Gold and Silver Plunge – Called “Intervention”, “Window Dressing”, “Temporary Smash”, “Paper Fiasco”
Gold’s London AM fix this morning was USD 1,721.00, EUR 1,289.812, and GBP 1,079.13 per ounce.
Yesterday's AM fix was USD 1,788.00, EUR 1,329.96, and GBP 1,120.79 per ounce.
Gold fell 5% in New York yesterday and closed at $1,696.70/oz. This was its largest one day loss since December 2008. Spot silver was down 6.4 percent at $35.54/oz, reversing the 4.5% seen Tuesday.
Spot gold has risen more than 1% today after the sharp drop yesterday as Asian jewellers, traders and investors rushed to take advantage of attractive prices. Gold in Europe remains near the highs seen in Asian trade and is now trading at $ 1,718.38/oz.
There was blood in the gold and silver trading pits yesterday as leveraged longs got their heads handed to them on a plate.
The massacre was attributed to a host of different reasons - from month end book squaring, to the positive PMI numbers to Bernanke's suggestion that ultra loose monetary policies may soon come to an end.
None of these reasons would justify the scale of the massive sell offs seen in gold and silver yesterday.
Gold and silver markets saw massive sell orders from large institutional sources - as only large institutions selling could have caused a price falls of the magnitude seen yesterday.
There were highly speculative unsourced rumours of an Asian fund selling gold and rumours of a single bullion sale of 31 tonnes or some 1 million ounces by an unnamed seller.
The unusual trading activity saw some very determined sellers who appeared to not be motivated by maximizing trading profits.
One trader said how he had not seen that sort of volume before and the activity was akin to "computerised manipulation" and that there were “massive volumes going through and appeared as if some large entities had bids and offers at the same price”.
The positive PMI data would ordinarily result in some price weakness as would the testimony from Bernanke which suggested that the Federal Reserve's ultra loose monetary policies may not continue much longer.
However, the scale of the selling and size of the price falls was unusual.
Respected analysts such as legendary Jim Sinclair, John Embry and Jean-Marie Eveillard suggested that the sell off was due to manipulation by bullion banks.
Sinclair said it was an “intervention” and was “window dressing” that long term bullion investors should not be concerned about as inflation was coming due to “QE to Infinity.”
Embry said that it was a “smash down” and a “paper fiasco.” Jean-Marie Eveillard suggested that central banks may have intervened, as they are doing in fx and bond markets, and sold gold in volume into the market.
It is of course very difficult to ascertain what caused the sharp falls in the precious metals yesterday however it would be naive to completely discount what Sinclair, Embry and Eveillard believe may have happened.
The Commodity Futures Trading Commission (CFTC) has been investigating manipulation of the silver market for more than 3 years now.
While Bernanke’s nervous testimony in front of the US Congress yesterday drove down stock markets and boosted the dollar, many market participants believe the US Fed will launch another round of quantitative easing and will flood the markets with more cheap money.
This will lead to inflation - giving investors an additional reason to buy bullion.
European banks took €530 billion of cheap 3 year funds from the ECB yesterday, bringing to over €1 trillion the amount of money the ECB has dumped into the financial system in two months.
Bullion is still up 10% this year, on track for its twelfth yearly gain, as interest rates remain low and central banks continue to inject cash into the markets boost liquidity.
It provides yet another great buying opportunity for gold and silver bullion buyers whose are focused on the long term and realise bullion's ability to protect and preserve wealth.
It shows the importance of being wary of leveraged trading which should only be engaged in by experienced professionals and even they should be wary. 'Widows and orphans' should avoid all forms of 'paper gold' and stick to physical bullion.
The sharp fall in silver may again be used to warn and prevent investors from buying silver as it is "too volatile".
When similar sharp falls occur in equity markets (Nikkei and many European indices in recent years), it is never used as a stick to beat stocks. This again shows the continuing bias and double standard against gold and silver and in favour of equities.
It is worth remembering that while gold and silver fell sharply yesterday, gold and silver are up 9.5% and 24.5% YTD. Again, showing the importance of focussing on the long term diversification and safe haven benefits of the precious metals.
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Silver is trading at $34.77/oz, €26.13/oz and £21.81/oz.
PLATINUM GROUP METALS
Platinum is trading at $1,695.50/oz, palladium at $710.00/oz and rhodium at $1,475/oz.
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