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Why Is Gold Crashing?

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Gold Crashes Most in 30 Years … What Does It Really Mean?

Gold has fallen off a cliff.   It has fallen faster than at any time in the last 30 years.

Zero Hedge notes:

Adding insult to injury, the Shanghai Gold Exchange overnight announced that following the tumbling precious metal prices and limit down drop in early trading, it may raise trading margins for its gold and silver forward contracts.

(Margin calls tend to trigger further selling.)

Some Say It Is a Good Time to Buy

While most financial advisers are screaming “sell!”, there are some well-known contrarians.

For example, Bill Gross still recommends buying gold.

Marc Faber says:

“I love the fact that gold is finally breaking down because that will offer an excellent buying opportunity” …. “The bull market in gold is not completed.”

John Hathaway of Tocqueville Funds (with $10 billion under management) says that the selloff in gold is “a contrarian’s dream scenario”:

The evidence shows strong macro fundamentals for gold, investor sentiment at a negative extreme and compelling valuations in the mining shares. It seems like a contrarian’s dream scenario to us.

And Zero Hedge notes that – from the perspective of technical analysis – gold is the most oversold it has been in 14 years.

The Bearish Explanation

But why has gold crashed?

Bloomberg blames:

  • “Optimism that a U.S. recovery will curb the need for stimulus”; and
  • “The prospect that beleaguered members of the euro zone might be forced to sell gold to raise part of the funding, and there are much bigger holders in that category than Cyprus.”

Citigroup opines:

Gold decline may have been related to some break in technical levels and the general improvement in global risk appetite.

Business Insider argues:

[Gold's price collapse] vindicates the economic ideas of the economic elites.

 

***

 

To respond to the economic crisis, economists and mainstream policy makers have favored highly unusual policy measures (massive Fed balance sheet expansion, massive stimulus, etc.). These ideas are usually based on years of traditional economic research (Keynesianism, monetarism, etc.).

 

All of these ideas have been slammed by heterodox types like Austrian economists, who have warned of hyperinflation, and gold going to $10,000.

 

So the collapse in gold is not about gold, but about vindication for a large corpus of belief and economic research, which has largely panned out. It’s great that our economic elites know what they’re talking about, and have the tools at their disposal to address crises without creating some new catastrophe.

 

Things aren’t great in the economy, but the collapse/hyperinflation fears haven’t panned out, and the decline in gold is a manifestation of that.

Barry Ritholtz writes:

History shows Gold trades differently than equities. Why? It comes back to those fundamentals.

 

It has are none.

 

This is not to say gold is not affected by Macro issues. But that is very different than saying Gld has a fundamental value, an intrinsic worth. It does not. That led to this heretical advice: Gold is not, and can never be, an investment. It has no true intrinsic value, no cash flow, no earnings, no coupon. no yield. What people call fundamentals are nothing more than broad macro analysis (and how have your macro funds done lately?). Gold is the ultimate greater fool trade, with many of its owners part of a collective belief theory rife with cognitive errors and bias.

 

I do not want to engage in Goldenfreude — the delight in gold bugs’ collective pain — but I am compelled to point out how basic flaws in their belief system has led them to this place where they are today.

 

Gold does trade technically, and is especially driven by the collective belief system of the crowd. When that falter, well, you know what happens . . .

The Gold Bugs View

Gold bugs, on the other hand, see things quite differently.

Andrew Maguire says that the crash is solely in the paper gold market … and that there is actually a shortage of physical gold. Many other sources make the same claim.

Egon von Greyerz – founder and managing partner at Matterhorn Asset Management – argues:

They shouldn’t be concerned about the temporary pressure on gold.  This decline has nothing to do with the physical market because enormous demand for gold continues.

 

The paper market in gold is not a real market, and at some point in the near future paper gold holders will wake up and realize they are holding are worthless pieces of paper.  This is when the world will witness one of the greatest short squeezes in history as investors panic in to physical and the price of gold explodes to the upside.”

London bullion dealer Sharps Pixley thinks that the crash was largely initiated by a single entity:

The gold futures markets opened in New York on Friday 12th April to a monumental 3.4 million ounces (100 tonnes) of gold selling of the June futures contract in what proved to be only an opening shot. The selling took gold to the technically very important level of $1540 which was not only the low of 2012, it was also seen by many as the level which confirmed the ongoing bull run which dates back to 2000. In many traders minds it stood as a formidable support level… the line in the sand.

 

Two hours later the initial selling, rumoured to have been routed through Merrill Lynch’s floor team, by a rather more significant blast when the floor was hit by a further 10 million ounces of selling (300 tonnes) over the following 30 minutes of trading. This was clearly not a case of disappointed longs leaving the market – it had the hallmarks of a concerted ‘short sale’, which by driving prices sharply lower in a display of ‘shock & awe’ – would seek to gain further momentum by prompting others to also sell as their positions as they hit their maximum acceptable losses or so-called ‘stopped-out’ in market parlance – probably hidden the unimpeachable (?) $1540 level.

 

The selling was timed for optimal impact with New York at its most liquid, while key overseas gold markets including London were open and able feel the impact. The estimated 400 tonne of gold futures selling in total equates to 15% of annual gold mine production – too much for the market to readily absorb, especially with sentiment weak following gold’s non performance in the wake of Japanese QE, a nuclear threat from North Korea and weakening US economic data.

 

***

 

By forcing the market lower the Fund sought to prompt a cascade or avalanche of additional selling, proving the lie \; predictably some newswires were premature in announcing the death of the gold bull run doing, in effect, the dirty work of the shorters in driving the market lower still.

Gold Core’s Mark O’Byrne agrees.

James Rickards thinks the Fed is manipulating the gold market (and every other market).

Former assistant Treasury Secretary Paul Craig Roberts says:

Rapidly rising bullion prices were an indication of loss of confidence in the dollar and were signaling a drop in the dollar’s exchange rate. The Fed used naked shorts in the paper gold market to offset the price effect of a rising demand for bullion possession. Short sales that drive down the price trigger stop-loss orders that automatically lead to individual sales of bullion holdings once their loss limits are reached.

 

***

 

According to Andrew Maguire, on Friday, April 12, the Fed’s agents hit the market with 500 tons of naked shorts. Normally, a short is when an investor thinks the price of a stock or commodity is going to fall. He wants to sell the item in advance of the fall, pocket the money, and then buy the item back after it falls in price, thus making money on the short sale. If he doesn’t have the item, he borrows it from someone who does, putting up cash collateral equal to the current market price. Then he sells the item, waits for it to fall in price, buys it back at the lower price and returns it to the owner who returns his collateral. If enough shorts are sold, the result can be to drive down the market price.

 

***

 

Bullion dealer Bill Haynes told kingworldnews.com that last Friday bullion purchasers among the public outpaced sellers by 50 to 1, and that the premiums over the spot price on gold and silver coins are the highest in decades. I myself checked with Gainesville Coins and was told that far more buyers than sellers had responded to the price drop.

 

***

 

In addition to short selling that is clearly intended to drive down the gold price, orchestration is also indicated by the advance announcements this month first from brokerage houses and then from Goldman Sachs that hedge funds and institutional investors would be selling their gold positions.

 

***

 

I see the orchestrated effort to suppress the price of gold and silver as a sign that the authorities are frightened that trouble is brewing that they cannot control unless there is strong confidence in the dollar.

Roberts also says:

This is an orchestration (the smash in gold).  It’s been going on now from the beginning of April.  Brokerage houses told their individual clients the word was out that hedge funds and institutional investors were going to be dumping gold and that they should get out in advance.   Then, a couple of days ago, Goldman Sachs announced there would be further departures from gold.  So what they are trying to do is scare the individual investor out of bullion.  Clearly there is something desperate going on….

Indeed, this may tie into the Federal Reserve leak of insider information.  Specifically, Roberts writes:

The Federal Reserve began its April Fool’s assault on gold by sending the word to brokerage houses, which quickly went out to clients, that hedge funds and other large investors were going to unload their gold positions and that clients should get out of the precious metal market prior to these sales. As this inside information was the government’s own strategy, individuals cannot be prosecuted for acting on it. By this operation, the Federal Reserve, a totally corrupt entity, was able to combine individual flight with institutional flight. Bullion prices took a big hit, and bullishness departed from the gold and silver markets. The flow of dollars into bullion, which threatened to become a torrent, was stopped.

As Congressman Grayson pointed out in a recent letter, right after the Federal Reserve’s Open Market Committee leaked valuable inside information to big banks, Goldman told its clients:

We recommend initiating a short COMEX gold position ….

Background on gold manipulation.

 

 

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Mon, 04/15/2013 - 13:22 | 3450999 mayhem_korner
mayhem_korner's picture

 

 

Optimism that a US recovery will curb the need for stimulus.  HAHAHAHAHA

That is funny.  Apparently one does not need to understand MATH to be a billionaire.  There is NO POSSIBLE way that debt monetization can stop for any sustained period of time.  The debt is unrepayable, the pace of its accumulation irreversable, and the number of buyers is drying up.  The FED has NO CHOICE but to continue monetizing debt (a de facto default).

The reason GLD is crashing is because the shorts have manufactured a coordinated panic to shake loose the weak hands.  That allows them to cut their losses and/or retrieve armloads of the stuff to cover their naked positions.  Either they are removing lots of deck chairs all at once to further consolidate their power or they are bolstering their supply of dry powder to withstand whatever is coming next. 

The notion that this has anything to do with the economic health of the US is laughable.  Shills.

Mon, 04/15/2013 - 14:05 | 3451334 WarPony
WarPony's picture

"Clearly there is something desperate going on…."

I like your "retrieve armloads of the stuff" and would add, see the BRI(A)Cs Central Bank Plan & attempt to unseat the dollar as world reserve stall - temporarily.

Mon, 04/15/2013 - 13:41 | 3451137 24KGOLD FOIL HAT
24KGOLD FOIL HAT's picture

Amen Mayhem.  Some say the Comex vaults were pretty bare lately.  Another reason for this manipulation down.

Physical is in extreme demand.  Paper Au is on fire.

Mon, 04/15/2013 - 13:44 | 3451160 mayhem_korner
mayhem_korner's picture

Some say the Comex vaults were pretty bare lately

 

Like Old Mother Hubbard's cupboards...and Fort Knox. :D

Mon, 04/15/2013 - 14:34 | 3451500 Intoxicologist
Intoxicologist's picture

Old Mother Hubbard went to the cupboard to get her poor daughter a dress.

When she got there, the cupboard was bare - and so was her daughter, I guess.

 

(Kind of sums things up, doesn't it?)

Mon, 04/15/2013 - 15:00 | 3451694 dontgoforit
dontgoforit's picture

Old Mother Hubbard went to her cupboard to get her poor dog a bone, but when she bent over, she found that ole' rover, had a raw bone of his own.

Mon, 04/15/2013 - 13:20 | 3450981 algol_dog
algol_dog's picture

I shorted UGLD Friday and making a killing. This is wonderful. I feel so good ... Glad you all were bidding this stuff up the last few years ....

Mon, 04/15/2013 - 13:23 | 3451016 mayhem_korner
mayhem_korner's picture

 

 

algol_dog...up-arrowing your own post does not make your lie true

Mon, 04/15/2013 - 13:31 | 3451031 algol_dog
algol_dog's picture

OK I'll take it back off ... Sorry ~

Oh ... by the way, can I still be happy?

Mon, 04/15/2013 - 13:46 | 3451187 Midas
Midas's picture

Oh yeah?  I shorted it with triple leverage and made a shitload.  I am going to do the reverse on the upside and make even more!

 

I'll tell you about it, but not until the day after it happens okay?  Gotta go, I have Kate Upton on the other line and she doesn't like to be kept waiting...

Mon, 04/15/2013 - 14:02 | 3451314 What is The Hedge
What is The Hedge's picture

Hilarious! One up arrow.  Oh........did Kate mention my name?

Mon, 04/15/2013 - 18:25 | 3453353 Midas
Midas's picture

I'm not sure, hedge sounds a little familiar, she did say something about trim....

Mon, 04/15/2013 - 14:55 | 3451233 algol_dog
algol_dog's picture

Nope -

 

A) It's not going back up.

B) I'm making enough shorting it ... I'm not greedy.

 

Whew! It's crashing ...

On second thought, I take it back. I am greedy! I feel like that girl in the AT&T commercial. "Like, we want more", "we want more" ...

Mon, 04/15/2013 - 13:38 | 3451115 Rob Jones
Rob Jones's picture

Hmmm... algol_dog seems very similar to mathman.

Mon, 04/15/2013 - 13:38 | 3451106 mayhem_korner
mayhem_korner's picture

 

 

Does Chuck Norris say you can be happy?

Mon, 04/15/2013 - 13:41 | 3451149 algol_dog
algol_dog's picture

Don't know ... I'm afraid to ask. He seems like a very mean man. You seem to be much more reasonable.

Mon, 04/15/2013 - 13:48 | 3451205 mayhem_korner
mayhem_korner's picture

 

 

Even out of context, and with the invisible /sarc tag, I note here that I have been labeled "reasonable" on a GW post.  The game must really be ending.  :D

Mon, 04/15/2013 - 13:18 | 3450979 skydrake
skydrake's picture

 

"Gold is not, and cannever be, an investment"

 

 

Someone forgot it

Mon, 04/15/2013 - 16:58 | 3452684 Bay of Pigs
Bay of Pigs's picture

Is Ritholtz really that stupid? Wow...

Mon, 04/15/2013 - 19:29 | 3453669 Imminent Crucible
Imminent Crucible's picture

Ritholtz can be smart enough when he wants to be, but he's ALWAYS full of himself.  Whenever I hear someone talking about how "gold has no intrinsic value" I hear Inigo Montoya: "I do not think that word means what you think it means".

What is the "intrinsic" value of a bond issued by a government that can only repay the principal and interest in cheaper dollars, guaranteeing the bondholder a negative real return?  "Sovereign bonds are certificates of guaranteed confiscation".

People like Ritholtz always forget to finish the sentence: "Gold has no cash flow, no earnings, no coupon, no yield, so it's completely useless--EXCEPT IF YOU NEED TO PROTECT YOUR LIFE SAVINGS FROM CENTRAL BANKERS."

Mon, 04/15/2013 - 13:28 | 3451042 akak
akak's picture

"Gold is, and will always be, money."

Mon, 04/15/2013 - 15:32 | 3451981 Citxmech
Citxmech's picture

Gold crashes becasue:  “Optimism that a U.S. recovery will curb the need for stimulus”

Seriously? JFC, that is about the stupidest rational I've heard yet.

Mon, 04/15/2013 - 17:01 | 3452697 Sokhmate
Sokhmate's picture

Optimium is the new Aurum.

Mon, 04/15/2013 - 13:04 | 3450888 diogeneslaertius
diogeneslaertius's picture

paper-gold bloodbath = antiquated colloquialism for hologram manipulation

Mon, 04/15/2013 - 15:02 | 3451709 dontgoforit
dontgoforit's picture

Alright!  Is everybody ready?  Let's do the Bernanke bump!  Talkin' 'bout my baby, little gold and no guru, he's a hi-flyin' baby, ain't no dance he couldn't do, he's my pretty little baby, little Ben Bernakaroo.

Mon, 04/15/2013 - 13:26 | 3450991 Cindy_Dies_In_T...
Cindy_Dies_In_The_End's picture

Smart people will hold the line on their physical. It's no coincidence that there is an attempt to rush boobus americanus and anyone else they can scare out of gold. There can be only One.

Ps. Not the same of course, but the attack on metals and bit coin is no coincidence. The herd must go USD.

I mean think about it: the worst drop in years on April 15th?

Come on, someone has a dark sense of humor.

Mon, 04/15/2013 - 13:15 | 3450956 farco
farco's picture

Don't forget to re-enable your RFID chip when you logout.

Yeah they all want us to accept their chips and bits.

Mon, 04/15/2013 - 13:16 | 3450951 Precious
Precious's picture

Precious says, "Any reliance on the information contained in these statements is at the investor's own risk." 

Mon, 04/15/2013 - 13:45 | 3451181 AllThatGlitters
AllThatGlitters's picture

Some say it's a good time to buy?

But if you can't buy because dealers aren't selling, are out of inventory or their sites aren't working, then it must truly be a good time to buy for the average schmoe.

You can watch the continued plunge here live:

http://www.pmbull.com/gold-price/

That page still shows 1 ounce gold bars for just $21 over spot from a dealer with inventory. Site working fine too.

 

Mon, 04/15/2013 - 14:31 | 3451476 FinkPloyd
FinkPloyd's picture

@AllThatGlitters

>>That page still shows 1 ounce gold bars for just $21 over spot from a dealer with inventory. Site working fine too.

I followed up on that. The site says :

Notice: Please note that due to extremely high volume, order processing may take an additional 5-10 business days. Thank you for your patience.

You can come to your own conclusions , in my book that says "if we procure the physical we will fullfil your order, otherwise you get a refund". or maybe its "We dont want to give the Postal service to much work , with those deliveries."

Mon, 04/15/2013 - 16:37 | 3452480 AllThatGlitters
AllThatGlitters's picture

They have other product, some in silver, where they openly state if it will be a 15 day wait for additional inventory to arrive.

Given that, the gold bars look more like a function of being overwhelmed with orders and that they expect to take a few more days to fulfill.

Mon, 04/15/2013 - 14:29 | 3451472 dick cheneys ghost
dick cheneys ghost's picture

Dr Jim Willie from Today 04/15/2013

From Sherrie Questioning All

 

http://www.youtube.com/watch?feature=player_embedded&v=c5rZlkoDZKQ#!

Mon, 04/15/2013 - 20:06 | 3453871 Buck Johnson
Buck Johnson's picture

Something financially have happened or is about to happen and this is one of those early warnings that are getting nastier and nastier.

Mon, 04/15/2013 - 19:18 | 3453653 rocker
rocker's picture

Does your handle mean the dick finally croaked LOL

Mon, 04/15/2013 - 18:16 | 3453300 mjcOH1
mjcOH1's picture

"Gold Crashes Most in 30 Years … What Does It Really Mean?"""""

It means it's time to renew a recently neglected relationship with the nice folks at Apmex.

Mon, 04/15/2013 - 21:04 | 3454169 GOSPLAN HERO
GOSPLAN HERO's picture

APMEX has lots of empty shelves.

Tue, 04/16/2013 - 06:14 | 3455350 GetZeeGold
GetZeeGold's picture

 

 

It wasn't just gold.....it was everything.

 

The fear of hyperinflation makes you do strange things....the printers are still on full blast. Calling BS right here.

Tue, 04/16/2013 - 07:41 | 3455466 Lets_Eat_Ben
Lets_Eat_Ben's picture

DING! Oil, the stock markets, commodities, and plenty of other assets are deflating in earnest.

 

Why is gold crashing? Because the price of gold is, "a matter of national defense". Big shit storm is coming I think. The tentacles met with Obama, every "expert" is telling us that gold is shit, BTC is bouncing all over the place.

 

It had been quiet for a while...now it's time to get this deflation on.

 

KEEP POWDER DRY. Au/Ag will probably dead cat bounce a couple % then put some puts on SLV. That shit ETF drops like lead. Never buy and hold it or even buy an option for SLV to move up. Short SLV and buy PHYZZ with profits.

 

Here we go. If we are as smart as we think we, are let's trade this shit-coaster and make money until it flies off the track.

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