first majestic silver

Gold’s Organized Retreat. Who Benefits?

Author, Editor, Founder, and Executive Director @
November 27, 2013


“There are insiders here who are in a position because of their inside knowledge to benefit from this intentional manipulation that is ongoing. These people, I suspect, are accumulating physical gold at artificially depressed levels.

Certainly we’ve noticed some of these suspects converting at very attractive prices their holdings of GLD into physical. This typically gets reported in the mainstream media as Soros, or name another elite, selling or reducing their stake. And this just isn’t right. For the most part these entities are converting their (paper) gold into physical (gold) in lots of 100,000 (shares of GLD). They have the wealth to do that.

So that’s the real picture, and of course that’s not a bearish activity, that’s bullish. But the mainstream media continues this propaganda of gold being in a bear market, when the reality is it’s paper gold being manipulated down, and it’s physical gold that is being hoarded at a frenetic pace. There is an enormous ongoing bull market in physical (gold) which exactly matches the manipulated paper bear market that we are seeing on the Comex.”

- William Kaye, former Wall Streeter (Paine Webber, Goldman Sachs), now Hong Kong hedge fund manager

King News interview

There is quite a bit of speculation as to who might be benefiting from gold’s seemingly organized retreat. Some say the price has been driven down to fulfill Germany’s repatriation at lower prices. Then there are those who believe that others could be attempting get ahead of Germany knowing that physical availability is limited. In keeping with this line of thinking, there have been persistent rumors of future Swiss, Dutch and Mexican official repatriations in the works.

The physical evidence, as reported here over the past several weeks, points to China as the chief culprit in the physical delivery game channeling massive amounts of gold through its London-Switzerland-Hong Kong pipeline (GLD liquidations) The reported deliveries through that pipeline do not match China’s reported imports. That might mean there’s a glitch, or delay, in the reporting mechanism, or it could mean that the gold is going elsewhere.

Kaye has an interesting take on the situation. John Paulson liquidated a portion of his GLD holdings (some 30 metric tonnes) and converted to swaps on the over the counter market (another paper instrument) — but this is small potatoes made large by the mainstream press, as are Soros’ maneuvers and the rest of the hedge fund demand. By comparison China’s imports, according to some market watchers, are on the order of 2500 tonnes, nearly the equivalent of the annual global mine production.

If there is value in monitoring the hedge funds and global banks, it has to do with watching and emulating how a very savvy and well-connected segment of the market is reacting to the global currency wars and on-going physical gold deliveries. The trouble with this kind of analysis – attempting to get a grip on what’s going on in the paper gold market — is that you never know the other side of the trades booked on the Comex, as they are mostly offset in London’s foggy over the counter market. A trading desk, for example, might be long on the Comex, but short in the London OTC — so its book is level. On the other hand, if it is long on Comex and short in London, it might be because of upcoming delivery obligations in London, and that could get cumbersome. Since the London OTC trades there are private contracts, we simply don’t get the full story. As a result, the door is open to all sorts of speculation, none of which can possibly be on sound footing simply because a good portion of the evidence is missing.

Any traction we can gain is usually based on anecdotal evidence that points us in a direction, but never quite gets us to the end of the yellow brick road. For example, if you look closely at the timing of the two biggest stair-step downtrends in the gold market, they came just after Venezuela’s repatriation announcement in August, 2011 and Germany’s in January, 2013. What should have been bullish events became bearish instead. It’s difficult to believe that the timing of the announcements and the stiff down legs is simply a coincidence, but it is also impossible to prove that it isn’t. So, once again, speculation becomes rife, and there are as many theories on the internet on coincidences such as these as there are labels on chocolate chip cookies. What we do know for certain however is that at this time large amounts of bullion are being mobilized and headed, most assuredly, to strong hands whether they be European or Asian.

Of course, for the prospective gold buyer, whether adding to existing holdings or getting started, it all gets down to a matter of belief:

First, whether or not you believe in gold as a “measure of wealth” as Richard Russell so elogquently puts it (see below); and

Second, whether or not you believe that the gold will be there for you to acquire should Kaye and those in agreement with him turn out to be right. After all, the pressure on existing physical supply is not occurring in a vacuum. We are in the middle of a jolting restructuring of international reserve assets.

On behalf of our family and the crew at USAGOLD, I would like to take this opportunity to wish all of you a very Happy Thanksgiving. It has not been the best year for gold from a price perspective, but corrections are events to be expected — and a sure sign of a healthy market. I do not believe that gold’s secular bull market is over by any stretch, and even if the gold price is being managed for nefarious purposes, it cannot be restrained for long. To support that contention, please consider the overt official restraints of the late 1960s (the London Gold Pool) and the mid-1970s (U.S. Treasury and IMF sales). Both efforts collapsed in a heap and gold rose in multiples. Both events represented the calm before a major monetary storm.

All the best, MK


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Michael J. Kosares has over 40 years’ experience in the gold business. He is the founder and executive director of USAGOLD (both the website and gold brokerage service), the author of three books on the gold market, and the editor of "News, Commentary & Analysis," the firm's client letter. He has written numerous magazine and internet essays and is well-known for his ongoing commentary on the gold market and its economic, political and financial underpinnings. 

The California Gold Rush began on January 24, 1848 when gold was found by James W. Marshall at Sutter's Mill in Coloma.
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