A Staggering Bank Outflow of Gold

In this week’s Letter, Ivan Lo talks about gold’s dramatic drop, the rumours surrounding gold’s decline, world gold demand, the lack of silver supply, a shocking fact about a big bank, gold price expectations, and gives a bitcoin update.

Dear Readers,

It’s been yet another crazy week of market manipulation, with the Fed continuing to win the battle of currencies.

Gold was once again forced down significantly, closing down 4% on the day, on what appeared to be blatant market manipulation. The drop marks gold’s lowest close since July 2011, and it also means gold has now dropped more than 20% from its peak, signalling bear market territory.

But what’s shocking* is how it all happened.

*or not so shocking, given we’ve seen this manipulative selling before.

Gold Trading Halted

Gold’s plunge into bear territory took less than 20 minutes starting at 10:25 a.m. in New York. By 10:44 a.m. gold breached the bear threshold. Trade data showed large contracts of sell orders doubling the contracts of the buy orders. As a result, the manipulative effort caused a 10-second trading halt during the plunge.

According to whistleblower Andrew Maguire, more than 500 tons of paper gold were sold during the selloff that took gold from $1550 to below $1500.


An Absurd Cause-Effect

No one could explain why gold fell the way it did. So the media did what it always does: make stuff up.

Stories were floating around that this was partly as a result of Cyprus, where a draft document proposed central-bank gold sales of over $500 million to fund their bank bailout. While the central bank sale may happen, it’s an absurd cause-effect relation to the dramatic fall in gold price on Friday.

First of all, Cyprus is a country with a GDP of less than $25 billion. They have no effect on the world. Meanwhile, countries such as China – with a GDP of $7.3 Trillion – is still trying to buy thousands of tons of gold. If news got out that China was selling their gold, then I may decide to turn on gold.

Consider this: There is over 160,000 tonnes of above-ground gold supply. If Cyprus is forced to sell gold to cover their obligations, it will have to sell the majority of its gold reserves; 10 tonnes out of their total and negligent 13.9 tonnes of gold.

That’s 0.00008% of the world’s above ground supply.

Yet gold fell 4% in one day.

Why isn’t anyone asking who will buy their gold? Germany, perhaps?

It seems that when a country cannot meet its financial obligations, it relies on its gold to bail itself out. What will you have if your bank (Lehman Brothers reminder) goes belly up? Perhaps that’s why central banks are hoarding gold.

That’s the ignorance of the market, proving my Mass Theory once again.

So while paper gold continues to be forced down, the physical side remains stronger than ever. Especially in China…

China Continues Gold Shopping Spree

china gold

While China’s doesn’t report its central bank purchases, the World Gold Council (WGC) reported that investment demand for gold in China was up 24 percent in the fourth quarter 2012, compared to the previous quarter.

According to Maguire, via Kingworldnews, China has already publicly purchased over 400 tons of gold in less than a month and a half:

“…Deliveries in Shanghai alone in March were 283 tons. In the eight trading days of April, we have seen another 117 tons (of gold) delivered. Today was another 20 tons delivered. So what we are looking at here is over 400 tons (of gold) in less than a month and a half.”

One can only imagine that as gold drops, China is having a blast printing money to buy more gold at lower prices.

But China isn’t the only one buying gold; the whole world is.

In the WGC’s latest report, central bank buying for 2012 rose by 17% over 2011 to some 534.6 tonnes. That’s the highest level of gold purchases by central banks since 1964.

Yet the media will have you believe gold demand is
shrinking. And who controls the media?

Trying to Buy Silver…Real Silver

Never mistake mob mentality for fundamentals. When fundamentals are strong but sentiment isn’t, it isn’t time to lose faith.

I use a lot of different dealers when buying physical silver because their prices fluctuate so much that it sometimes makes sense to go with one instead of the other. Other times, it’s simply because one dealers can’t supply me with enough silver without having to take months to fulfill my order.

Right now, it seems that almost every dealer is experiencing a shortage.

Take a look at this letter I recently received from a bullion dealer in the U.S.:

“Dear Ivan Lo, Your order XXXX was originally scheduled to ship this week. However, due to the unprecedented high volume of orders we have in line for shipping, it now appears that we may not meet our original shipping date. While we are making every effort to ship your order as soon as possible, it is possible your order may take an additional 30 days to ship. Your order is now scheduled to ship no later than May 6th, 2013, We apologize for the delay and appreciate your continued patience.

If you choose not to wait the additional thirty days for delivery, you can choose to sell your order back to us at current market prices any time before the order is shipped.

If we are unable to ship any portion of your order by May 6th, 2013, you are entitle to receive either a full refund of the amount you paid or the prevailing market price of the item(s) you ordered, whichever is higher. Other options may be available to you as well.”

Silver EagleI wasn’t buying Silver Eagles or other silver collectable coins; I was buying 10oz wafers, 100oz bars, and 1kg bullion bars. I already paid for the silver in full, yet the dealer is having troubles finding enough silver to sell me. But I am not alone.

According to the U.S. Mint, demand for physical silver coins hit a new all-time record high during the month of February. In just 6 business days this month, the U.S. mint has already sold 1,712,000 ounces of Silver Eagle coins, bringing the 2013 total to a whopping 15,935,000 ounces of coins. This doesn’t include any sales of bars or wafers.

When Something Doesn’t Seem Right, It Probably Isn’t

I am not a gold bug but I believe in gold’s value because those who control our money not only own a lot of it, but are buying more than ever. I am not saying you should go buy every gold and silver stock out there, or spend all of your money on bullion because there are many ways to play this market; I have suggested many ideas in the past.

If I was a gold bug, I wouldn’t have called for the S&P to go past 1500 last year, nor talk about strategies on how to bet against the yen, while long Japanese equities.

This newsletter isn’t about precious metals or resources. It’s about sharing world events that could significantly impact your portfolio. It’s about sharing news you should know, before it happens; before the media talks about it.

Something is happening around the world that the average investor is choosing to ignore.

The price of gold has been forced down during a time where central bank buying has never been stronger, and demand around the world continues to grow. Meanwhile, the media and the banks are on a collaborative effort to destroy its value by signalling sell signals across the spectrum, without fundamental support as to why.

Rumours are spreading amongst many underground investigative reporters that many of the big banks are forcing the price down because of their own shortage.

In particular, the good ol’ boys from JP Morgan, who have been investigated on numerous occasions for precious metals manipulation, seem to be a big part of these rumours.

A Staggering Bank Outflow of Gold

According to Tekoa Da Silva:

“Over the last 90 days without any announcement, stocks of gold held at Comex warehouses plunged by the largest figure ever on record during a single quarter since eligible record keeping began in 2001 (roughly the beginning of the bull market).

…Total drainage of physical inventories reached nearly 2 million oz.’s of gold, which at today’s prices represent roughly $3,000,000,000 dollars.

…What is most interesting in reviewing this chart data, is seeing where the largest drops have occurred. The largest inventory drainage is being reported from JP Morgan Chase & Scotia Mocatta warehouses…JP Morgan Chase’s reported gold stockpile dropped by over 1.2 million oz.’s, or rather, a staggering $1.8 billion dollars worth of physical gold was removed from its vaults during the last 120 days.”

Take a look:

JP Morgan Gold Drainage
Source: Nick Laird, Sharelynx.com
Comex Deliveries
Source: Nick Laird, Sharelynx.com

My job is not to tell you if the rumours are true or not; it is to share the stories I find and let you make your own judgement call. What do you think? Where is the gold going? Is it going to replace the reserves that Germany wants back? Is there a lack of gold supply for the ETFs that are supposed to be backed by gold?

So many questions…

Gold Price Expectations

I have to believe that fundamentals will eventually catch up with the market, but the amount of intervention by the powers that be is really messing up the crystal ball. I expect that gold will continue to be manipulated and attacked. That is why I said be weary of gold prices in a recent letter.

The record liquidity by the big four central banks has been injected to boost confidence in the market by forcing economic growth via artificially inflated asset prices; in particular, stocks. But if gold continues to move higher, their work would be worthless as the liquidity they create could be fuelled into gold.

If that happens, there will be billions of dollars injected into the gold sector that could otherwise be used elsewhere, such as the stock market. When the stock market is generally considered a leading indicator of our economic future, you can bet the big four will do whatever it can to make sure the money goes into stocks, and away from gold.

Does the recent attack on gold mean it has reached the point of capitulation? Can central bank purchases overwhelm the highly leveraged short sales in the market?

I am not sure we’re quite there yet to overpower the banks, especially when China and other countries would prefer to accumulate in secret as to not drive the price of gold up. Most technical indicators signal that we may be headed further down for gold, but support levels still remain for silver.

Many of you may be tired of hearing about gold, silver, and currencies; I am tired of it too. But the hard fact remains: money and wealth protection against the monetary policies of the big four central banks (BOJ, the Fed, BOE, and ECB) need to be addressed now, to prepare us for what will happen in a few years.

It may be a distant memory, but early last year everyone was screaming to get out of equities; yet, I called for the S&P to surpass 1500. Believe me, it wasn’t an easy situation as many of my readers include some of the biggest analysts and fund managers in North America. I got emails and phone calls calling me an absolute idiot for thinking that the stock market was going that high. But I stuck to my guns and here we are now a year later, with the S&P well above 1500. Now everyone seems bullish. Go figure.

My point is that the same can be said for gold and gold stocks. The sentiment for gold stocks has never been worse.

The Hulbert Gold Newsletter Sentiment index (HGNSI), which measures market timers’ recommended exposure to the yellow metal, is now at -31% net short, the lowest point since the inception of the survey in 1997.

When sentiment is at its lowest, it usually signals a great buying opportunity. We may still have some downside, but that only signals a better entry.

I can’t call an exact gold price, but I do believe it is going higher long term. Anyone that believes they can call a specific price number is just guessing, or they know exactly what both the big four central banks and the emerging markets will do; in that case, they should be President.

A major rise in inflation could be many years away, but soft commodities are already showing us signs. For example, cotton and frozen concentrated orange-juice futures are up 13% and 22% since the end of last year. And if you go back to my letter, “A Scary Prediction” you will see that the price of many food and essential items have been steadily rising.

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