Something Going Haywire In Gold Markets

Below is a chart of spot gold prices today.



My reaction:
I have been tracking spot gold prices for a while, and today is the first time I have seen price action like this. Gold had three sharp swings today. I have seen two swings before, but never three.

Something is going haywire in the gold markets. The end of paper gold must be getting near.



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While on the subject of gold, Jim Sinclair responded to one of my blog entries by reporting that the demand side of gold will carry the day.

(emphasis mine) [my comment]

Demand Side Of Gold Will Carry The Day
Posted: Mar 25 2009 By: Jim Sinclair Post Edited: March 25, 2009 at 12:47 pm
Filed under: General Editorial


Dear CIGAs,

Has it ever struck anyone that 1.1 billion dollars
[1.1 billion = market value of 1,209,600 ounces of gold] in today's world is chump change? When the time comes, demand for gold will smash through a modest one point one billion dollar hole "in the dyke" wall of a quadrillion plus dollar problem.

You are giving the supply side of gold banks too much credit when it is the demand side that will carry the day.
[but ]

Spamming the question below everywhere might well be in support of gold bank sales, knowingly or inadvertently.

Eric, spam this if your intentions are really supportive of gold.

If you received what is below but do not get what is above from the same source one question is answered.
[Meaning here is slightly unclear...]

Who shorted gold after fed's announcement last week?

by Eric deCarbonnel

Open interest in COMEX gold increased by 1,209,600 ounces in the two days following the fed's announcement last week. Can anyone explain to me who in their right mind would short gold following the fed's plan to double its balance sheet?

More...

My reaction: I agree that the demand side of gold will carry the day. However, Jim Sinclair is also worried that by highlighting strange action in gold futures open interest, I am "knowingly or inadvertently" supporting those who wish to see gold prices stay low. I disagree. I believe that highlighting increasingly strange developments in paper gold markets, as I am doing right now, accelerates the day where gold demand will shift to the physical market and panicked investors will make a run on paper gold

Currently, the majority of gold demand is still absorbed by paper gold (futures, unallocated gold, GLD, etc...). While theoretically unlimited, in reality the supply of paper gold is constrained by the limits of credulity. In other words, as short positions grow in gold derivatives relative to the underlying supply of gold, their credibility shrinks. The biggest threat to those manipulating gold is this loss of faith in their paper product.

Right now, those on the short side of gold are being overwhelmed by demand and are being forced to intervene in blatant and obvious ways to cap prices. Examples of this desperation and loss of control include the large increase in open interest in COMEX gold after the fed's announced its huge balance sheet expansion and the price action in gold today. They are evidence that paper gold is in the process of breaking down.

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Some past entries on gold suppression:


Blatant Silver Manipulation And Regulators Who Won't Regulate

More Details On Gold Suppression By Central Banks

How Governments Manipulate the Gold Market


Risks in owning GLD

Warning about Perth Mint Gold Certificates

Avoid Unallocated Gold Certificates


*****Preview of 2009's Gold Rush And Dollar Panic*****

A Look at Central Bank Gold Reserves

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27 Responses to Something Going Haywire In Gold Markets

  1. m says:

    Eric, do you have any comment on this article:
    U.S. Injecting Billions Into Foreign Central Banks

    http://www.huffingtonpost.com/2009/03/17/us-injecting-billions-int_n_175454.html

    Thanks for your site! Although I have to admit I'm still practicing wait and see. I hope the shit doesn't hit the fan all in five minutes!

  2. Maybe this has something to do with the crazy gold price?

    Arkady Dvorkevich, the Kremlin's chief economic adviser, said Russia would favour the inclusion of gold bullion in the basket-weighting of a new world currency based on Special Drawing Rights issued by the International Monetary Fund.

    Chinese and Russian leaders both plan to open debate on an SDR-based reserve currency as an alternative to the US dollar at the G20 summit in London this week, although the world may not yet be ready for such a radical proposal.

    Mr Dvorkevich said it was "logical" that the new currency should include the rouble and the yuan, adding that "we could also think about more effective use of gold in this system"

  3. Russia has become the first major country to call for a partial restoration of the Gold Standard UK Telegraph

    Think Russia is in on the agenda? I wish I could fast forward 3 months into the future.

  4. Bowtie says:

    When I first read his article I sat there confused for about 5 minutes. How can anyone reading your blog think that you want gold prices to remain low?

  5. Mark says:

    Most probably unrelated, but does someone know why machinery sales exploded during 2008? (even in Q4!)

    http://www.census.gov/csd/qfr/view/qfr_mg.pdf

  6. Numonic says:

    Today was a great day to by some silver. I did. Thanks for the cheap silver CFTC :) Oh and I bought physical at a coin shop who keeps their price close to the spot price. I'm not in paper at all, strickly physical bullion. And the smallest sizes (only 90% silver dimes).

  7. Gary says:

    Or it could mean that those who suppress the gold price still have plenty of arm and can bring the high hard fastball when needed...

    Having said that, I don't approve of it. However, if they can apply an endless supply of derivatives and are bankrolled by the Fed, they won't go down easy.

    No matter, if you think the system is doomed (as I do), you're better off holding physical gold than anything else, regardless of price. That is, as long as you have enough paper money to live your life.

  8. Anonymous says:

    People (especially Jim Sinclair) talk a lot about gold. However, I like silver even more. I have a lot of physical gold and silver and their mining stocks.

    Another hedge against hyperinflation could be oil. If we buy USO but there are supply disruptions for geopolitical reasons, what would happen to our USO stocks? I am afraid of counterparty risk involved with USO. Anyone has an explanation for me?

    Thanks!

  9. Gary says:

    FWIW, for oil exposure, I like U.S. energy trusts which pay me to wait. I own CRT now and have owned PBT in the past. There is no counterparty risk and no debt. IMO, this is a safe way to play oil.

    Having said all that, my CRT position got creamed today...

  10. Anonymous says:

    Eric, how about something explaining sdr's

  11. Bowtie says:

    Numonic:

    Great minds think alike, I bought 40 silver american eagles last night, haha. I own a good amount of 90% silver coins. I stopped buying those types of coins because I think that people will not think that those are real silver, and that they are only worth the same as every other clad coin. The silver american eagles at least say 1 oz. fine silver. Although, on the flip side its very unlikely the 90% silver would ever be confiscated and the 1 oz silver might.

  12. m said...
    Eric, do you have any comment on this article:
    U.S. Injecting Billions Into Foreign Central Banks

    Yes, I have writen about this before:

    *****European Banks Desperate To Avoid Recognizing Losses On Their 8 Trillion Us Holding*****

    Thanks for your site! Although I have to admit I'm still practicing wait and see. I hope the shit doesn't hit the fan all in five minutes!

    I will probably happen pretty fast, so be ready.

    -----

    Keating Willcox said...
    Maybe this has something to do with the crazy gold price?

    Arkady Dvorkevich, the Kremlin's chief economic adviser, said Russia would favour the inclusion of gold bullion in the basket-weighting of a new world currency based on Special Drawing Rights issued by the International Monetary Fund.

    Possibly, I might do an entry on that later.

    -----

    Joshua Farquharson said...
    Russia has become the first major country to call for a partial restoration of the Gold Standard UK Telegraph

    Thanks, I might do an entry on that later. on making an entry on that story later.

    -----

    Bowtie said...
    When I first read his article I sat there confused for about 5 minutes. How can anyone reading your blog think that you want gold prices to remain low?

    I was a little confused too.

    -----

    Mark said...
    Most probably unrelated, but does someone know why machinery sales exploded during 2008? (even in Q4!)

    No idea. I will look into it if I find the time.

    -----

    Numonic said...
    Today was a great day to buy some silver.

    Good to hear.

    -----

    Gary said...
    if they can apply an endless supply of derivatives and are bankrolled by the Fed, they won't go down easy.

    Agreed, it will be messy.

    -----

    Anonymous said...
    People (especially Jim Sinclair) talk a lot about gold. However, I like silver even more.

    both are good.

    -----

    Anonymous said...
    Eric, how about something explaining sdr's

    I will put it on my to do list.

  13. Numonic says:

    Bowtie don't worry about confiscation of any kind and the 90% silver is easily defined by the date as all the dimes/quarters/halves pre-1965 are 90% silver. Plus there are other ways to tell the difference between 90% coins and the copper coins we use today: sound, look, weight etc.

    Plus in a hyperinflationary environment you want to be holding the smallest fractional pieces you can because say you only want to spend $2,000 and the smallest piece you have is a 1oz coin and it's worth $5,000. You would have wasted $3,000 because by the time you figure out what to do with that $3,000 prices would have risen too much for you to be able to use it. You won't want to be holding cash at all because every second it would be loosing a tremendous amount of value. When I by my silver i have this mind set. I think as if I'm already in the hyper-inflationary economy because I am only I see it while some still don't.

    As far as people's silver supply goes I think people's silver supply should be greatest to smallest from the smallest size to the largest size. Meaning i think they should have allot of small size silver(grains, 90% silver, 1 oz to 10 oz silver) and few large size silver(anything greater than 10 oz silver).

    Check out this article and video on the new California gold rush. People panning for gold like in that Zimbabwe panning gold for food video.

    The New California Gold Rush

    http://www.nbclosangeles.com/news/local/NEW-CALIFORNIA-GOLD-RUSH.html

    And I have advice for all those who think they can't afford silver or gold right now. If you think it's hard for you to get silver and gold now, I want to let you know that it will be a heck of allot harder when the prices of the metals and everything else start rising. Start making the sacrifices now because you're going to have to make the sacrifices anyway only if you wait until later, you will be making allot more sacrifices than you would right now.

    But the good news is that the reason the prices of things will be more valuable is because the production of those things will be more valuable. Jobs will be rare so working will become more valuable. You will be getting paid good money for what you do if what you do is necessary to those holding the gold/silver. And jobs that will be necessary will be jobs like farming. So you can either sacrifice now or prepare to be a farmer in the near future. I don't expect the silver I hold to make me rich and have to never work again because if all i do is spend my silver and not work to get silver, my silver will run out but at least having it now will smooth my transition from the change in the economy. You can't avoid the sacrifices and postponing the sacrifice until later only makes the sacrifice greater. So sacrifice now instead of later.

  14. Anonymous says:

    how exactly would a basket of commodiities work? seem like it would be quite comlicatrd. hey eric how about making your own basket and show us how it coild be done? would the commodities have to be stored? would it have to be acxtivly managed (sell some corn one day buy it back the nextday) to maintain value?

  15. now at 917...why not higher?

  16. Yesterday gold and silver markets clearly show 2 signs:
    1. Blatant government sponsored manipulation of the markets with by primarily political agenda (G20). These spikes accompanied by media clowns "news" releases from Fox, CNN, Bloomberg and Reuters. Strawmens like Peter Schiff were involved earn their salaries too.
    2. This time manipulation was international, both London and NY and include silver markets too (well shorted by JPM and HSBC).
    3. Despite all poms and us taxpayers money spent, the fight was tight and the manipulator is loosing the ground, as gold price drops less than 1% compared more than 3% in DOW, S&P.;
    Even more that the silver gave the people opportunity to buy in. gold/silver ratio indicates the inevitable US social-economic doom.
    (As you now the silver is 5 times rare than the gold and have more industrial use).
    Conclusions: expect more manipulations this week until G20 end, then the markets will be freed a bit and your gold and silver holdings will pay off. The scenarios of the Dow equal to the ounce of gold price are looking more likely ;)
    Those who don't want the new and fair world currency will pay in Renminbi (swaps are already more than 500 bln, and the US turkeys will pay in Mongolian tugriks ;)

  17. Mudar says:

    Dear Eric;

    Could you please give us and idea of both the SDR’s & IMF projected selling of gold?? Would that affect the gold prices up or down??

    Thanks

    Mudar Dudin

  18. Bowtie says:

    Hakuna Matata:

    "Strawmens like Peter Schiff were involved earn their salaries too."

    Can you expand on that?

  19. http://www.nakedcapitalism.com/2009/01/so-why-is-journal-sort-of-defending.html
    http://seekingalpha.com/article/106824-being-wrong-for-five-years-makes-peter-schiff-right-now
    Peter Schiff's speciality is to lure scared sheep investors into the bears slaughterhouse, portraiting as a wise/commonsense saviour. He is a tramp clown on Murdoch's payroll.

  20. interesting piece on Fox news 10:15 Tuesday, suggesting that it has been more than 50 years since an independent audit. of Fort Knox.

    why always with the Goldfinger theme???

  21. KD says:

    Eric,

    What does this mean? Does this mean DB registered yesterday to take delivery of 850,000 oz. of Au?

    I just want to know if I’m reading it correctly. Thanks.

    http://www.cmegroup.com/trading/energy-metals/files/delivery.pdf

  22. Numonic says:

    I don't know about you all but I want silver to be cheap right now. I'm buying right now and when you're buying you want what you're buying to be cheap. Especially since I know that the free market will win over the manipulated market and the price of silver will sky rocket in value.

    http://www.youtube.com/watch?v=FywT-txGuss&feature;=player_embedded

  23. Bowtie says:

    Is this guy out of his mind? I'm not ready for silver to go up, i only have a few hundred ounces.

  24. Numonic says:

    The funniest thing in the world is how all this talk is going on about how govt.'s are looking to move to precious metals as their currency or the world reserve currency. Talk about riding the bandwagon. Look, gold can not work with a banking system. Defaults would happen way too quickly as the banks create more certificates for the metal than the supply of the metal as they always do, even when they promise not to. If you put your gold in a bank, you might as well kiss it goodbye. And it's even more funny how these central banks and govt.'s of the world think that after world wide defaults that people will still be putting their gold/silver in banks. Ha! These people can't admit that the system of letting someone else hold your money for you is dying and will die with the massive defaults that are coming because default is death to the banking system, especially world wide defaults. The time is coming when the only one that knows where your money is is you. And the money will be gold/silver as we'll experience massive defaults between now and that time. And during the time of those massive defaults borrowing costs and thus consumer prices will rise extremely high driving people to hold things that are (durable, portable and rare = gold/silver) so as to avoid being wiped out.

    The craziest thing in the world that i realized that all these gold/silver bugs(Peter Schiff, Jim Rogers etc.) get wrong when they say we shouldn't be printing/doing these bailouts because it devalues the currency is that the truth is that it is the massive printing of the currency right now that is keeping the currency strong(yes strong!) and that if we weren't printing the currency as much as we have durring this credit contraction, prices of everything(except debt/the stock market) would be rising high. If we were not printing the currency like we currently are right now, months ago the stock market would have crashed to 0, gas would be like $100/gallon and gold would be like $50,000/oz and rising right now. These guys who are against these bailouts and quantitative easing have it backwards but it's understandable because basic economics says if you massively increase the supply, the value should go down but this credit crunch and massive $1 quadrillion deleveraging changes that. The position they take against these bailouts and quantitative easing would make sense if we were not experiencing a credit contraction but the credit contraction changes the effects of printing more currency. The massive printing going on right now is in fact what is keeping the dollar strong as this massive printing is slowing the credit contraction, keeping borrowing costs and thus consumer prices from exploding higher.

    But this can only slow the process for so long, soon(before this year ends) the contraction will pick up speed and slowing it will require trillion dollar bills to be implemented in the QE. At that time we'll witness massive defaults/bank runs as the printing will not be able to keep pace with the deleveraging as it is barely doing it now(evident by the continuous decline in the stock market and worsening of the credit crunch/economy) and looses the race as time is going on. The race will end before this year ends and the deleveraging will win.

  25. Bowtie says:

    Numonic:

    I think you have the most interesting view of this meltdown, but I can't wrap my head around it. I mean I get that there is a massive de leveraging, and so even if the fed prints money its only replacing the lost value. The way I understood this was as a ratio of monetary base to m1. during the boom the monetary base was something like 800 billion, and the m1 multiplier was about 1.6. The fed doubled up on the base to 1.6 trillion, but the current m1 multiplier is only 0.9 . The way that inflation would take place is when we return to the boom cycle the m1 multiplier will return to 1.6, meaning that m1 will be 1.6 times 1.6 trillion instead of 800 billion times 1.6. I mean I think the only reason we don't have hyperinflation right now is because of the de leveraging, once the banks can leverage themselves again we'll have massive inflation.

    Are you saying that the bailouts are keeping banks and creditors from losing their asses on shitty investments and therefore they can continue to make loans at 5%, /continue to make credit cards available? If the banks could not make loans at 5%, but instead had to make them at 20%, wouldn't that make dollars more scarce and more valuable?

  26. Numonic says:

    Bowtie I'm considering the ratio of the Monetary Base(# of printed Federal Reserve Notes) to all the derivatives and debt(to these Federal Reserve Notes), which is in the hundreds of trillions of dollars.

    "I mean I think the only reason we don't have hyperinflation right now is because of the de leveraging, once the banks can leverage themselves again we'll have massive inflation."

    By "massive inflation" I'm sure you mean massively high prices.

    To digress a bit after we've printed our way out of debt and tried to return to easy credit again, we'll fail and credit will be crunched again but not by massive debt this time but by banks who realize that all this new money is eating up all the supply of everything and prices will be rising so high so fast that it will be discouraging to loan money out because by the time you get it back it will be worth nothing. So easy credit is gone forever. Right now the culprit stopping easy credit is the debt(the fact that banks don't have money to lend out), later(after we've printed our way out of debt) people(banks) will be the culprit behind stopping easy credit as it will be a loss to loan out money "easily" because prices will be rising so high so fast that when the loan is paid the money will be worthless.

    And one key point: Before we reach this point of having paid off the debt we would have to have larger bills in circulation as we can not print $100 bills anywhere near as fast as this $1 quadrillion debt deleveraging/credit contraction can take $100 from the money supply. These larger bills will not stop the credit contraction like I just explained above. Right now credit is tight because of insovency, after we've printed our way out of debt, credit will be tight because of too many Federal Reserve Notes causing extremely rising prices. But key point is that we can not stop the credit contraction with $100 bills. Larger bills must be implemented in the Quantitative Easing or we face massive defaults. And even with larger bills I still expect massive defaults.

    Now back to what I'm saying, and where I stand.

    I believe that it will not take the end of the deleveraging or credit contraction and return to lending for us to see extremely high prices. Why? Because the credit contraction is so large(especially without the printing of bills larger than $100) that the govt. will fail at trying to stop defaults. There will be massive defaults. Defaults will lead to higher borrowing costs. Higher borrowing costs will lead to higher prices as businesses tap in to those remaining people who can still afford non-neccessities(this big attack on the rich). You are witnessing it as we speak. The huge attack on those getting bonuses, this Obama administration telling the rich to give more. Only when the rich get poorer, the poorer get poorer. As prices rise to tap the rich people's pockets, those less wealthy will be wiped out. And even if they taxed all the rich for all they had, it would still not be enough to stop the credit contraction. Besides it's not about people's bank accounts, it's about the currency: Federal Reserve Notes not being enough for the debt but this tax on the rich is like a restriction to the rich to use those Federal Reserve Notes which they(the govt.) needs to try to stop this credit contraction. They(the govt.) needs every Federal Reserve Note that they can get to keep in the banks to keep the banks solvent. They would love for everyone to just sit back and never withdraw another penny from the banks as the banks need the currency desperately which is why they are keeping Treasury Bond Yields so low. They don't have money to pay out with a high treasury yield, that's why they keep it as low as it is. And they know it wouldn't matter if the whole world bought treasuries because the credit contraction is more money than that. So they couldn't care less about getting money from Treasury Bonds which is why they are not raising rates. And higher prices will not entice them to raise rates either if the credit contraction is still going on because they'll need every penny they can get to feed this $1 quadrillion beast. They will not be able to pay back the larger interest rate on the Treasury loan if they are using every penny they have to try to stop this credit contraction. So that's why I believe we'll have higher prices and the Treasury Bond Yields will still be low. Prices will be higher because of higer borrowing costs and the fact that we still have people who can afford the non-neccesities. Businesses will see these well to do people as a market to survive on, maybe not for long but for longer. And they will raise prices to get money from these people to keep their business alive longer.

    There you have it, higher prices while the credit contraction is still alive.

    Scarce Federal Reserve Notes, does not mean that FRN will increase in value. You have to recognize how the debt deleveraging effects borrowing costs, thus prices of things and thus the value of the FRN.

  27. Numonic says:

    The reason I say the more they print the stronger the dollar goes back to what I said before about how the dollar has to maintain a balance to the debt. If there are too little dollars compared to the debt, prices will rise through borrowing costs and this is a devaluation of the dollar. If there are too many dollars in comparison to the debt, the dollars would eat up the supply of everything and prices would rise and this is a devaluation of the dollar. So there can't be too many dollars nor too little dollars otherwise prices will rise thus devaluing the dollar. Right now we are facing too little dollars and the govt. is printing like mad to stop this. We are no where near the too many dollars mark. The govt. doesn't want too many dollars, it just wants enough dollars but in order to get out of the too little dollars zone we have to print like crazy and if we succeed(which I doubt we will without larger bills than $100's being printed) as soon as we get out of the too little dollar zone, we will immediately enter the too many dollars zone. The too many dollar zone is in relation to the production of things. the too little dollar zone is in relation to the debt. Both of these zones mean higher prices for things. There has to be a balance, a middle ground for the dollar but the debt is so large that the amount of dollars we need to get out of the too little dollars zone will put us in the too many dollars zone.

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