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They are the managers of independent hedge funds. They vie for control over the futures markets with institutions that include some of the largest banks in the world and the hedge funds that are owned or operated by current or former executives of those banks. Both long side and short side speculators at futures exchanges, like COMEX in New York, operate at extraordinarily high levels of leverage. The long side speculators are pure gamblers, as they have no influence over central bank policy. In contrast, their opponents take no gambles at all. They are the big international banks that control the world’s major central banks and finance ministries.
In spite of repeated complaints, the players in “paper gold” market still set precious metals prices. When I speak of “paper gold” I include silver and platinum, because both of those metals are also traded in the form of futures contracts and futures markets also set their prices. The same dynamic is at work, and a large number of gold traders take heavy cross positions in the two other metals. Although there is not a 100% correlation between the metals, cross positioning generally means that when gold goes up, silver and platinum go up also, regardless of the state of the physical market. Indeed, physical market surpluses and/or shortages end up having little to do with precious metals pricing, at least in the short to medium term.
On October 4, 2016, for no apparent economic reason, the paper gold market was suddenly flooded with fictitious yellow metal. This was likely done by the bullion bank divisions and controlled hedge funds connected to those same international banking firms I mentioned earlier. As noted, the “gold” used for this take down is a work of fiction, as it is with all such take downs. It doesn’t exist in the real world. It is purely in the form of paper futures contracts which promise potential delivery of the yellow metal. Exactly how much short selling was required to dislodge long speculators from their positions may never be known, but according to Andrew McGuire, the short sellers managed to “rinse” 1,000 tons of worth of paper gold long positions out of the market.
Those who issue such contracts and the governments that back them know that no more than about ½% of the speculators who purchase gold for “future delivery” will ever actually collect the physical gold. The rest are just heavily leveraged get-rich-quick schemers. Gold dropped like a stone… down $42.80 an ounce, or -3.26%. Similarly, silver was down even more in percentage terms, by $1.01 per ounce, or -5.38%, while platinum dropped by $21 or 2.09%.
By now, some of you may be asking why the bullion bankers can’t force gold down to, let’s say, $800 an ounce or even a lot less? After all, if they can accomplish so much why not go the rest of the way? The US gold reserve is probably somewhat depleted by now, but it once stood at over 8,100 tons of gold, and probably several thousand tons still remain. The answer is simple. They could push gold down to whatever price they want.
They could set prices at $200 per ounce if they wanted to. Or, even less. But, it would last for only a fleeting moment in history. Perhaps, a day or so. Not more. The problem is that setting such a price would trigger an avalanche of physical buying from purchasers all over the world. The end result: the US Treasury would be on the hook to supply thousands of tons of gold within a few weeks. It would exhaust all its reserves within a few months. The result would be that the system bankers have concocted to manage the price of gold would be proven to be a fraud. Massive failures to deliver would multiply though the marketplace. The credibility of the prices set at futures markets would be destroyed forever.
The reason gold prices dropped so dramatically, therefore, is probably as fleeting and capricious as the people behind it. There are two possibilities:
1) The bullion bankers want to temporarily shell-shock markets. This forces widespread involuntary selling that takes the form of margin calls and triggering of automatic stop-loss sale orders. It is easy to shell-shock heavily over-leveraged long side speculators who would be bankrupt as a result of nothing more than a mild price adjustment. Shell-shocking the long speculators would facilitate an escape, on the part of the banks and the hedge funds they control, from a massive collective short position taken over the course of 2016, originally designed to slow the price rise.
But, why now? China is in the middle of “Golden Week”, a week long celebration and time off. Few if any Chinese business executives will be buying gold this week to fulfill China’s burgeoning gold demand. The fact that they’ve chosen to attack prices during a Chinese holiday supports the idea that the bullion bankers simply want to exit their short positions. China is the single biggest physical buyer in the world now, consuming more than twice as much gold as India these days. The timing shows an acute awareness about the dangers inherent in this sort of manipulation, and a hesitation to incur a large loss of real physical gold. Probably, the U.S. Treasury has made them well aware that it is now going to be holding a tight cord around its remaining gold supplies. It also implies that the banks desperately want to exit precious metals short positions before events happen that will cause dramatically higher gold prices. The only way they can do this is by first softening up the market with a shock and awe campaign. This is the most likely scenario driving the manipulation event.
2) Another possibility is that something big and bad is about to happen. Maybe, a big bank is on the verge of failing. The first bank that comes to mind, of course, is Deutsche Bank. Policy makers at the US Treasury and/or the European Central Bank may be afraid that the price of gold is going to skyrocket in the near future. Any time the price of gold rises quickly, it is taken as a vote of “no confidence” in central bankers and finance ministers. The statists, therefore, may want gold to begin its stratospheric rise from a lower starting point, and might be willing to spend some real gold to accomplish it. However, the potential failure of Deutsche Bank, at least in the immediate future, has a lot to do with the size of the fine about to be imposed by the US government. Since policy-makers in the USA have complete control over that, it is highly unlikely that Deutsche Bank will fail in the next few weeks.
The bottom line is this. With Europe’s economy and the Euro currency project near collapse and Brexit likely to cause more pain for the continent than for the UK, the only answer in America has been a commitment to continuing zero percent interest rates. The answer in Japan, China, the EU and elsewhere has been negative interest rates, more money printing or both. All of this supports higher, not lower gold prices. Although the manipulators may try to drive more fear in the hearts of under-capitalized speculators, over the next few days, the downward slide is self-limited.
When China comes back into the market, I believe it will be the US Treasury that will have to backstop the bankers if they keep this up. It will be forced to pay out a huge tonnage of gold to support the corrupt bankers. As illustrated in the novel, “The Synod”, there is a natural struggle between Treasury officials and the banks over this. In spite of the fact that most were once employed by the banks directly or indirectly, and hope to cash in, at some future point in their careers from those relationships, there is still concern over dwindling gold reserves. Basically, that means that lower gold pricing cannot last very long, though this decline may or may not go a bit further.
Although the average Chinese worker is on vacation, the top executives at the Chinese central bank probably are not. They will be buying gold. So will the Indians, the Vietnamese, and many others. This manipulation event is almost certain to end the moment China’s Golden Week ends, which will be on Friday. While that is the maximum time, my suspicion is that it won’t last so long, because the cost that the U.S. Treasury must bear will be too high. It is wiser to force the banks to lose money on the short positions, and then to bail them out with easily printed cash, or indirectly, through nearly zero percent interest rates on long term loans, than to continue to lose large quantities of what is an ever-dwindling supply of yellow metal.
Now is a major buying point… an opportunity for purchasing real gold at a discounted price.