Gold versus Paper part 2

Has the price of gold bottomed?

As I discussed in my last blog, it is very likely that the US doesn’t have the 8,300 tons of gold she purports to own and she has run out of countries willing to offer their gold for sale to contain its price. Indeed many central banks are now buying gold to add to their holdings. As far as the US is concerned it really doesn’t matter that she doesn’t have actual gold to sell in an effort to restrain the gold price for the purposes of discrediting it and maintaining belief in strength of the paper dollar. She can resort to using the US Comex where gold is traded for paper dollars. And since August 2011 the US has used this mechanism to effectively holding down the price of gold.

Here’s a chart of the latest gold smash on Sunday night July 19th, 2015

The chosen time and day was similar to previous bashes- Sunday evening about 9.30 pm eastern standard time. “There is to my mind no coincidence that this happened in the quietest, thinnest period of the week.” Anyone who trades gold knows not to put any volume into the market at this time, unless they deliberately want to move it in a big way,’ said David Govett, head of precious metals at Marex Spectron in London. Peak

“For the record, 12,000 contracts on Comex is a big deal, especially if dumped in a single minute (at 9,29 Sunday evening!) because that’s more than 37 tonnes (as compared to the 5 tonnes sold in the Chinese physical market.” Peak

Here image

Source: Peak

These price take downs are obvious, but they have been so successful that virtually all the market pundits, like the one cited in my previous blog are now in the bearish camp.

Elliott Wave reports that Daily Sentiment Index which measures futures-traders optimism is at 5% gold bulls, which is only the second time in 28 years that such a low number has been recorded. Market Vanes Bullish consensus of commodity trading advisors and financial newsletters has fallen to only 28%, which is the lowest percentage since April 26, 2001 That is near the long term gold price bear market low and the start of the current long term bull market. At the same time the number of net long gold futures and option contracts held by money managers is at a record low level.

By themselves these extreme low levels of bullishness might be a very good contrarian reason for calling for a bottom in the gold price, but I think there are several more compelling reasons that suggests we are at or at least close to a price low.

1. Anyone with just a modicum of investment experience must know that the Comex is nothing but a rigged paper market to hold down the value of gold and silver. Why would anyone in their right mind want to go long with all the evidence that shows massive selling can be induced with the sole purpose of destroying price. it would only require one or two well-heeled buyers to demand delivery to show the Comex for what it really is- nothing but a poor and manipulated futures exchange. There are several rival markets (Shanghai and Singapore)to the Comex in which trading in the precious metals is strictly limited to the physical metals themselves.
2. Despite the most recent destruction of the gold price on the Comex, the demand for actual gold and silver is reaching record levels. The Perth Mint Treasurer, Nigel Moffatt recently stated that, “Gold is going straight out the door as soon we can find it. He said that the Mint is seeing strong demand for kilo bars, which go to Asia- particularly India, China and now Thailand. Apparently demand for gold in South Korea has surged in recent weeks on account of the Chinese stock market crash. According to Mark O’Byrne of Goldcore demand out of China and India this year will surpass 2,000 tonnes, which is more than two thirds of the total annual global mine production estimated to be 2,8000 tonnes. I suspect that this number does not include direct purchases of gold by the Chinese central bank. This demand for real gold will overwhelm the ongoing manipulation in the paper gold market.
3. The world economies are teetering on the edge of collapse. China is leading the charge into the abyss, much like the US led the world into depression following the stock market crash in 1929. The huge drop in commodity prices are clear warning of the impending disaster.
4. China’s recent currency devaluations are evidence of her economic plight. But she has merely joined most other countries which have been engaged in progressive devaluations since 2008. In other words, the world is now in the midst of a currency war much like it was in the early 1930s. This can only end very badly as it did then, when the world currency system, based on gold, failed.
5. While it was the gold exchange standard system that failed between 1931 and 1933, this time it is the fiat paper money system, which has saddled the world with crushing debt, that is failing. Think on this, the repercussions of such a failure are terrifying. The economies of most countries are operated on credit. When the paper money system dies credit will cease to function. This will, very quickly, bring about economic paralysis.

Perhaps, there is nothing more that China and Russia would like to see is the destruction of the dollar. Not only because of the ‘exorbitant privilege’ bestowed on the dollar, whereby the US simply has to print dollars to purchase commodities and trade with different countries, whereas all other countries must earn dollars to do the same. And likely more importantly, the dollar’s demise would effectively curtail the ability of the US to fund its military.

China has been spearheading an attack on the dollar by eliminating the US currency in trading with several different countries and setting up rival institutions to the IMF and BIS. This, however, is a slow process as most western countries are still firmly in support of the dollar.

One almost instantaneous way to destroy the dollar would be if China and Russia were to drop the gold bomb.

Let’s explore that in my next blog.

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