For those not familiar with the commodities market, gold and silver are traded on the COMEX (Commodities Exchange, a division of the New York Mercantile Exchange). This is where sovereign wealth, bullion banks, and the JPM/Goldman Sachs' of the world buy and sell their paper and physical positions of precious metals. There's one problem - the COMEX is running out of physical supply of gold and the megabanks are liquidating their positions. The NY Fed and all of the US vaults are empty. All of the gold is moving to the BRICs countries and the second China decides to back their currency with gold, it's game set match. They are a very patient people, and will laugh maniacally when the dollar finally becomes the latest currency added to the dustbin. India and Russia have also quietly built up their reserves while pretending to sit on the financial fence during the ongoing currency wars with US/Euro/Japan.
This precious metals takedown is the last ditch effort to keep the dollar strong and send the message that quantitative easing is working and that there is nothing to worry about. Precious metals tend to rise in value during crises or whenever there is economic uncertainty. Gold and silver wouldn't be valued as high as they are if things were going swimmingly. Here's how the public is tricked: megabanks like JP Morgan, Goldman Sachs, Citigroup enter into contracts to sell gold that they borrow ('short sales'). At no point do they ever own or even touch the physical metals. When the counterparty wants to exercise the option, the megabank needs to buy back the metal at a lower price. The very act of entering into a 'short' contract puts downward pressure on the market. This has been done in extremely large amounts, with JPM being the main perpetrator. Panic grips the market, and the perception (and reality) of falling metals prices causes the weak hands (Johnny Investor) to sell to the strong hands (Megabanks). This is what has been happening since April. The Powers That Be (TPTB) have been sending the message that precious metals are not to be owned. But a strange thing is happening - gold and silver for physical ownership are getting harder and harder to find, and when they ARE found, the acquisition cost keeps rising.
Each seller of the metals charges anything from 5% to 35% in premiums above spot price. They know how badly investors want gold and silver, so they can pretty much get away with any price. Not only are countries hoarding this stuff, but everyday people are getting in on the action as well. Cash For Gold stores continue to pop up, and gold is usually sold within hours of it coming in the store. I've spoken to numerous store owners and they are saying the demand is unprecedented. Never in their 30+ years of economic cycles have they ever seen anything like this phenomenon. I personally acquire my stash of bars and silver dollars through monthly trade shows (which are packed, by the way). Folks in the investment industry are now suggesting an asset allocation of around 5-10% to precious metals/commodities. Sales of American Eagle silver dollars are up between 25-50% over the same time last year. Check out this link below - people in China are lining up in droves just to buy gold (at an obnoxious premium during the recent Dragon Boat Festival):
Think the psychology of the everyday investor changing isn't compelling enough? Read the below recent unheard-of developments in the precious metals market:
1. COMEX rumored to be defaulting soon - this is the main conduit for PM exchanges. Imagine going to a grocery store and seeing the shelves all bare. Or a Dunkin Donuts with empty metal bins. Fear would grip the markets, as the pent up demand for physical would finally drive prices through the stratosphere. The COMEX has a very high likelihood of running out of metal. Completely. But as mentioned earlier, paper shorting of the metals keeps prices down. See next item.
3. Banks demanding cash settlement upon redemption. Dutch bank ABN AMRO made news recently by no longer allowing investors to reclaim their gold. If you had left your gold there in the past, you can no longer ask them to give you your gold back. They will give you the cash equivalent from now on, or give you GLD ETF shares. JPM used to be the biggest shorter of paper metals in the world, and now they are winding down the contracts, and have a historically low amount of registered ounces in their accounts right now. China/India are hoarding 80% of all newly mined gold each year. Is this a sign that the great gold bank run has begun?
4. Shadiness in delivery. As if settlement in cash isn't weird enough, those at banks without this policy are noticing something strange about the gold bars they put in a safe deposit box.....the serial numbers are different and they are marginally lighter. "No no, you're confused.....here you go it's the same bar you dropped off in 1994 thank you buh bye." You don't think we'd defraud innocent customers with replaced gold bars or even worse....tungsten-tipped bars, right? HA! Ask China how that went in 2009.
Yeah so back in the late '80's/early 90's, we took to borrowing gold from China. They started asking for it back. But we used it in other transactions and uhhh....don't have it anymore. So we swapped it out for fake gold bars in the form of tungsten, which has similar properties but is a little lighter. China has been pissed ever since, but can't do much because their economy is faker than the Farrah Abraham's boobs so basically it's one big 'touche' from one central bank to another. I've also mentioned the fact that Germany is starting to ask the NY Fed to start repatriating their gold. Except, uhhh.....the NY Fed doesn't have it either. Looks like JPM keeps unwinding their positions and using the actual tunnel connecting its NY headquarters to the NY Fed to deliver the bars and give the illusion everything is fine. Guess what we told Germany? "You will get your gold, but it will take us seven years to complete delivery. Sorry for the inconvenience."
At least we located Moammar Ghaddafi's gold stash in Libya/South Africa. At least France invaded Mali, home of numerous gold mines. At least we got Saddam's gold reserves. You get the point. Replace the empty vaults with whatever you can find. Gold, oil, and the petrodollar make the world go round. He who has the gold has the power. And I think I was pretty clear that we don't have the gold (unofficially). The latest figures still show us with over 8k+ tons (5k more than #2 Germany). But these records are notoriously cooked and outdated. China could very well have over 10k tons at this point but doesn't report their holdings. India and Russia are zooming up the charts. Expect a power shift to the East in the next five decade.
After all the lies/scandals/bait and switches plaguing the administration, I wouldn't be surprised if this happened. Alinsky tactics to shame the 'hoarders' of precious metals, criminalize their behavior (just like anyone owning a scary looking gun that isn't registered properly), settle in crappy toilet paper dollars as the market implodes. Great way to bring all the wealth back to the fat meathooks of Uncle Sam.
So this is what's going on in the metals market. Gold and silver have been around for thousands of years. Fiat currencies that come and go have not. The writing is on the wall for the US dollar, and those that are smart will hoard up metals, bullets, guns, and food. Southern states have already begun drafting legislation to recognize silver and gold as legal tender. I would expect this to expand to the midwest before long. If you're awake, you get the feeling that something is not right with the world right now, but especially in the US. Nothing is working. Nobody is working. Congress sucks. Government can't be trusted. We're going to pass bipartisan, sweeping immigration reform that will be the death knell for America as a global leader and guarantee the death of the conservative politician as a viable candidate in a general election. New scandals every week. Both parties eternally bickering. We are fed up at this point. No more. This country is gearing for a civil war/martial law scenario where barter and precious metals will be the new system. Make sure you are on the right side.