It looks like Ranting Andy Hoffman will get his own afternoon blog, starting next Monday. Andy is a “stand-alone” kind of guy. Love him or hate him, he has strong opinions on the economy and precious metals. We here, at Miles Franklin, love him; that’s why we brought him on board. Judging from our deluge of emails in the past week, our readers love him too. Andy and I discovered that we are really “twin-brothers from different mothers.” Andy and Miles Franklin were made for each other. He tells me that this will be his last job! We sure hope so.
What was the $40 plunge in gold, at 10 a.m. all about? If you are looking for a logical reason, forget it. It is now 12:30 a.m. on Friday and low and behold, gold is back up to $1,767.30 and all but $2.70 has been recovered. Silver is only down $0.09. Ask yourself, “What motivated seller would dump such a large quantity of an investment on the market at once to reduce the profit they got on the sale?” It is not a financially prudent thing to do, and yet it happens time after time with gold and silver.
If you think this kind of 10 a.m. “Shock and Awe” attack is an anomaly, here are comments and a chart courtesy of Dimitri Speck that explain a lot – (compare the 11-year chart, below, with the next chart showing yesterday’s market action.)
Intra-day averages clearly show market intervention. You’ve seen it before, right? Suddenly, the price of gold or silver drops like a rock. For no apparent reason a chunk of its value is lost within minutes. In other markets however, these kinds of rapid declines are extremely rare.
Why do these sharp price declines seem to appear out of nowhere? Usually professional investors do their best not to execute large sell orders all at once in order to avoid moving the market so as to conserve profits. Nevertheless, in the precious metals market it seems some market participants are often clumsy, triggering abrupt price drops. The reason however is not clumsiness, but other interest: these players want to influence prices with their selling actions. Since August 5th, 1993, when these sudden price moves began occurring with statistically measurable frequency – a number of financial institutions have intervened systematically against precious metal markets.
These actions were introduced under leadership of the U.S. Federal Reserve. There are a number of motives behind it, such as capping inflation expectations or calming markets by signaling stability during times of crisis. Over time the profit interests of private banks with close business ties to the central bank were also a reason. These shock-like price pullbacks are a means of pressuring gold and silver prices in order to intimidate and unsettle investors and drive them out of the market. These price declines have been thoroughly analyzed in what is now the single most significant monetary metal market – gold (see www.geheime-goldpolitik.de/english).