NOTE: This piece has been edited at 1:53 a.m. on Saturday April 7, 2011. I removed all direct quotations from the source piece after we were notified by King World News that they objected to our use of their material. Notwithstanding the fact that my piece is an editorial on their commentary, and at all times directly quoted material was appropriately credited back to their web-page, I have removed quoted sections but the links still are below.
The other day I posted a piece titled “Stop It! There Was No Manipulation In The Gold Market Today” and in it I highlighted commentary from the likes of Jim Sinclair and Peter Schiff, almost right on cue explain that gold and silver sold off that day as a result of manipulation and not the FED comments. I urge you to read that post to save me from copying everything again into this post. Most of my readers already know what was said in there.
What I also said that day was the following:
Here’s one thing you can be sure of though, within the next 24-72 hours Sinclair’s and Schiff’s words will be echoed by countless other gold bugs who lack the vision to do their own homework. My money is on Eric King’s un-named “London Trader” coming out of the woodwork within the next 24-72 hours to tell us that today’s selling in gold was a manipulated event and on how the Chinese were swallowing up all the gold being sold during today’s “orchestrated” sell-off.
I don’t mean to brag, but, if you read the script enough times you get a feel for what the news flow will be like from the pages of Eric King’s site. Just as I said would happen, today we heard from the un-named “London Trader”. My views on this have been posted in the past. In my March 8, 2012 piece I specifically wrote about why I have a hard time believing unnamed sources. Nothing has changed.
So without further adieu and as per the script, Eric King’s un-named London Trader came to bat today telling readers what I told them he would be saying. You can read the piece from his source claiming that the “Federal Reserve’s global war on gold is escalating”. (His words not mine) I urge you to read the piece first.
If the statements within the piece don’t make you chuckle a bit then really, you need to get out more often. Are we to believe that The Federal Reserve now monitors King World News to gauge sentiment so it can hammer gold? Really? Stop!!!
Let’s dissect this foolery shall we? If you notice, this “London Trader” echoes Jim Sinclair’s commentary almost exactly. As I expected this London Trader would, he had to mention the fact that “out back there are trucks carting off some of the remaining Western gold to vaults in the East”. I told you he/she would mention that the Chinese were stepping up to the plate to buy the West’s “unwanted” gold. But wait, if the shenanigans were paper based, where did the physical bullion come from? Oh, and if the Chinese were waiting with orders for “hundreds of tons of physical gold starting at the $1,610 level and below”, why stop the bleeding at $1,610? Any professional trader who wants anything in size and is bidding for it knows that the when the market goes south, you go “no-bid” which means you PULL your bids and place them much lower than the market. If the Chinese were smart they wouldn’t have stepped in at $1,610…they would have pulled their bids and gone lower where according to this trader, many more bids were waiting. I find it hard to imagine that the selling stopped $2.00 above the $1,610 level because there were orders for hundreds of tons of gold below that level. Really, when you are talking about $1,610 or $1,612 does it really make any difference if you feel that gold is headed to $4,500 as Jim Sinclair prognosticated?
But wait, the war has now spread to mining shares! No longer is the cartel attacking the bullion market but the attack has spread to mining shares that according to the London Trader are now getting manipulated by the gold and silver cartel. Is he/she serious? Can I chuckle now? Feel free to take a smoke break if you feel the need to shake your head with me in disbelief. How dare they touch our mining shares!
I used to believe this stuff. I really did. Just go back to my earlier posts and note that I often quoted these same sources. However, as I have previously noted, something clicked in me. The script seemed too contrived. These accusations only flew out when the metals had down days. The Cartel was “losing the war” on up days. What makes you think the “cartel” wasn’t massively long on the up-days? Why was it that nobody was crying foul on the green closes? People, if the price of anything can be manipulated downward it can also be manipulated UP. Don’t you agree that it is reasonable to state that if there is manipulation to the downside then manipulation to the upside also exists? If you don’t think so then stop reading right now because nothing anyone says is going to open your eyes. Save your time and go catch an episode of Jesse Ventura’s Conspiracy Theory.
Here’s what really turned my crank though. We knew what the London Trader was going to say and we knew he would come out of the woodwork within a couple of days of Sinclair’s commentary. We knew China would be referenced and we knew that this trader was going to continue to mention that serious tonnage was being moved. I did not expect him to carry over his thoughts on a “precious metals war” to the mining shares though. But where his London Trader is wrong is implying that last Monday was a “non” news event day.
I cannot be more emphatic about this point. Gold and its baby brother, silver, have both risen on the massive amounts of money printing that has been going on. Quantitative easing has often been used as a primary argument for the permabulls when talking about how both meals would fly to the stratosphere because of the massive liquidity that the Federal Reserve has injected into the system. Market participants therefore listen to the Federal Reserve minutes to obtain clues about the policy decisions that are being contemplated.
IF the Federal Reserve had emphatically stated “We are looking at injecting further liquidity into the system” (easing) you can rest assured that this news would have been front and centre on every permabull site as THE reason why gold and silver would now fly higher. You can also be guaranteed that the gold and silver markets would have taken off like a rocket ship and that I would have been at my local bullion shop buying as much as I could afford as well. However the Fed didn’t say that. They made no mention of any further intent to inject liquidity into the system. THAT WAS THE NEWS. The naive assumption that Monday’s Fed minutes constituted a no news day is absurd. The fact that the Federal Reserve made no mention about further easing was the news that market participants used to sell the gold that they bought in anticipation of additional easing.
I pointed this out in other posts when Dallas FED president Fisher hinted that further easing was simply a Wall Street fantasy. Yet, investors seemed content on believing what the permabulls preached and bought gold and silver on speculation of further easing. Speculators chose to buy in anticipation of news instead of waiting for news. When they didn’t hear what they wanted to hear, they sold and stops were hit along the way. This is not unlike speculators purchasing shares in a pharmaceutical company because they think their new miracle drug will get FDA approved. When that approval doesn’t materialize, the shares sell-off. There are no pharma-cartels manipulating the stocks of pharmaceutical companies. Instead, speculators dump when they don’t get the news they speculated would arrive. This is not unlike a junior mining company whose shares sell-off when they release poor drill results.
In that sense, the gold and silver markets didn’t sell-off because of manipulation but because over zealous speculators gambled on the wrong news. So you see why the London Trader is wrong; Contrary to his/her views, There was news last Monday if you chose to look for it.. news that implied that there would be no additional easing in the immediate future unless market conditions deteriorated first. What is laughable is that he/she considered Monday a non-news day. Why was it acceptable for the gold and silver markets to rally a week earlier when Bernanke praised Federal Reserve policies and had his words misconstrued to mean that he was ready to announce QE3? Those very same people who bought into the wrong interpretation of his comments were the ones that sold when he made no such comments in the minutes. I pointed this out to readers on that date but speculators went off on a gold buying spree only to be disappointed on Monday.
As I have mentioned before, gold and silver will rise when news of additional liquidity injections occurs or when it is speculated to occur. You can’t use the argument to support a hypothesis as to why the gold market will rise and then ignore the very opposite argument when no further liquidity measures are activated and the price of gold falls.
I remain of the view that we will see additional easing in one way shape or form if the market conditions warrant it. I am not saying there won’t be any more central bank action. I will assess the news at that time though and make my decisions then. “Speculating” on news is exactly why the market sells off when they don’t hear the news they gambled on hearing. It doesn’t sell off because the bullion banks want it to because remember, there is nothing stopping the bullion banks from running up the prices of the metals by going massively long, leaving the shorts in the dust.
To end I will simply say that I expected KWN to pull the London Trader out of the hat but for this trader to say that Monday was a non-news day is absurd. To say that the bullion banks have now launched an attack on the mining shares is even more absurd and to imply that China was ready to buy gold by the truckloads if it hit $1,610 but didn’t at $1,612 is laughable. Again, what difference is two dollars or even ten at these levels if the price is headed to $4,500? They were heavy buyers in the $1700’s weren’t they?
There is manipulation in every market in one way shape or form but please, I am getting tired of hearing the same old arguments every time the market acts the way it is supposed to act when it doesn’t get the news it expected.
All of them, Sinclair, Schiff, Turk, Sprott, Embrey, the fine folks at GATA and many more that I won’t name are very bright individuals. However, there comes a point when arguments that are well intended start to come off as absurd. Don’t think for a moment that just because these conspiracy opinions are being repeated almost verbatim every time gold has a down day somehow makes those statements any more true.
For heaven’s sake just look at the math. Gold rose from $250.00 to over $1,900 an ounce. Silver rose from under $10.00 to over $48.00 an ounce. If we are to believe that the bullion banks are supressing the price of the metals and manipulating the market then by gosh they are doing a horrible job given that gold has been the best performing asset over the last 10 years. Think about it … A manipulated market that is accused of being “supressed” does not rise 675% in 10 years or in the case of silver, over 400%. Gold has been the best performing asset this past decade but not for the reasons you are being led to suspect. Fire everyone at JPM and HSBC for their horrible efforts!
As I pointed out to a loyal reader the other night in reply to a comment, these opinions are my own. I acknowledge this fact 100%. You can chose not to listen to me just as you can freely choose to listen to the permabulls. However, bear in mind that unlike 99% of the permabulls, I have nothing to sell you. I am bullish longer term but not because of any conspiracy.
Gold and silver will rise longer term because of the actions of the Central Banks around the world. Inflation will drive them both higher IF we don’t get a massive deflationary event first. However, never be afraid to question sources, no matter what their expertise is. Just like I am never right, neither are these so-called experts. I will be buying physical metal when the prices reach a point where I feel they are a good buy or when I feel that the threat of really significant inflation is upon us. So far, the dollar death is nowhere closer to reality than it was when it started making headlines on all the permabull sites 4 years ago. How many times has Sinclair or Bob Chapman warned of an “event” coming up in a week or two with time passing and such an event never materialized? How many times have you heard that there will be a bank holiday next month according to a “source” over the last 4 years? How many have we had? See my point?
By all means, own gold and silver in your portfolios as I do … but buy it for the right reasons. Until the facts prove otherwise, cash still remains king because it is the only instrument by which I can purchase my necessities of daily living. We may all hate fiat but last time I checked, I can only feed my family and fuel my car if I use it. Buy some gold and silver and put it away. You will be happy in 10-15 years. Too many investors though have bought into the “I must own it now” crowd because they have bought into the notion that the end of the fiat world is upon us … just as it was 4 years ago.
I might have more to add on this tomorrow. Right now it’s late and quite frankly, I want to relax on the couch and catch some highlights from Baseball’s opening day. It has been a very long day for me just as it was for my Toronto Blue Jays who today won the longest extra innings game in opening day history.