Explaining the gold crash

I think it is important to always take the various conspiracy theories of the gold bugs with a grain of salt.  That being said, the massive 7-sigma crash in gold prices was obviously not the result of normal supply and demand, and given the lengths that the central banks have gone to prop up the banks over the last five years, the idea that they might crash one little market  to protect the massive short interest of a few key banks barely even registers as a conspiracy theory proper.

There’s been a recent huge draw down of physical gold
at the New York COMEX and at the JP Morgan Chase depository. Look at
the physical market draw down on the charts below. It has taken a
drastic plunge…. If the inventory runs out and one cannot meet deliveries then it has to be bought on the open market. Not only that but it could cause a run up in prices that would hurt the shorts in the market.

So what to do?

The only way out of this dilemma for the market controllers would be to devise a plan that would collapse the market and trip up all the stops at the correction lows in gold of 1525 thereby setting off the stop loss orders under this important market low.  And what if the plan included a way to stop the physical market from purchasing gold under 1525 while that correction was underway? That would be brilliant.

And how can that happen?

They have to hatch a plan and carefully orchestrate it in a series of events that takes the gold market by completely by surprise and force players out of their long positions.

Read on for today’s lesson in market manipulation and allow me to relay my speculation about what transpired last week.

A successful ambush usually involves surprise. And the surprise requires a carefully orchestrated setup. So now let’s get a look at how the crash was prepared.

The FOMC minutes from the last meeting were due for release during last week. But a funny thing happened. They got released EARLIER than expected. It was all a big mistake and the FED let the SEC and the CFTC know right away that the error had occurred. And lo and behold, despite the FED’s transparency and newly crafted reputation for delivering timely and accurate reports, there happened to be some language we didn’t get updated on until the FOMC minutes were released. The notes say that several members have been discussing cutting back on the stimulus. That was strike one. It got the gold market thinking that stimulus cuts might be coming.

Strike one called by the umpire.

Surprise number two appears.

A bombshell was released from news sources. It was reported that Cyprus would have to sell 400 million Euro’s of gold as part of the bailout package of raising money for their failed banking system. Gold prices came down to 1550 on the news and the day passed by. Even though Cyprus bankers tell us the next day that they didn’t discuss selling any gold, market jitters remained with Friday just around the corner.

This was strike two.

Now we need a strike three and you’re out.

Gold is a nervous market to begin with as a lot of people have already lost a lot of money in the last six months. With Gold at 1550, all that is needed for the market to drop is to get one more push where all the stops are.  This price level was just below the 2 year low of 1525.

With the setup in place the final pitch was ready to be delivered.

The interesting thing is that the bankers knew it was going to happen.  They were all informed.  How can I say that?  Because I was told as much by one of them two weeks ago. But neither he nor I realized the full extent of it.  I just assumed he was talking about a technical drop down to support around $1500, not a crash of this magnitude.

Either way, it represents an obvious buying opportunity for those more interested in long-term stores of value rather than short-term investments, assuming that the link between paper prices and physical prices haven’t been severed.  So, be sure to say, “thank you, Ben,” when you take advantage of the Bernanke discount to place your next order.