with the battle between paper money and gold.
Paper money had its day as did Nazi Germany. During the expansion of the 1980s and the boom times of the 1990s, it appeared that paper’s triumph was complete, and gold an outdated relic.
Indeed, from 1981-2000 and especially so between 1996 and 2000, paper was the unquestioned victor. In the late 1990s, the price of gold was but ¼ of what it should have been. Only its most ardent believers and supporters had faith that gold’s day would come.
GOLD’S DAY IS ALMOST HERE
In my youtube video below, The Collapse and Emergence of Eras, I discuss the collapse of the present economic paradigm and the better world that will replace it. These are momentous times. The volatility of gold is an indicator that far greater changes are in motion than merely the price of precious metals.
Buy gold, buy silver, have faith.
Darryl Robert Schoon