Can Western Central Banks Continue Capping Gold At $1350?

“Shanghai Gold will change the current gold market with its ‘consumed in the East but priced in the West’ arrangement. When China has the right to speak in the international gold market, the true price of gold will be revealed.” – Xu Luode, Chairman, Shanghai Gold Exchange, 15 May 2014

The price of gold has jumped 5.8% in a little over 3 weeks. This is a big move in a short period of time for any asset. Two factors fueled the move. The first is the expectation that Central Banks globally will revert back to money printing and negative interest rate policies to address a collapsing global economy. The second factor, more technical in nature, pushing gold higher is hedge funds chasing the upward price-momentum in the Comex and LBMA paper gold markets.

The gold price was smashed in the paper gold market on Friday right as the stock market opened. 9,816 Comex paper gold contracts representing nearly 1 million ozs of gold were thrown onto the Comex in a five minute period. This is more than 3 times the amount of gold designated in Comex warehouses as available for delivery and 28% more than the total amount of gold held in Comex vaults per Friday’s Comex warehouse report.

Judging from the latest Commitment of Traders Report, which shows the Comex bank net short position growing rapidly, there’s no question that Friday’s activity was an act of price control. Furthermore, it’s common for the price of gold to be heavily managed on summer Fridays after the physical gold buyers in the eastern hemisphere have retired for the weekend. The motivation this Friday is the fact that the gold price had popped over $1350 on Thursday night. For now $1350 has been the price at which price containment activities are readily implemented.

The price of gold is most heavily controlled just before, during and after the FOMC meeting. The next meeting begins tomorrow and culminates with the FOMC policy statement to be released just after 2 p.m. EST. The event has become the caricature of a society that takes official policy implementation seriously. This includes the journalistic and analytic transmission of the event, which is literally a Barnum and Bailey production.

It seems the number one policy goal of the Fed and the Trump Administration is to keep the stock market from collapsing. But the Fed has very few rate cut “bullets” in its chamber to help accomplish this policy directive. Moreover, a study completed by the Center for Financial Research and Analysis showed that the S&P 500 Index fell 12.4% in the first six months after cuts started in 2007. The drop broke a post-World War II record decline of 9.5% set in 2001, when the Fed’s previous series of rate reductions got under way. Declines in the S&P 500 also followed moves toward lower rates that began in 1960, 1968 and 1981.

This suggests to me that the Fed will have to start printing more money. The only question  is with regard to the timing.  Judging from the steady stream of negative economic reports – a record drop in the NY Fed’s regional economic activity index released today, for instance – it’s quite possible the printing press will be fired up before year-end.

The rapid price rise in gold from $700 to $1900 between late 2008 and September 2011 was powered by global Central Bank money printing and big bank bailouts. We know money printing is on the horizon. But so are bank bailouts – again. The curious and highly opaque announcement that Deutsche Bank was going to create a “bad bank” for its distressed assets, which are losing half a billion dollars annually, suggests that the German Government and/or ECB is prepared to monetize DB’s bad assets while enabling the bank’s basic banking and money management business survive on its own.

This is just the beginning of what will eventually turn out to be a period of epic money printing and systemic bailouts by Central Banks in conjunction with their sovereign lap-dogs. Only this time the scale of the operation will dwarf the monetization program that began in 2008. The price of gold more than doubled with ease the first time around. In my mind there’s no question that the $1350 official price-cap will fail. At that point its anyone’s guess how high the price will move in U.S. dollars. But the price of gold is already breaking out in several currencies other than the dollar.

8 thoughts on “Can Western Central Banks Continue Capping Gold At $1350?

  1. I follow the gold market for years now on a daily basis. The market reaction after price smashes is remarkable. Gone are the days when investors or traders panicked. They take the daily price manipulation almost like a natural phenomenon. Like rain or wind. The extreme market intervention of the price manipulators served as an instruction for the investing public on how prices for precious metals are kept down. It is like the St. Valentine’s day shooting of the mob in Chicago of 1929. The only difference is that this was a special event whilst the “gunning down” of precious metals by this mob happens every day. The only reason why gold did not skyrocket until now is the stock market. Investing in an ever higher cajoled equity market was seen as more profitable for the Wall Street crowd. This is changing now. The recession is coming and the stock market will fall. According to Morgan Stanley, the world is already in a recession ( Where will the big money go? Bonds are in a bubble. If you include the cost for hedging against currency losses, most government bonds produce negative yields. There are only precious metals left as a medium (3-5 years) to long term (5-10 years) safe haven. With never-before-seen appreciation potential.

    Will the Cartel be able to cap gold at $1350? No. This is like trying to stop the Niagara Falls with an umbrella. This will become apparent in the next couple of weeks. I reckon that cold will be above $1500 this time next year. It could be above $10000 if only five percent of global investments went into gold.

    1. You forgot Buttcon and all the other craptocurrencies, they were invented to steer funds away from phaysical gold.

      As long as their prices go up and the pictures of sparkling golden metal discs with B$ embossed on them are published, more crowds of suckers will exchange USD via ripoff “exchanges” for apparent ownership of a few electric charges in a digital computer memory.

    1. That and other chart “patterns” may be entertaining but have as much predictive value as tossing a coin or examining parrot- cage droppings. There was another big “cup and handle” a couple of years ago and it was a huge nothingburger.

      If TA had an iota of predictive capability, dozens of hustlers wouldn’t be trying to hawk TA systems on the internet, they would already be stinking rich. And hedge funds wouldn’t be shutting down in masses.

  2. Not so much bailouts this time as bail-ins. That’s confiscation of depositor’s money. Most people don’t know they are unsecured “investors” when they put money in a bank. The FDIC, in theory, has you covered. Last I saw, the FDIC has about $40B set aside to cover minimally, $5 T in deposits. Do the math.

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