This chart shows steady buying
interest that took price from the low at 955.00 on July 14th to 985.00 the next
day. The buying took place in Asia, then Europe, and carried over for about an
hour in New York, when suddenly, in the space of minutes, an unseen entity
dumped gold in the form of futures contracts (green line), without any attempt
to obtain the best price possible. In about 5 minutes the gold price was down by
15.00, and the rise was over, as price drifted sideways for the rest of the day.
It was discovered later that
several large banks, suspected to be HSBC and JPMorgan Chase and possibly one
other bank, had switched from being ‘net long’ 5,381 gold contracts at the
beginning of July 2008, to being ‘net short’ 87,609 gold contracts by the end of
July. That is a 94,000 contract ‘turnaround’ and smacks of blatant interference
in the market place, since these banks do not produce gold, nor are they likely
to be hedging against that much gold in the vaults, since they do not own
physical gold. Such a dramatic switch without any change in fundamentals is
Featured is the daily gold chart
from October 13th. The blue line shows steady demand followed by consolidation
early Oct 14th as recorded via the red line. Then a mysterious seller showed up
shortly after the COMEX began trading in New York, and in the space of minutes
the price was knocked down by 30.00. This is totally illogical, since the seller
has no interest in obtaining the best price. His only interest is to destroy the
“In 1980 we neglected to control
the price of gold. That was a mistake.” Paul Volcker.
“Central banks are ready to lease
gold, should the price rise.” Alan Greenspan during Congressional testimony July
Featured is the price action right
after the COMEX began trading in New York on October 16th. Within a few minutes
the price was knocked down by 35.00 (green line), after price had established a
solid trading range between 830.00 and 850.00 during the previous two days (red
and blue lines). This illogical dumping of gold contracts caused margin related
selling to bring the price down another 15.00 before bargain hunters were able
to level the price around the 800.00 mark.
These are just some of the examples
of ‘irrational behavior’ on the part of several large traders on the COMEX,
whose actions are not being controlled by the people who oversee the COMEX.
While this article deals primarily with gold, the same manipulation exists in
the silver markets. To repeat an earlier comment, ‘millions of investors
(including miners), have lost billions of dollars because of the manipulation’.
The US government is able to interfere in the markets by way of the Exchange
Stabilization Fund which is run by the Federal Reserve and the Treasury
Department. The size of the manipulation referred to in this article could not
take place without the encouragement that is very likely provided by people who
are highly placed in government.
Cause and effect.
The effect of this manipulation in
the gold and silver markets is an artificial low price. In view of the fact that
bullish events are not being allowed to permit prices to rise, nevertheless
these events will eventually have a positive effect on the price. The cause is
real, but the effect is delayed. The steam in the kettle continues to boil,
despite the lid being clamped down. The artificial low price stops the
development of mining projects that would have been profitable at the higher
price. The artificial low price also cuts into profit margins at every producing
mine, making it more difficult to obtain funding for exploration to increase
resources. Every mine in the world is at all times a ‘depleting asset’ and needs
exploration to postpone the day when the last ounce is mined.
THE MANIPULATORS ONLY HAVE TWO
The ammunition used by the
manipulators is provided by two sources: Central banks (including the IMF), and
the COMEX. While there is nothing anyone can do about the gold selling that
originates with the central banks, there are ways to choke off the amount of
precious metal that flows into the COMEX warehouses.
Those of us who are tired of the
manipulators picking our pockets need to become active.
In 1978 – 1979 it was a rising
silver price that caused gold to rise – silver was the leader. It makes sense
therefore to concentrate on silver, especially since the central banks do not
have hoards of silver.
Mining companies that supply silver
to the COMEX need to find a way to turn their silver into small bars (1 oz to
100 oz), and 1 oz rounds and sell these to the public. Already some mines are
doing this by selling from their website, and they are obtaining a hefty premium
over the spot price. If your production is limited, join forces with a mine that
is already merchandising silver products, or form a sales organization with
other small mines. Hire some cracker-jack salespeople; there is a big market out
there! Starve the COMEX if you want to see silver sell to realistic prices.
Adjusted for inflation, the silver price of 48.00 that we saw in February of
1980, is trading at 4.00 today. (In 1980’s dollars, silver is now selling for
4.00 an ounce!)
Next, (and still communicating to
mining CEO’s), instead of keeping money in the bank, or in various kinds of
short-term notes, store up silver, and show us that you believe in the product
you are producing. Instead of cash on hand, buy futures contracts, and keep
rolling them over.
Coin dealers and wholesalers need
to buy 5,000 oz bars from the COMEX, take delivery, and contact a refiner who
will turn the silver into retail products. If your operation is not large enough
for a 5,000 oz purchase then buy silver from people like Jason Hommel, who was
smart enough to start doing this on a large scale.
Investors who can afford to spend
$55,000.00 should consider buying a silver contract from the COMEX and taking
delivery. James Sinclair at JSMineset.com will show you how to go about that.
Finally, anyone who holds any kind
of a certificate that promises to deliver silver, needs to make sure that the
bank or institution that stores the silver, is willing to provide bar numbers.
Otherwise when the day comes to collect, you may find that the silver does not
exist. On my website you will find an article that I wrote about a fund that
stores gold and silver at a bank in Western Canada. They invite auditors twice a
year to audit the inventory.
Cartoon courtesy Gary Varvel, Indy
The Madoff scheme is but one
example of the lack of oversight on the part of people who have been placed in
the position of protecting the public. In the US Congress, two of the people
responsible for the mess that was created by Freddie Mac and Fannie Mae:
Congressman Barney Franks and Senator Chris Dodd, are now part of the group that
is trying to ‘fix’ the problem. The foxes are in the henhouse! It was Franks and
Dodd, who for years received money from Fannie and Freddie, while they stood in
the way of people who wanted to tighten the lending standard at these two
mortgage lending institutions. Whatever happened to responsibility? Where is the
Featured is the weekly gold chart.
Price is ready to breakout on the upside. The supporting indicators are positive
(green dashed arrows). The 7 – 8 week cycles have been short (twice at 6 weeks).
We are due for a longer cycle. A close above the blue arrow will indicate that
week #4 is the start of a run up to the green arrow. Once 925.00 is reached,
then 975 is next. Since Labor day the Federal Reserve’s assets (including huge
amounts of toxic assets), have increased from 905.7 billion to 2.3 trillion
dollars. This, along with the increase in the monetary base is going to add to
price inflation and will cause a lot of investment money to enter the gold
market. The gold rally that started in November has only just begun.
Featured is the weekly silver
chart. Price has been rising since late October. The supporting indicators are
positive (green dashed arrows). A close above the blue arrow sets up a target at
the green arrow.
Thanks to Eric Hommelberg for the
idea to use ‘historic spot charts’ to make my case. I applied the 11th
commandment: “Thou shalt use every good idea thou comest upon.”
Please do your own due diligence. I
am NOT responsible for your trading decisions.
Peter Degraaf is an on-line stock
trader with over 50 years of investing experience. He issues a weekend report on
the markets for his many subscribers. For a sample issue send him an E-mail at
firstname.lastname@example.org, or visit his website at
www.pdegraaf.com where you will find many long-term charts, as
well as an interesting collection of Worthwhile Quotes that make for fascinating