I think we have all seen this series of attacks on gold and silver on the COMEX, but also outside of it, in London and Hong Kong, as has been the case for every gold price control operation since 2013. The last few days, these attacks have grown more intense, as shown by Hulbert’s sentiment indicator, which has fallen at a 14-month low (lower than at December 2013’s trough of $1,180). But, notwithstanding sentiment, if any market is pounded by determined bankers it can go even lower, and contrarian investing might fail just as much as fundamental analysis of the market, albeit on the short-to-mid term.
Technically, gold is coming out of a symmetrical consolidation inverse triangle and might be testing its $1,180 low, which could explain the capitulation of some bulls, at least the ones closely following technical indicators. We often see moves that become self-prophesized when many participants follow the same indicators. But this move could turn out to be a short-lived one that could be invalidated by a reversal of trend, leaving a majority of traders in the water... (contrarian point of view).
Bob Moriarty said that no one has ever won anything by saying that markets are being manipulated. But if one knows a market is manipulated, one can study the manipulators’ logic and predict their modus operandi. And since the Fed has found itself stuck with an historical insane balance sheet, historical asset buying, and for the longest of time, we have witnessed highly suspect activities in the gold market, particularly in April and June of 2013, to which we may add numerous flash crashes, also in 2014. The Fed, thusly, is trying to establish a new axiom for the financial markets: “All fire exits are under control; one needs to stay in the bonds and stock markets, and, above all, within the banking system (price of paper gold and silver manipulated by a banking cartel, swiss franc exchange rate manipulated by the BNS, gold import restrictions by a U.S.-controlled Indian government in order to cause a decline in physical gold demand, and, above all, interest rates that have been manipulated for much too long).”
But getting out of this ultra-accommodating policy with interest rates on the floor might be a tad more delicate than tapering QE3. It is crucial for the Fed to wield the weapon of lowering interest rates when the bonds bubble and the stock market bubble explode. The Fed’s worst nightmare is that the bubbles explode first! Notably, billionaire George Soros is betting heavily at the moment with his fund on a stock market crash and on the Fed’s incapacity to raise the rates without creating a panic for the exits. But let’s not underestimate the Fed’s capacity of controlling financial markets since 2008. Regular support to the stock market at key levels coupled with regular attacks on the gold market to keep it from truly reflecting the state of the economy seem to have become new tools of regulation for the Fed.
In January, February and March 2013, the miners were massively sold and were anticipating a $1,000 price for gold well before the historical April 12 and 15, 2013, COMEX smash-down. Some insiders knew... and support for the miners broke well before it did for gold and silver. Coming to think of it, don’t you find it strange that both gold and silver were brought back to their crucial support just before the attacks? Magnificent timing, albeit very suspect... I think that the modus operandi of those attempting to control the market goes like this:
1) A cartel of large banks is formed and is in charge of operations for the Fed.
2) Gold miners are shorted by those banks or some insiders in anticipation of interventions, and for profit as well.
3) Prices are managed well ahead of time to bring them down to key support levels simultaneously, where coordinated attacks will be launched when the Fed gives the signal (often just before, during or after the Fed’s meetings or important public speeches). It can be observed, in fact, that the gold price is very often under attack right after the FOMC meeting, sending a positive message to the markets.
And what are we seeing these last few days? Silver has been brought down to a crucial support, gold is getting there, and miners were sold heavily on September 4, and for no apparent reason, just before the attacks on gold that broke an important support between $1,250 and $1,240. I think the April 2013 scenario might repeat itself, just before a psychological preparation for the markets to get ready for a rise in base rates.
No matter how excellent gold fundamentals are, it will probably play its role of financial markets’ “punching ball”. I wonder what the sentiment be if gold were to break support below $1,180? Terrible, without a doubt, and gold would again leave the various ETFs, en route to central banks’ vaults, before a massive revaluation of the gold price in order to extinguish the debt. In the midst of all that, the small investor would be devastated and rue the days when he decided to invest in physical gold! He would only be praying for the market to give him back the price he got in at... to get out of this nightmare. And then the market would go on without him... Markets can go up this way for ten years, and then correct for three of four years, thus getting rid of those with too short an investment horizon or whose nerves have reached a breaking point, and then explode to the upside without any warning and produce the best gains in the last years, once the manipulation fails and the financial markets collapse, inevitably. The elastic band will rebound more than if it hadn’t been stretched beforehand. Or we could see the closure of the financial markets with the price of gold being drastically revaluated in order to save the sinking ship, which would leave the traders out... In any case, maximum frustration is to be expected.
What to do in such a difficult situation? As far as I’m concerned, I’m staying long in this market, but I’m setting stops with my trading portfolio at support levels for silver, gold and gold miners (oblique support).
We have no way of telling if the Fed is getting ready for another assault on the precious metals markets but the latest moves are suspicious enough to warrant caution. Protective stops are thus absolutely necessary! At the moment, anything is possible, whether it be a rebound or a break below support. It is impossible to measure potential buyers’ strength near those supports, thus we can only observe this tug-o-war between bulls and bears on the paper markets and try to side with the winners in our trading positions. This very depressed sentiment speaks for a very strong rebound and a taking of the bears to the cleaners, but there is no clear support for gold before it touches $1,200-$1,180. So, the miners are at risk of capitulating once again while gold ends its correction. If ever oblique support were to falter during this test, it would not bode well for the future. If oblique support stands, the April 2013 scenario would then be less likely to occur, because if insiders knew about a massive intervention to occur on the paper gold market they would unabashedly massively short the miners, and these miners should actually be at a lower level than their oblique support.
As you will see with the graphs below, our situation looks a little like April 2013, albeit with miners in better posture (the only indicator pointing to a rebound in the metals), and we will go through an important turning point with the end of manipulation or experience a hard defeat for gold, with stock markets inflating their bubbles until 2015... with everyone cheering!