Central Bank Intervention In Gold Strikes Again

I woke up this morning with a gut feeling that the precious metals market was about to be hammered on.  After all, we had 3 pretty good days in a row, something which must have horrified the Central Planners.   Gold was up over $1200 overnight until just after London a.m. “price fix.”  Have a look:

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As you can see, from 10:30 a.m. (EST) to 10:45, 2.8 million ozs of gold were dumped onto the Comex.  This forced a rapid $20 price plunge.  There were no apparent news or event triggers.  Zerohedge attributes the hit to the possibility that the Big Banks got ahold of the FOMC minutes early or the latest results from the Swiss gold referendum were leaked.  I say bullshit to both.

The price of gold never rallied on the possibility that the Swiss referendum would pass so why would it get hit if the referendum fails?  I have maintained all along that it will not pass because, regardless of the actual popular vote, the U.S. will work with the Swiss authorities – who openly oppose the referendum – to make sure the vote fails.

Gold was smashed because the sector began to gather momentum over the past 3 trading days and that momentum had to be crushed.  The western paper gold manipulators are getting squeezed by the physical market right now, per the highly negative LBMA GOFO rate:

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The GOFO rate is the cost for a gold/cash swap.  When it’s negative, it means that someone needs to borrow physical gold and will use cash to collateralize the loan.   A negative GOFO rate indicates extreme tightness in the physical gold bar market.  Not surprisingly, the LBMA has announced that it will stop publishing the GOFO rate in January.  Gee, I wonder why..

The GOFO – gold forward rate is -.24 for 1 month.  This is the most negative that it’s been since April 2000.   It’s negative out to 6 months right now, which is rare.  As you can see from the graph above, it rarely goes negative.  The huge spike into negative territory in 1999 was right around the time that Bank of England infamously announced that it was gong to unload 50% of its gold reserves, or 400 tonnes.   This was necessitated by a huge short squeeze in the physical gold bar market.

To put the 80 tonnes of paper gold dumped today into perspective, the latest gold warehouse report shows only 25 tonnes of physical gold classified as “registered,” or available to be delivered.  That’s if you trust the numbers and Ted Butler is the only analyst I know who does.  So more than 3 times the amount of available to deliver physical gold was unloaded in paper form on the Comex in the space of 15 minutes.

As of yesterday, there were still 570 tonnes of December paper gold open contracts (196,083 contracts).  If just 10% of these decided to stand for delivery, the Comex has a problem.  This especially true given the tight condition of the LBMA gold market right now.

So you can see the incentives in place for the Fed/Treasury to attack the gold market using paper.  India, China and Russia are currently removing more gold from the market than is produced every day.  The potential for massive short-squeeze is brewing.

20 thoughts on “Central Bank Intervention In Gold Strikes Again

    1. Different sports … yes …. different rules due to different paradigms. See my other posts in this thread. They is a hybrid forming much like a yin-yang of debt & asset based currency. The two halves of the yin-yang are distinct.

  1. Dave,
    We have heard this time and time again about GOFO rates and Comex open interest and potential failures to delivery. Do you think there is anything about the construct of the market that prevents this from happening? After all, if a big sovereign such as China, Russia, or even a smaller one could pony up a few billion unlevered dollars to take delivery why wouldn’t they? There is a reason this game is not allowed to stop and it is probably because if/when the flow ever stops then the banks are all bankrupt due to their lease obligations and pm derivative exposure. Just a few thoughts on some things that us outsiders would love to know but can never gain access to. Anyway, keep up the great work and hopefully an insider will come out one day and share the real details and inner workings of these markets. For now we can only continue to watch and hope that the charade will end someday soon.
    Thanks for your continued hard work and keep fighting the good fight!
    Michael

    1. Paper is part of the emerging “yin-yang hybrid” of debts-assets. The free floating fiat dollar had to be created (71) before bullion could be properly monetized with its own floating characteristics. The dollar is only a currency on “the dark side” of this emerging monetary yin-yang. The dollar also plays a significant role on the light side where bullion weight (unit of account) acts as settlement, while the dollar (USD/oz. in real-time) plays a measurement role. The dollar’s role as a currency (dark side) has been an “apprenticeship” role for bullion’s larger and more important role (imo) as a real-time measure for debt-free currency.

      It is light that comes out of darkness in the process of creation.

    2. There’s position limits strictly enforced on the long side preventing anyone from busting COMEX by standing for delivery for enormous physical order. No one wants to be a target like the Hunt Brothers

      1. Jason, how do you know position limits are enforced on the long side but not the short side? I have never come across that information before. Plus, the hunts were margined to the hilt while china or russia wouldn’t need to be. Any reference supporting your statement would be most appreciated.

  2. IMO, manipulation is necessary on the basis that I believe we are going to a real-time (floating) market driven gold-as-money standard. This new bullion based standard would be a symbiotic relationship in concert with what we already have with the debt based legacy system (USD). I call it a “yin-yang hybrid”. On that assumption, the rate of change in the process of “osmosis” becomes an all important factor. No crashes please ! If we compare fundamental stability between the two (dark and light) components, debt (dark) is far more vulnerable to any sort of collapse than an asset (debt-free) (light) such as gold. For this reason, gold will often “take it on the chin”. Gold can take it.

    1. The real manipulation is that they manage somehow people to believe in a fraudulent system. The CONeX is a shuffling-gold-certificates-casino (long and short contracts) in sizes so much larger than there is underlying physical metal, and this trading makes the price of the metal. They trade it to make a buck or lose a buck (actually many bucks). But this paper tradingn (which is all it is) is really just to strengthen the fiat ponzi. TADA – that’s it.

      The usual suspects own the books, they own the charts, and they can stop out to the upside, and to the down side as they wish. IMO, today was a classic bear trap… Stop out the newly put on longs, suck in momentum chasers on the “gold is going to 800 any sec now” and once they are in, reverse and kill ’em too. We’ve seen this mostly on the way down the last few years (false breakouts followed by severe plunges), but it works both ways.

      We need a new pricing mechanism. The current system needs to go. Until it does – very quickly when the time has come and China or whoever flips the switch – the shenanigans will continue and the price of gold might go up, or even down to 800. The latter I doubt, that move would probably break them on the physical side. Now that everybody (longs and shorts) are scared, but the shorts are still mostly “in”, I think the easiest for them is to go up in price… But what do I know… I’ve been wrong on the short-mid term more than I’ve been right… LOL.

      Dave, keep up the great work, it’s most appreciated.

      1. Paper gold will likely disintegrate in time. Gold (real weight) can more easily be monetized at that time. Monetization will be weight based with the unit of account being weight. This is why the FIXED peg on the dollar-gold relationship had to come to an end at some point so bullion could become the currency (weight) and dollars could become the real-time measure (floating).

        When the desirable real-time genie was released from the bottle in 1971, the evil debt genie also escaped from the very same bottle. The irony is that it is only the real-time genie that has the one key to putting the debt genie back into the bottle.

  3. > “If just 10% of these decided to stand for delivery, the Comex has a problem. ”

    My guess: there won’t be any delivery. The contracts will just be rolled over to the next months.

    1. Forcing settlement by way of weight delivery is an inevitability and one that will sink the bullion derivative market. This is what comes of the paper bullion market in order to make way for bullion’s real-time monetization where real weight will rule and the USD (by way of the measurement tool of USD/oz) will enter a symbiotic relationship which I call a “monetary yin-yang”.

      The free floating dollar’s creation (1971) has been the forerunner to monetizing free floating gold values in a new relationship between the measure (USD) and the weight (bullion) ….. debt-free ….. in real-time.

      You cannot pour new wine into old wineskins.

  4. Looks like the crooks in charge of the current crooked system are getting very jittery! Putin turned his nose up at the G20 and went home early. His business had already been conducted at the ASAC on November 10 and at the APEC meetings anyway. Now Russia announces that their gold holdings are larger than thought and the Ukraine confirms it’s gold bullion is gone.

    Also on Monday China announced the signing of a free trade deal with Australia, and Sydney becomes a Yuan trading hub bypassing the US dollar in their trade deals, saving them 7% in exchange charges.

    One other thing occurred on Monday, Hong Kong and Shanghai officially linked their exchanges. Making gold and silver that much more accessible. With the December COMEX contracts expiring next Monday and OPEC meeting on Thursday 27th, the fireworks are just getting started!

  5. I’m still expecting one more lower low, but once gold does bottom, there will undoubtedly be a major gold short squeeze that will cause multiple triple digit up days in gold in a very short period of time.

    CAN’T WAIT!!!

  6. Thank you, Dave, I was waiting for someone to say what I was thinking today. 1,180 was so important, and even 1,200 had been passed….it was obvious at that point: either squash it, or step aside.

    They’re just not done.

    I suspect that these folks want to desperately keep the inevitable squeeze you mentioned from brewing just days before the all-important Swiss vote.

    I think today’s action could’ve been a huge tell. At this point, it no longer matters how low GOFO goes anymore. They’re gonna likely “run the clock down, and then spike the ball when the game’s done”.

    Keep hitting hard.
    -WW

    1. “run the clock down, and then spike the ball when the game’s done”

      I think I get what you’re saying, WW, but I’m not entirely certain (I’m something of a dullard at the moment). Could you, or someone else perhaps, shed some light on what is being implied by that statement?

  7. Hi Dave, another great article, but one thing no one ever talks about is exactly *how* the COMEX is allowed to set the “gold price”, I mean, if the number that COMEX reports is just a phony paper number then why do gold producers sell for this price? Especially international producers that have no allegiance to the gold cartel. What exactly links the COMEX gold price and ties it to the price to buy physical gold? Can you cast any light here because it’s something I’ve not been able to find a definitive answer on.

    1. The CEO’s running the biggest gold producers – NEM, ABX, GG etc – are only concerned about maximizing their own pay. To do that they have to generate production to generate revenues. Then they can use GAAP acccounting manipulation to maximize reported net income and maximize their incentive-based compensation. They get paid a big bonus in stock options which they exercise as soon as they can and then dump the shares.

      They don’t care about the price of gold. They only care about maximizing production and revenues given whatever the price is. They are typical big corporate CEO’s. Every big company has high-graded their mines. But by the time the shit quality ore that’s left is being pulled out of the ground, the current CEO will have moved on.

      They are complete scum of the earth.

      1. Thanks Dave, so until those majors are so deep in the hole that their AISC are so far above the “gold price”, the manipulation can continue. We can only hope that it can’t be too far off…

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