After planning to take this week off for a little rest, market gyrations have changed the plan. Initially next week I was going to pen a piece titled "Truth, Justice and no longer the American way". This will now wait a bit.
This past Sunday night and Monday's action in gold needs to be discussed of what I believe is now a rapidly moving big picture. $2.7 billion worth of gold futures were sold in just 2 minutes Sunday night. As I have asked before, "who" could possibly "own" this much gold other than an official source? The answer of course is nearly no one other than a very small handful of ETF's. In perspective, $2.7 billion worth of gold is roughly 3% of global production. Said differently, it amounts to nearly 10 days worth of labor and production worldwide... sold in less than two minutes!
Next, assuming there really is an entity that owns this much gold, "who" in their right mind would sell it in this fashion? Who would sell so much and so rapidly concentrated in time as to knock the price down $50? What trader would still have a job the following day if their own sale created a drop of four percent in the proceeds received? Traders today fight over one thousandth of a percent, are we to believe a trader was willing to give up 4%? Was this trader so "scared" that gold was going to drop Monday that he just "had to get out"? No, it is obvious to even the most disingenuous, this was purely an "operation", one meant to depress the price of gold at any cost. In perspective, this trader by not spacing out the trade cost his "firm" $40 million if you only use the midpoint of the trade. Will this be reflected in his year end bonus (sarcasm)? As of today, finally, the hunt is on as to "whodunit"???
In my opinion they may need to look to only two sources though only one is necessary. In every trade there are two sides, the buyer and the seller. Have you ever wondered "who" the buyer is in the middle of the night to such large sales? What if it is principally only two houses who trade back and forth with each other and then flatten out over the course of the next few days? In essence, if this is the case there is not really any risk because they would always be "flat" between each other. I don't know if we will ever find out "whodunit". This is certainly a possible scenario and one in a world where the rule of law has been revoked ...certainly feasible.
Switching over to silver, the low prices have again created havoc in the physical market. Prior to Sunday, the U.S. mint had already suspended sales of Silver Eagles. This was done for one of only two possible reasons. 1. demand was so great they could not keep up with it or 2. they could not source physical silver to mint the coins. This is exactly akin to Venezuela's toilet paper shortage. They have mandated a retail price below what it can be produced for and thus ...manufacturers have stopped making it because they cannot earn a profit. Simple!Another analogy would be a butcher who advertised $1.99 filet mignon. Even if he had any to begin with, it would not last more than a few moments and you would be stuck slapping some $3.99 a pound hamburgers on your grill.
As of now, coin dealers across the U.S. are on back order for nearly all silver products. The premiums as in other similar previous instances have risen and product has been swept off the shelves. What is the "real price" of silver you ask? It is whatever you must pay to receive real metal. As it stands now, COMEX paper prices and real physical prices are about 15-20% apart from each other. In my opinion, should COMEX press prices further down, they risk exposing themselves as a fraud. Already in July, some 3 million ounces have jumped queue and been demanded for immediate delivery. In other words, COMEX is risking creating a "run" on physical metal which is 100% contrary to what low prices have been used for. Low prices are the main tool used of "sentiment discouragement", it very well may turn out that these low prices create a stampede into their laughably small inventory!
From a broader perspective, what I believe we are seeing is simply one "skirmish" (but at the very core) in a global financial war between the West and the East. We now know several other pieces to the puzzle. China, the leader of the East is clearly economically slowing down as evidenced by many recent statistics, the container trade numbers being most recent;
Their stock market is imploding and capital flight is in the hundreds of billions. Couple this with China dumping U.S. Treasury securities via their "Belgium accounts" and we have a better picture of the "financial war" being waged.
As a theory, most believe the 600 tons of gold announced by China last week was the reason for the Sunday/Monday drop. This I believe is correct but for 180 degree wrong reasons. Many were shocked and disappointed at the number of only 600 tons. It truly is laughable as it represents about 3 months worth of gold China currently imports and has been for over 5 years. I believe they made this announcement for two reasons. First, they needed to show more gold in order to be considered by the IMF for inclusion into the SDR this fall. I also believe they wanted to show a lower number so as not to spook gold higher as they are clearly a buyer each month. If you are a buyer, why press the price higher as long as you are receiving delivery?
Going a step further and tying this all together we can see several things happening. China is now witnessing an unprecedented capital outflow while the U.S. dollar has gotten stronger. A strong U.S. dollar is textbook warfare against Russia and aimed at tightening the screws further both financially and economically. We have heard from Sergei Glayzev on several occasions, Russia/Mr. Putin plan on dropping a financial and moral "truth bomb" on the United States. They will only be pushed so far, I believe some sort of data dump can be expected at any moment.
If you look at this from the standpoint of "war", these are all chess moves between those issuing a fake currency and those wanting to do real trade with real settlement. Did the U.S. just "punish" China for being a gold buyer and making an announcement (even though miniscule)? I think this can be looked at as the Western banks are short paper gold derivatives and long dollars whereas the East is long real metal and desirous of leaving the Western banking system behind. There is no other reason China and Russia would have set up trade banks, clearing systems, currency hubs etc. all over the world if they did not expect to use them. This is a war between the West wanting to prolong their own current fiat system and the East wanting to move away to one that is equitable to all involved.
We are already in WW III. It is because of and being waged in financial assets. It is clear to me the U.S. is in panic mode and trying to break the long term bull trend in gold. If the trend cannot be broken, the dollar will be zeroed out. Unfortunately, both sides know this full well. The military warnings of late from both Russia and China have become much louder and the actions and movements by the U.S. (staging in Turkey for Syrian raids for example) much more dangerous. As I see it, the U.S. "needs" war to cover many dirty financial tracks. China/Russia on the other hand may try to prevent war by releasing "the truth" and thus crippling the U.S. financially and thus the ability to wage aggression. The problem as I see it is the world is too far along technologically and the days of having to pay and fund an army long term is behind us. Now, "kicking the table over" is a simple as pushing a button. Unfortunately, this may be the only remaining choice for the U.S. in the financial collapse I see coming.
Let me finish with a couple of questions. Who do you believe is more levered, the East or the West? Yes, China is levered and unquestionably going to suffer short term during the unwind. Xi Jinping said this himself. Who has a financial system layered with trillions of dollars in derivatives? Which direction has physical gold been flowing for at least a decade? Finally, what is the "real" price of gold or silver? Is it what the paper exchanges say? Or is it what it actually costs to purchase ...in size? I believe we will find out all of these answers and many more over the next few months. The entire world will be shocked to its core when nearly everything we have come to believe in turns out to have been a Hollywood production of "Wag the Dog"! I pray there will be "options" available to the West, though deep down I know this is not the case.
Regards, Bill Holter for;
Bill Holter writes and is partnered with Jim Sinclair at the newly formed Holter/Sinclair collaboration.
Prior, he wrote for Miles Franklin from 2012-15. Bill worked as a retail stockbroker for 23 years, including 12 as a branch manager at A.G. Edwards. He left Wall Street in late 2006 to avoid potential liabilities related to management of paper assets. In retirement he and his family moved to Costa Rica where he lived until 2011 when he moved back to the United States. Bill was a well-known contributor to the Gold Anti-Trust Action Committee (GATA) commentaries from 2007-present.
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