Central banks stand ready to lease gold in increasing quantities should the price rise. – Alan Greenspan, 1998 in Congressional testimony on OTC derivatives
Gold has been in a steady uptrend since December 18th, bottoming at
$1131 after a four and half month price correction. Firmly back over
the 50 dma, the price momentum appears to be a threat to the “bullion”
banks who suppress the price of gold in the paper derivatives market on
behalf of the western Central Banks and, ultimately, the BIS.
The banks must feel threatened by the recent activity in both
physical and paper gold trading. This morning the price of gold was
attacked in the Comex paper market after St. Louis Fed-head, James
Bullard, delivered remarks about interest rate policy that should have
propelled the price of gold higher:
“We think the
low-safe-real-rate regime is unlikely to change in the near term. This
means the policy rate can also remain relatively low over the forecast
horizon”
(link).
Instead, the Comex was bombed with paper:
At 9:54 a.m. EST, 3,927 April gold futures contract (paper gold) was
dropped on the Comex. Prior to this, the the average number of contracts
per minute since the Comex had opened was under 500 contracts. This is
11.1 tonnes of paper gold which hit the Comex trading floor and
electronic trading system in a 60 second window. It represents
approximately 30% of the total amount of gold the Comex vault operators
are reporting to be available for delivery under Comex contracts –
dumped in paper form in 1 minute.
This reeks of fear. The western Central Banks have grossly
underestimated the eastern hemisphere’s appetite for physically
deliverable gold. Despite an attempt by the BIS to mute India’s demand
by restricting the availability of cash in India’s banking system,
India’s current demand is robust and will likely increase as Indian’s
now have cause to fear the Indian Government’s war on cash.
In addition, China’s demand for gold seems to be accelerating. Based
on Swiss export numbers, 158 tonnes of gold was shipped to China in
December. Far higher than the numbers presented by “official”
organizations tracking gold flows. Current premiums to the global
market price of gold on the Shanghai Gold Exchange are running in the
low teens. So far this week well over 100 tonnes of gold have been
delivered onto the SGE. Except for the PBoC, all gold distributed
inside China must first pass through the SGE.
The western Central Banks will have a problem if the price of gold
begins to take-off, as they will lose control of their ability to
control the price using derivatives. Perhaps in addition to the
standard price containment operation on the Comex this morning, the
attack on the price of gold in the paper market was in response to Eric
Sprott’s comments on King World News yesterday:
“There’s no doubt about it if they (investors) keep
coming in and buying that kind of tonnage. At some point they will look
inside at what little gold is left in the Western vaults and say, ‘No
mas. We can’t keep doing this at the rate that they are buying tonnage
because we will run out of gold.’ And if they see that they are going to
run out of gold in a year or so, when do they raise the white flag? I
have told you many times that the Western central banks have been making
up for the imbalance in term of supply and demand by dishoarding their
gold hoard surreptitiously”
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Dave Kranzler spent many years working in various Wall Street jobs. After business school, he traded junk bonds for a large bank. He has an MBA from the University of Chicago, with a concentration in accounting and finance, and graduated Oberlin College with majors in Economics and English. Dave has nearly thirty years of experience in studying, researching, analyzing and investing in the financial markets. Currently he co-manages a precious metals and mining stock investment fund in Denver and publishes the Mining Stock and Short Seller Journals. Contact Dave at dkranzler62@gmail.com.
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The author is not affiliated with, endorsed or sponsored by Sprott Money Ltd. The views and opinions expressed in this material are those of the author or guest speaker, are subject to change and may not necessarily reflect the opinions of Sprott Money Ltd. Sprott Money does not guarantee the accuracy, completeness, timeliness and reliability of the information or any results from its use.
