This Could Reveal Where Gold Prices Are Going Next
Are gold prices going to sink or swim, rise or flop from here?
What if when market analysts of the future look back at this period, they conclude that the reason no one saw the big move coming…was that no one was asking the right question…? The biggest gold influencer from here could very well be this once-in-a-lifetime sequence: an economic collapse, closely followed by a reset…
The Gold Price Wars—Where We Have Been
I have covered in my prior essays the fact that there is a definite PSYOP (psychological operations) or propaganda aspect to the Gold Wars. As international currency expert James Rickards recently blurted in an interview for his latest book, The New Case for Gold, “Americans have been conditioned over decades not to take gold seriously.” (Source: “James Rickards Interview,” Safehaven, April 7, 2016.)
(What makes this attitude all the more startling is that other cultures have adopted the opposite approach. Asians actively and instinctively look to collect as much gold as they can. The demand in India is so strong that the Indian government is constantly experimenting with mechanisms to “discourage” its citizens’ fondness for the yellow metal. Most recently, the government has tried asking its citizens to exchange real gold for paper certificates, and also added onerous duties, taxes, and import restrictions. Predictably, all this has accomplished has been to engender paranoia in that country, and make gold even more appealing than it already was.)
Everyone also agrees—pretty much—that we are now in the final and most crucial stage of the Gold Wars in that (covered in my last essay) the so-called commercials are more aggressive than ever in their attempts to stifle the metal by the time-honored method of “paper shorting” (i.e., selling short more pretend gold than may actually exist in our physical universe) while, simultaneously, waffling from the central banks and negative interest rate initiatives have so far given gold its best yearly start in some time.
Bottom line: the period we are now in could prove to be an inflection point, one way or the other, for the yellow metal.
The Gold Wars—Where We Are Going
Even a market novice will tell you that any stock or commodity can only do one of three things—go higher, go lower, or stay where it is.
What is most interesting to me, however, is that while everyone seems to agree on the issue, not everyone seems to agree on which factors will be determinative of that issue.
I read a considerable number of articles on gold prices each day. The vast majority of them are based on one or more of the following endlessly repetitive lines of reasoning:
- Technical Factors—this argument forms the basis for the bulk of gold opinion pieces. And not only is orthodox technical analysis used to try to make sense of the gold price itself, but more aggressive writers will often move to even more exotic charts—charts that look at ratios between gold and the Dow; ratios between gold and silver; ratios between gold and the miners; ratios between gold and the yen; etc.
The concern with relying so heavily on technical analysis (I have covered this before) is that it deliberately ignores the issue as to whether it is possible (or likely) that unknown agents are constantly manipulating the price of gold to deliberately trigger algos or stops—and ultimately produce a “reactive” gold trading price that suits their interests yet is not in any way indicative of true demand and supply.
James Rickards addresses this specific issue in his new work and is unambiguous as to where he stands: “The evidence for manipulation in this market is overwhelming. There is no other explanation for the current price action. The people I talk to are not conspiracy theorists, they are scientists.” (Source: Ibid.)
- The Almighty Fed—I fully understand why traders of all stripes and backgrounds are more Fed-focused now than at any point in the history of the institution. It is because the Fed has, in our lifetime, gone from simply being merely a passive market influencer to an actual cash-on-the-table market mover.
That last statement is so extraordinary that I want to repeat it in case the significance is lost. The Fed and its sister organizations (the other central banks, the Bank for International Settlements [BIS], the ultra-mysterious, deep-state Exchange Stabilization Fund [ESF]) have concluded that markets are much too important to be left to the mere whims of demand and supply; they must be directed, like an errant child, in the direction the central planners want them to go. In the last 10 years, in plain sight, the central planners took over first the debt markets worldwide, and then the equity markets.
To doubt that these characters have not been simultaneously active in the gold market is naiveté of the very highest order.
Nonetheless, even if involvement is assumed, even if the gold market is reacting overtly or covertly to Fed “nudging,” experts have opined that the physical side of the market has become so tight that the influence of the Fed on gold may be lessening over time. James Rickards recently referred to this situation when he said, “The current shortages in the physical gold market are so serious, the stories I hear about the difficulties sourcing physical gold would make your hair stand on end.” (Source: Ibid.)
- Inflation (Deflation) and/or Monetary Policy (Interest Rates)—The common wisdom is that inflation is good for gold prices, but deflation, not so much. Also, the common wisdom is that higher rates are bad for gold, while lower rates (or no rate at all) are good for gold. This essay is not the proper forum to present dozens of charts going back over a century, so I will simply point out, for those inclined to do the research, that the common wisdom is incorrect. If you go back to the early part of the 20th century and scan forward to the present day, you will find clear and identifiable periods where gold strengthened during times of deflation, and where gold gained simultaneously with rising rates. (Alasdair Macleod recently did an excellent survey of this specific historical data—you can check it out at “Gold Price Captured by Modern Banking System,” Zerohedge, April 9, 2016.)
So, in short, if you are looking for clear omens and portents as to where gold is headed, then these sorts of mainstream predictors—other than being self-reinforcing belief systems (i.e., if enough people follow them, they become true regardless of actual correctness)—are not the place to look.
So Why Do the Gold Wars Exist at All?
As this essay was penned, in April 2016, the so-called “paper gold” market is, sad to say, alive and thriving. That is, the day-to-day gold price is an expression of demand and supply not merely for physical gold (gold you can hold in your hand) but for a strange hybrid-amalgam of physical gold and paper gold combined. Of the two, the paper gold component is by far the larger. (The actual ratio is a well-kept secret but the latest reports suggest the number is potentially as high as 300 to one. That is, every day in the West, some 299 ounces of paper gold trade for every single ounce of actual gold, approximately.)
Experts feel that this strange and counter-intuitive phenomenon—where the price of a rare and hard-to-get hard commodity is determined by a bunch of anonymous traders who first create a synthetic or derivative version of that asset, and then trade that derivative vigorously among themselves as if it were the real deal, without legislative oversight of any kind—is the basis, the core reason, for the Gold Wars.
In other words, as the argument goes, the constant ebb and flow in the Gold Wars, the so-called “tension on the tape,” is there only because the overwhelming supply of paper gold is masking the shortage of actual physical gold.
If not for the paper gold, there would be no Gold Wars. The price would simply rise, and rise, and rise some more, until demand and supply came back into balance.
A Paradox Wrapped in a Conundrum
For the record, I fully agree with this point of view.
And, like most gold reporters, I pine for the day when the paper trading aspect of the gold market will be removed so that we can finally see what the price is when based on real market factors. Factors like real demand. And real supply.
However, pining and wishing by themselves do not change reality. Until we have a piece of news that definitely suggests that the paper manipulation of gold has ended, we have to assume that this system will continue for the foreseeable future. (In prior essays, I have commented on the possibility that the upcoming SGE Gold Fix, based on physical metal only, and due sometime this spring, may be the inflection point for bringing true demand and supply back to the gold market. For now, however, that is speculation only.)
So, to sum up, the above factors have created such distortions in the gold pits that, I have noticed, even the editors at Zerohedge have taken to referring to $10.00 up-moves in the yellow metal as “gold soaring.” They do this not because they have temporarily lost their grasp of the English language—since when does such a small move constitute “soaring?”—but because the tight constraints of the Gold Wars have limited the metal in the present period to incrementally small jigs and jags, as armies of traders from both sides of the battlefield are constantly trying to bend the market to their will.
My suggestion is that this situation—a daily tug of war punctuated by small moves back and forth—will continue until either something snaps, or a larger force sweeps over the market.
The Biggest Gold Influencer That Everyone Is Ignoring
Which raises the question, if the traditional gold “influencers” that you see mentioned everyday in the media are not going to significantly change the dynamic of this market, is it possible that there is another factor that the reporters are missing, a factor that can indeed change the gold dynamic once and for all?
I think there is.
And, as is the case with all powerful ideas, it is capable of being expressed in very simple terms.
And here is the nub of it:
The current system is not sustainable. Looking at things from a macro level, there are simply too many stresses and strains in the system for it to continue much longer.
An exhaustive list of the structural problems in the current world economic system is outside the scope of this essay. But you can see the traces, the paw prints, of the problem in every single economic headline you encounter daily.
Confidence in the central planners—essentially a group of third-party financial agents that your elected government picked to sub-contract the management of the money supply of your nation—is on the wane. Aside from providing good theater and entertainment (something you could get just as easily from Netflix) their track record is not great. This last decade, for example—a decade in which overt interference in formerly free markets by the central banks has broken every prior record—has been demarked by the largest transfer of wealth from the 99% to the one percent in history. You have to go back to the late 1800s to find anything even close to what is happening now. And the average citizen is clearly shown to be worse off, not better off, because of it.
Nations have, for their part, responded to this by trying to lower the relative value of their currencies, in a so-called “race to the bottom.”
There is only one problem with that strategy. Look closely at the word “relative.” The problem, the paradox, is that you can only devalue your currency relative to something else. If everyone devalues at once—which is pretty much what is happening—than nothing really changes…?
The “Missing Link” in Gold Market Analysis
So what is missing?
What is missing is something you almost never see discussed in the highly inbred world of gold reporting.
A reset: a deliberately created event by a number of countries acting together to re-ground, to re-collateralize, their key currencies, all at the same time.
For clarity, I need to stress that this is not a fanciful or theoretical notion. I believe that, even while being mainly ignored by both the mainstream and alternative media, this construct is a “ball in play” on an ongoing basis. The only ones not being kept fully informed about the process are, ironically, the ones who will be most impacted by the changeover when it arrives—i.e., you and me, the public at large.
The clues to what is coming are to be found in often-overlooked news and interviews such as:
- My own exclusive interview with Willem Middelkoop, presented here earlier in the year: In that interview, I underscored how Middelkoop, a writer whose primary topic is, no coincidence, “the coming reset,” is not a mere theorist. He was actually invited to one of a series of top-secret, rotating meetings on the topic (a meeting held in China) where it was confirmed to him that a reset was indeed coming; it was only a matter of time. (See: “Exclusive Profit Confidential Interview with Willem Middelkoop.”)
- Ongoing essays, missives, and interviews from Jim Willie: Willie has of late become the “Enfant Terrible” of financial reporting, saying things that no one else will say, or will dare say. He has an above-average track record, as well as a “Deep Throat” source whom he claims is a top-level negotiator at the sovereign level and is heavily involved in the plans for the reset.
(It also helps that Willie himself is a self-admitted U.S. ex-pat, now happily ensconced in Costa Rica. He uncomfortably admits to having already received a number of threats on his life but seems determined to continue his unorthodox reporting regardless. In terms of raw coverage alone, it can be argued that Willie has lately become the #1 most in-demand financial interview in the entire spectrum of Western alternative media.)
Willie’s latest interviews present the view that the reset process will not be a single event, but rather a series of seemingly unconnected events culminating in an announcement of historical importance—events such as the recent admission of China into the special drawing rights (SDR) basket of currencies; the massive under-reporting by China of its true gold holdings; the ongoing acquisition of gold by Russia which, ironically, has kept its currency relatively stable, even while the Western press has suggested otherwise; the recent meeting between China and officials from Kazakhstan to discuss establishing gold-backed trade along China’s “One Road One Belt”; China’s move to create alternatives to the Western Swift System for digital settlements (called CIPS) as well as its own version of the International Monetary Fund (called AIIB)…and so on.
Willie is especially adamant on one point: “The very word ‘reset’ is a misnomer, a euphemism. What is really being secretly negotiated is a simultaneous devaluation of all currencies against gold!” (Source: “Jim Willie Interview,” Silver Doctors, April 7, 2016.)
- To this short but potent list, I would like to add James Rickards who, in doing interviews for his brand new book (mentioned above), expressly and unambiguously adds his own authority to the view that a reset is indeed coming. Rickards, by the way, is something of a “rock star” among gold commentators because he is the only financial writer who can claim to have participated in top-secret “financial war game scenarios” run by the Pentagon, to determine who would come out on top in the event of a total economic collapse. His recent observations include the following:
“[…] The BIS—Bank of International Settlements—is a ‘dark pool’ that the central banks use to move gold among themselves. They use leverage of at least 100 to 1 when they sell gold to private investors. They call it unallocated gold. That is the same thing as ‘no gold’, because not everyone could get their gold at the same time if they wanted it.
“[…] Every time in history that a fiat currency has failed, the only solution has been to back it with something real.
“[…] Think of 5 soldiers sharing one canteen. The first one drinks and passes it along to the next person who passes it along and so on. The point is there is no water left for the last solider. Not everyone can cheapen their currency at once. The only way to do this is for everyone to cheapen their currency against gold. After redistributing the official gold holdings and having monetized everything from bonds to stocks, the world’s governments and central banks won’t have a choice left other than to devalue paper money compared to gold, the same trick President Roosevelt used during the great depression and with the same objective of getting rid of an unsustainable debt burden.
“[…] I definitely see a reset coming…this is why China is acquiring thousands of tons and lying about it, why Russia is acquiring thousands of tons. Our trading partners are trying to get out from under the dollar.
“[…] The gold-to-GDP ratio will be critical when the monetary system collapses because it will form the basis for any monetary reset and the new ‘rules’ of the game. In a monetary reset, gold will be the ‘chips’ that are used to play a game of poker. Russians, Chinese and even the Iranians are stock-piling gold because of this fear.
“[…] If Gold has a role in the future monetary system, Gold’s price has to go up. Gold itself cannot multiply at the alarming rate that we will need it to. But we can always increase its price and so maintain the parity between supply and demand.” (Source: Safehaven, op cit.)
The gold market is a hot topic, of that there is no doubt. There is, however, some doubt as to whether the gold reporters are telling you everything you actually need to know.
For literally decades, the gold pits have been silent witness to a clandestine war between those who value the metal and those who hate it and fear it because, when tied to a currency, it limits the abusive and subversive practices that our governments have become addicted to. Practices that they now consider part and parcel of the “perks” of governing.
In the West especially, the amount of damage done by PSYOP anti-gold propaganda has been staggering. There are experts who believe that even if gold prices were to move back to $1,900—a notion to make the gold bulls swoon—the paper short-sellers would still be chomping at the bit, believing that number to be a major resistance level almost guaranteeing them a retracement back to the bottom. This kind of lopsided negativity does not arise naturally or organically. It has to be seeded and cultivated and nourished over time, the same way you would tend a garden. Somebody should step forward and take a bow. This is brainwashing at its finest.
Against this tense background, the Gold Wars just grind on. Every little twist and turn in the gold price becomes fodder for new speculation.
However, time and hindsight may well prove that the most determinative factor of all—a factor that could potentially move the price hundreds if not thousands of dollars—is the one that no one is talking about.