How the Gold Market Was Crashed – But Most Importantly, Why? Leveraged Default? And Silver?

Many are still sorting through the data to try and figure out what happened, but it is hard to look at the available data and the market action and conclude that the recent ‘flash crash’ in gold was anything but a calculated takedown.

Some big players had been trying to work the market price of bullion down in stair step fashion for some time.  Their tracks on the tape were big enough to be hard to miss, and any number of people who watch the market structure as it develops were seeing them, and a few were reporting what they saw.

But it just wasn’t enough.  The pressures were building, and something had to be done.

A plan for a market operation to relieve the pressure was made, and then executed ahead of the upcoming option expiration on the Comex on April 25th.  The word was quietly spread so the important monied interests would not make a fuss about losses when the time came, as in the case of MF Global and Cyprus.

And then Goldman gave the signal to the market with their ‘short gold‘ call.

As I said at the time, I was not sure if this was done to try and avert a disaster, or to cover up some longer term corruption. Or perhaps a bit of both.  Motives are never easy to discern where leverage and opaque trading pools are involved.

This could be in advance of a major announcement out of Europe with regard to the Eurozone and also their monetary policy following along the lines of Japan.  Perhaps it is even something regarding US policy.  Obviously one has to have an open mind about that.

But there were persistent rumours of a potential default situation at both the LBMA and the Comex. Well, one has to take those with a skeptical eye.  But there are some data that point to the LBMA in particular, although the drawdown of bullion from the two exchanges could have been more general.

Linked just below is a report that includes more data and it well worth reading. It tends to concentrate on the Comex.

How the Gold Market Was Crashed.

It seems that the word has gone out to the media and the stories are being spun to protect the system.   And the parrots dutifully pick up the chatter, without knowing why.

The story being spun that there was a speculative excess in gold being held by pension funds that panicked.   Foolish people, outsiders really, got over their heads and caused this regrettable incident.

There is probably a grain of truth in that, but I think it is more likely that they were forced out of their positions by a market operation designed to do just that.  And market insider knew exactly what they were holding.

Price declines caused by legitimate selling and panicked longs are not marked by increasing open interest. That is the hallmark of short selling with a purpose.

This is a big deal, and it was writ large across the media.  And that suggests that there is an equally big problem that had to be dealt with quickly and brutally.  Ordinarily market operations are more adept and protracted.

Something was close to breaking, and it most likely still is.

And if it broke, it would prove to be embarrassing to quite a few very important people.  At least, that is what this situation suggests to me.

Even the endlessly levitating stock markets seem a bit ‘edgy’ with a tension on the tape.

I cannot possibly know what is at the root of this.  Can’t find Germany’s gold, and can’t buy enough at the LBMA to deliver it, because the market is leveraged 100 to 1?

Maybe not that but something of that magnitude.  A major TBTF tottering on the brink of a derivatives domino collapse? There are rumours out of Switzerland about Italy and France.

Most eyes are on the States, but how quickly we forget that ABN/Amro declared a force majeure and stopped all physical delivery of bullion, forcing settlement in cash.  The soft default of a major bullion bank is no joke, especially when it appears they could not obtain suitable goods at any price.

This tends to point towards problems in Europe and the LBMA.  And one of the big sources of LBMA 400 oz. qualified gold is the big SPDR Gold ETF, GLD which is stored by HSBC in London.  I have included a chart of who tends to use 400 oz. bars below.  The COMEX does not.

As you may recall, Andrew Maguire reported early on that there were indications of problems on the LBMA with regard to gold inventory.  It is said to be leveraged 100 to 1.

“Entities went to the LBMA and said, ‘We don’t trust anybody anymore. We want our physical metal.’ They were told they would be cash settled instead by a bullion bank. The Western governments have been trying to plug holes, and the reason for it has to do with the default that was taking place at the LBMA.

This is why this smash has been orchestrated because of the run that has been taking place on physical metal. So Western governments had to do this because of an imminent run on the unallocated LBMA system. The LBMA bullion banks had become so mismatched at one point on their trading positions vs real world demand that they had to orchestrate this smash.”

The ‘entities’ in question are again just rumour, but they are most likely to be from the Mideast or Asia.    They could be a central bank, or even an ETF for that matter.  But the size was said to have been substantial, and untenable for withdrawal without a severe market disruption given the leverage on which the LBMA operates.  100 to 1 leverage is no joke when the drawdown is physical and available supplies are tight.

If you have not picked it up, the implication in this theory is that the big price declines allowed some non-allocated repositories, like GLD for example, to disgorge delivery ready bullion to the LBMA for delivery to the entity that had demanded delivery.

And something like this might not be a singular event.  People talk, and if one entity got nervous and took delivery that information cannot be kept from other sizable players in the same circles.  And so others step up and ask, and there is the threat of a run.  And it could be happening in more than one place, ie not just the LBMA.  Hence the decline in inventories at the Comex referenced above.

JP Morgan holds enormous derivatives positions in the precious metals not reported anywhere in detail except occasionally in the OCC report.  If something were to perturb the markets, it would almost certainly affect them.

And recall that the outrageous excesses of the ‘London Whale’ were not uncovered by regulators, but rather by market participants who reported JPM to be distorting the market because of the size of their position.  And the OCC is having a bit of recent notoriety from overlooking irregularities (some say crimes) to protect the banks.  So keep that in mind.

Changing the subject, if you wish to get a bit more baroque, gold may have been a necessary misdirection with the real target being silver, which hardly anyone is talking about, even the house economists and spokesmodels for the status quo.

Keep an eye on stocks and the markets.  The big money always moves first, because they get to know what is happening first.

But I have to remind you, your guess is as good as mine.   It is an opaque market, and it has gotten worse and not better, despite all the show of ‘reform.’


Celente – Powerful & Destructive Big Bank Holiday Coming

Today top trends forecaster Gerald Celente warned King World News that people around the world need to brace themselves for a powerful and destructive “big bank holiday,” which he now predicts will happen this year.  Celente, who had correctly forecast back in 2012 that a bank holiday would occur in Europe, is the founder of Trends Research and the man many consider to be the top trends forecaster in the world.

Eric King:  “Gerald, earlier you mentioned a ‘big bank holiday,’ what do you mean by big bank holiday?”

Celente:  “Look at what’s going on in Italy, they don’t have a government yet.  It’s been going on for two months (in Italy).  Look at their debt/GDP ratio.  It’s approaching 130%.  How are they going to pay off this debt?

Look at what’s going on in Spain, Portugal, Greece.  Those are the bigger bank holidays (that are still to come).  They called a bank holiday in the United States in 1933.  That’s not ancient history.  And what did they do?  They devalued the dollar.”

Eric King:  “Is that what you see eventually happening here?”

Celente:  “I can definitely see it happening….

“Remember, they warned about it before, and that’s after spending trillions of dollars in bailouts and nothing has improved the economy.  The money has only gone into the hands of the ‘too big to fail.’

You can see the gap between the rich and the poor has widened.  You can see that personal incomes continue to decline.  You can see job creation declining.  So yes, I can see a bank holiday, particularly if there is a false flag or real geopolitical incident that they can then use as an excuse for a bank holiday.

When you go back to the 1930s, it didn’t happen in one day.  There were runs on the banks in Michigan first.  Cyprus may be the Michigan of 2013, the test case.”

Eric King:  “As we move toward the end game, what does it tell you about where we are in the cycle?”

Celente:  “It tells us that we are getting closer to it.  As I said, you are seeing the slowdown in job creation.  We are seeing mortgage applications falling.  So even with record low interest rates you are seeing job creation declining, mortgage applications falling, and growth in unemployment claims.

So the end game is coming quick.  There is only so long they can keep pulling this off.  I believe that by the time the new year comes the game will be over.  You know what happened to me with MF Global:  My money was in a segregated account.  They stole it.  Now they call it a ‘haircut.’  Isn’t that wonderful?  They call it a haircut when they steal your money.

Read More

Gold – No Inflation. Dr. Bernanke

GOLDThings are seldom what they seem,
Skim milk masquerades as cream;

H.M.S Pinafore.

In the US economy according to Dr. Bernanke, all’s well in the world of QE forever. “I don’t believe significant inflation is going to be the result of any of this,” Dr. Bernanke  said in a speech yesterday at the University of Michigan, referring to the Fed’s new policy of pumping in 85 billion a month of new money, created out of thin air by the magic of the Fed. But then he would say that, wouldn’t he. Just imagine if he blurted out, “I do believe significant inflation is going to be the result of this.” Stock markets and the bond market would collapse, gold, silver and crude oil soar, as shocked investors tried to get out of to be depreciated dollars, and into anything with a tangible asset value.

But the Great Doctor then went on that the “worst thing Fed could do would be to hike rates prematurely.”  In other words, assuming a trillion a year of QE money creation from nothing actually works as intended, and gets a sustainable recovery underway in America, an assumption that hasn’t worked anywhere on the planet so far, as the US economy picks up and banks start lending again, and as inflation also picks up as all the new money starts chasing a limited supply of tangible goods and assets, the Fed will be slow to try to rein in inflation.

At best, the Dr, Bernanke is implying that the Fed will tolerate a new “normal” higher rate of inflation going forwards, than the old normal for the era 1945-2000, excluding the notorious 1970s. From the low single digits to the high single digits, or worse, the low double digits. Anyone who lived through the notorious 1970s knows only too well what happens under double digit inflation. Those who have bargaining power use that power to force through inflationary wage increases, those lacking bargaining power become downwardly mobile in lifestyle. Those at the bottom on fixed incomes, but lacking large savings, like many if not most pensioners, get forced into choices like food or heat, food or rent, moving to where the cost of living is lower. And this is under the best scenario, where inflation runs only in the high single digits or low double digits.

At worst, the Fed loses control and a great unstoppable inflation breaks out, as everyone tries to cash out of depreciating fiat currency. Vast pools of hot speculative money rush into commodities of all descriptions, “certain” that next month’s prices can only be higher. But commodity prices don’t only go up. Profit taking bouts cause them to implode at times, making planning for many firms next to impossible. MF Global’s and new Lehman’s appear, as leveraged gambling isn’t a one way street. As we all now know all too well from the MF Global scandal, multiple re-hypothecation of the customer funds means that no customer funds are safe.

For most in society, the economy becomes one vast scary, unfathomable nightmare.  Note that this is not yet hyperinflation, where paper money almost becomes useless. Hyperinflation is highly unlikely in the USA given its ability to feed itself without imports.  Given all the new money creation going on in Europe, China and Japan, the inflation when it hits will be global, though each nation and trading group will experience local variations.

But the prospect of the return of much higher inflation from mid-decade, does allow the prudent time to reduce exposure to the Fed’s fiat money creation. For most that process involves swapping some paper savings for holdings of physical gold and silver, located safely but firmly under your own control. MF Global proved that even holding fully paid up bullion in a US brokerage house didn’t offer any protection.

For those without savings or only tiny savings the future looks distressing. Unlike Europe, very few in North America have had any need to own physical precious metals until very recently. In Europe, with all its wars and devaluations, that wasn’t the case. The wealthy there have always maintained a gold core, usually in Switzerland. Dr. Bernanke has signalled that the Fed will be slow in dealing with inflation, once it reappears on that side of the Atlantic. There is no reason to think that the European central banks or the Asian ones will move any faster than the Fed. Yesterday, Dr. Bernanke was tipping off the well-heeled that it is time to begin starting to move.

Jan. 14, 2013, 5:56 p.m. EST
Bernanke downplays inflation risk of QE3
Worst thing Fed could do would be to hike rates prematurely

Copyright © 2012 ProEdge Media Corp. All rights reserved. More & Disclaimer »