I had not planned any commentary today but with gold “down” $65 per ounce I will put my 2 cents in. As you know, I called “bottom” about 5 weeks ago the first time we hit $1,550 then again about 2 weeks ago on the retest of those levels. They were broken decisively today. The reason for Wednesday’s sell off of $25? And the reason given for today’s $65 by the CNBC know nothings? Cyprus!
Yep, Cyprus may sell ALL of their gold and swamp the market! This week’s price action is merely “front running” these sales in order to get out before the price is CRUSHED! But wait, Cyprus has less than 14 tons of gold… this is worth some $650 million (yes, with an “m”) yet they have an updated shortfall of some $23 billion (with a “b”) so how does selling their gold fix their problems? Well obviously it does not even amount to a drop in the bucket as it is only 3% or so of what capital they will need to raise!
Let me put this into perspective for you in a couple of different ways. The Fed is creating $85 billion per month or close to $3 billion per day, 24/7. The Cypriot gold is only 1/5th of what our Fed prints EVERY day! The U.S. Treasury borrows some $4 billion per day to keep our well-oiled economic engine running. ALL of the Cypriot Gold is about 1/7th of what the U.S. borrows each and EVERY day. Last month, China imported from Hong Kong alone some 97 tons or roughly 7 times the amount of Cyprus’s total gold holdings, the Cypriot gold is a mere 4 day’s worth of imports. One other way to look at this is that 14 tons is about 6 tenths of 1 percent of the global production of gold for 1 year… it is nothing. No, $650 million in today’s world is LESS THAN NOTHING!
So, we are told that the sale of $650 million worth of Gold has just caused a 3+% drop in the price of gold (and more than 5% in silver). Is this credible? And if it had any credibility at all, this is gold being sold, not silver so why would silver, platinum, palladium and even copper be sold off? I will leave you with a few questions that I won’t answer because the answers are too obvious. Do you really believe that holders of physical metal would part with their metal if they knew something bad like a system wide banking failure was imminent? Or a (another) sovereign was going to default? Or some whackos were going to start lobbing nuclear weapons up in the air? Would physical holders sell (in panic fashion no less) because a “treasure” was found or some new mine opened that had 14 tons of gold?
Do you see the lack of logic here? Literally trillions of dollars in paper monies are being put into the system and gold is not only finite, it is scarce to begin with. More physical has been purchased than produced over the last at least 20 years so we know that “inventories” are shrinking. Do you not think that the Chinese would like to take an extra 14 tons into their hoard? How about India? There are reports of shortages of gold in south India, wouldn’t they like this 14 tons to alleviate the shortage?
Or, maybe I’m reading this thing the wrong way. Maybe investors are selling their paper gold because they suddenly realized that it has no backing. Maybe they will sell it all the way down to its intrinsic value… ZERO! All I can say is that in the past whenever gold was sold off in violent fashion, we soon found out about another BIG problem that was brewing behind the scenes. This is my bet, something big, REALLY BIG is collapsing out of sight of the public’s eye and we will only learn of it after the fact.
By the way, when the markets close there will be a period of time where no one has a clue about what the “price of gold” is. The only thing you will know is whether you have it or not.