The Gold Meltdown - Gold Futures Come Unglued While Individuals Buy The Metal - Granite Grok

The Gold Meltdown – Gold Futures Come Unglued While Individuals Buy The Metal

A huge selloff in Gold futures occurred on Friday (ZeroHedge.com)
A huge selloff in Gold futures occurred since Friday. (Chart: ZeroHedge.com)
As central banks continue to print fiat currency like crazy, amid a competitive devaluationary race to the bottom (currency war), you’d expect regular commodities to cost more in terms of paper money (inflation), regardless of bogus government statistics telling you it ain’t so. And most of us have noticed the necessities of life are costing more and more.

burning-moneyYou’d especially expect gold and oil to appreciate noticeably in terms of paper currencies, but that’s only true up to a point – the options markets in both commodities outweigh the amount of physical gold or oil traded each day and, contrary to all the fuss about speculators, usually work to stabilize prices.

Helicopter Ben_BernankeHowever, if a big enough actor were to dump gold futures, the price would plunge, helping to mask the fall in the value of paper money – a strategy which works right up to the point when it doesn’t. We already noted that central banks had been leasing out increasing amounts of their supposedly sacrosanct gold reserves, resulting in “fractional gold“.

Now imagine that they want to cover up a bigger than normal printing spree – if you were Helicopter Ben, wouldn’t you arrange for a shady hedge firm to dump gold futures, causing a selling panic by those buying gold on margin?

What's up with the Gold Meltdown?
What’s up with the Gold Meltdown?
To give you an idea of how big the dumping was, the initial round – INITIAL – was 3.4 MILLION ounces (100 tonnes), worth over $5Bn! This initial dump spooked investors on margin, leading to a total meltdown on the order of 13.4 Million ounces (400 tonnes, more than $20Bn), or about 15% of annual mine production. This action caused a 13% drop in the price of gold, and has the temporary effect of making the dollar look stronger but….

The wise middle class of India, the scared pensioners of Japan, and national actors looking to put real reserves behind their strengthening currencies (China, Russia, Germany, and more) are buying physical gold while Western central banks are dumping futures, or leasing out their gold. In other words, the Fed and friends are creating an artificial discount for the buyers. This cannot end well – what happens when the Fiat money kings run out of gold to sell, or when the lease holders ask for physical possession?

Stop Press – Wise Americans don’t believe the low price of gold is its true value – ZeroHedge.com reports we are buying like crazy:

According to today’s data from the US Mint, a record 63,500 ounces, or a whopping 2 tons, of gold were reported sold on April 17th alone, bringing the total sales for the month to a whopping 147,000 ounces or more than the previous two months combined with just half of the month gone……

[Note] that the US mint charges a hefty premium for purchases: much more so than traditional vendors like Apmex or Gainesville Coins, and is usually the last resort for when nobody else has any physical at a lower premium to spot (or any metal in inventory).

Here’s a couple of quotes, mostly via ZeroHedge.com, but with several different origins:
Paul Craig Roberts, Former Assistant Secretary of the Treasury (via King World News)

The exchange value of the dollar is (being) threatened, and if that collapses the Fed loses control over interest rates. Then the bond market blows up, the stock market blows up, and the banks that are too big to fail, fail. So it’s an act of desperation because they’ve got to establish in people’s minds that the dollar is the only safe place, it is the only safe haven, not gold, not silver, and not other currencies.

And to help protect this policy they have convinced or pressured the Japanese to inflate their own currency. The Japanese are now going to print money like the Fed. They are lobbying the ECB to print more. So I see this as a dollar protection policy…I know where the gold is coming from in the market, it’s just paper. It’s naked shorts, there is no gold there. If somebody wanted to take delivery on those contracts nobody would be able to provide it. I don’t know what the source of the (physical) gold is…

Dr Roberts also told King World News that physical gold inventory is shrinking fast.

James Howard Kunstler at TheBurningPlatform.com sees a concerted effort to drive gold down against the dollar:

….Anyway, the 500-ton all-at-once dump could only be calculated to drive the price down. Any rational strategic sale of so much gold would be parceled out in smaller amounts over time so as not to drastically impair the sales revenue, as this sale did. And, by the way, who even has the roughly $25 billion holdings in paper gold besides a major government, a major central bank, or one of the Fed’s Too Big To Fail handmaidens (Goldman Sachs, JP Morgan, Morgan Stanley)? Or who could afford to eat the $billion-plus loss on the smacked-down sales value? In other words, the usual suspects.

I hate the term The Powers That Be, with its odors of recycled paranoia and lumpen extremism, but signs of collusion abounded last week. First, on Wednesday, Goldman Sachs issued an advisory to short gold as the price flirted with $1600/oz. Then on Thursday, The New York Times planted a front-page story headlined: “Gold, Long a Secure Investment, Loses Its Luster.” The story featured a quote by supreme market manipulator and world-class schmikler George Soros: “Gold was destroyed as a safe haven, proved to be unsafe,” Mr. Soros said in an interview last week with The South China Morning Post of Hong Kong. “Because of the disappointment, most people are reducing their holdings of gold.”

Also from Kunstler, noting that Chicago Mercantile Exchange had reduced the necessary margins on gold futures a few months ago…

Soon after [the margin reduction] 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 [baddies] go – they fit the bill nicely

No orchestration here – just Goldman Sachs, The NYT, and George Soros serving the vested interests of the Fed – Nothing to see here… These are not the manipulators you were looking for… move along, please.