Financial Intelligence Report
Contributing Editors: Bob Rinear, Robert Foster
Gold's China Problem
Over the years, we've seen dozens of events, whereupon out of the clear blue, "someone" unloads an ungodly amount of gold futures on the COMEX, and the price of gold gets smashed. It usually happens in the dead of night, where activity is already low, and it happens quick.
Let's suppose for a moment that you were a giant holder of gold and you wanted out. Do you think for a minute you'd accomplish that by pounding a billion dollars worth of gold onto the market in a single moment? Wouldn't you know that "instantly" the algo's would see it and drop the price, and you'd be getting filled out at consistently lower prices? Sure you would.
What you would much rather do, is feed your gold to the market in small chunks over time, desperate not to actually depress the very market you're selling into. These events usually got the "gold bug" people coming up with all manner of excuses as to why it was happening. The standard response was/is "they can't let gold get too high or it will damage the faith in the dollar". Same thing with silver. The "Silver stackers" use the same explanation. "If silver gets too high, it will erode the faith in the monetary system, and they can't have that!!"
There's a little truth to those statements, yes. But after seeing this outright manipulation, over and over, I started to question things. First off, as I mentioned a couple years ago, "who's got the firepower, to be able to dump a BILLION dollars worth of fake paper on the markets?" We're not talking 5 million, or 50 million or even 100 million, we're talking a billion OR MORE at a time.
The answer in my mind had to be sovereign nations. It wasn't Wall Street banks, and it wasn't even the bullion banks. All together they might have been able to pull something like that off once. It's happened over a dozen times. So it wasn't them, and I set my sights on Sovereigns.
Now the question expands. Why would sovereign nations just come out of the blue and whack the hell out of the price of gold? Uhm, so they could buy it??? Bingo, get that man a cigar.
My theory has been that the first move in the monetary "reset" was that Brussels and the Bank of International Settlements, has agreed that the "SDR" was going to be the first move in getting the world away from the US Dollar. Back as early as 2010/12 I was telling you all that China would indeed be allowed into the SDR basket, and it came true in October of 2016.
So what's an SDR? It's a "special drawing right." The SDR is an international reserve asset created by the IMF in 1969 to supplement its member countries' official reserves. Up until then, it only included the dollar, the Yen, the Euro, and the British pound. China wanted into the big boy club, and they got it.
On the surface, no one cares about SDR's as it is "banker money", not the money you use in every day commerce. But as I said earlier, it's my opinion that the SDR is going to usher in a new global reserve currency. Letting China into the basket was just the start of things. See, there's a reason Russia just dumped ALL of it's US Treasuries. There's a reason that the world is tired of having to rely on the US dollar, and there's a reason that wars have been waged by the US on nations that attempt to get away from the dollar.
That reason is, that being the reserve currency grants you all manner of benefits. All the other nations have to accumulate dollars, creating constant demand. You also get to print the stuff, and export your inflation to them. How do you think you would feel if you're say Vietnam, and you have to exchange your currency for dollars, just so you can buy oil from the Saud's? Lousy I'd bet.
Okay, so the world hates the dollar, and the IMF/BIS wants the SDR to carry a bigger role in global exchange. Yet as the SDR gains traction as a trading vehicle, the first resistance to it is "it's just another bank created "fiat" currency, and that stinks". So, we have reason to believe that the SDR will be backed not only by individual currencies, but with a percentage of gold.
There's a good reason that Russia, China, India, and virtually all the sovereign nations have been amassing gold. Sure, one reason is to actually diversify their portfolio's and get away from being reliant on the US Treasuries. But I tend to believe that all these nations are NOT just buying gold because it's shiny and pretty. I tend to think that in a world of 200 trillion worth of debt, the world has realized that completely fiat currency is a failure. They're going to demand that any "new" global reserve is going to have to have some form of gold backing.
Now, back to China. China's been on a gold buying binge for over 5 years now. I started getting the hunch that it could be China doing some of those overnight gold market raids, because several times, their raids were followed the following months by an "increase" in their reported gold holdings. Were they beating down Gold to buy it cheaper?
The last time they ( someone) attacked the gold market it was a big attack. And since that big attack a few months back, gold has been in a real funk. But what else has happened since then? Well, China's currency has been falling like a rock. They have responded to the tariffs, by allowing their currency to fade in value. It's almost lockstep, that as we talked "higher" tariffs, their currency went lower to offset it.
But think about it like this; if China still wants to amass gold, ( and they do) what do they do about the fact that their currency is worth less and less? Well, why not attack the gold market and pull the price down with it? I think that's what we're seeing folks. I think the Chinese want to continue to buy gold, and as their currency keeps falling in value, they'll keep hammering the gold pits.
In other words, if your currency falls 2% in value, then it costs you more to buy your Kilo of gold. But if you can make the price of gold fall 2%, then nothing's changed. It's the same as it's ever been.
Silver's in the same boat, only worse. Not only is the silver market like the red herring step child of gold, always trading in its shadow, they've been proven to be manipulating the silver market since I started following it in 2007.
The one positive that's going for gold is that because of higher oil prices and general inflation, gold is trading pretty close to the cost of extraction. In other words, it costs a lot of money to get an ounce of gold out of the ground. If you do the math, it takes about 10 tons of "good earth" to recover 1 ounce of gold. But you're not just scooping up dirt with a backhoe. You're working in mines, and using blasting, and water chisels and hammers and all manner of machinery to crush the rock, and sift out the gold.
The all-in cost for the major suppliers is now about 1135 bucks per ounce. So with gold at about 1230, there's not much room left and when prices are below extraction costs, they simply stop mining. That causes a shortage above ground.
This is a big picture puzzle with a lot of moving parts. But the only part that matters to most is that gold and silver are falling, and they don't like it. I don't like it much either folks, but we always have to remember why we buy the stuff.
When we buy gold we aren't buying it for the idea that it appreciates and we sell it for huge gains. For the most part, if gold is rising, something "bad" is going on. Inflation, or war, or what have you. No, we buy gold as a hedge against the bad stuff, an "insurance" policy.
We speculate with the miners, to actually "make" money. When you get it right, it's wonderful. When you don't, it's like blowing it on any other sector. Right now, with what I think we're seeing in the gold/silver markets, we're not liking the action in the metals or the miners. It's never "fun" to see them falling when you own it. But that said, one has to ask the question: If Russia just sold all their US Treasuries and bought more gold, and if China's buying all the gold it can get, would it be wrong to follow their lead? I don't think so.
I could be nuts and gold and silver sink to insanely cheap levels. But if that's the plan, why does JP Morgan have what's been speculated at something like 400 million ounces of silver? Why on earth would the Chinese be buying gold? Why the Russians and Indians? Are they all masochists that want to buy high and sell low?
If I can scrape up some dough, I'll be buying this metal beat down. The SLV, which is the ETF for silver is trading in the 14's, a level not seen since late 2016. It's entering oversold territory. The GLD is also seeing levels it hasn't seen in many many months. If nothing else, a bounce is probably in the cards.
Let me leave it like this. Silver is the most underpriced commodity on earth. Period. It's a story you've heard since they beat it down from 49 bucks an ounce 7 years ago. But it is a fact, and while there's people determined to keep it there, at some point, it can't stay that low. Gold is being acquired all around the globe, and they aren't doing it because it's pretty. No one should be "all in" gold or silver, but until I see the sovereigns stop buying this stuff, I have to think it's still got a good future ahead of it.
~~~~~
AI
