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Gold Price: Bull Run Or Bear Trap?

January 21, 2015

Gold has been on an upward tear these last few sessions, suggesting that there is every possibility that a bull phase has begun for the monetary metal based on certain macro-economic factors. But does the current move portend a trend? Or is this just yet another one of those booby traps gold’s market puppeteers are now famous for?

Is gold going to climb into the near-$1,400 range before Jeffrey Currie proclaims “Short Gold!”, presaging an utterly reckless overnight sell-off of gold futures overnight in Tokyo?

short gold

On April 10, 2013, Jeffrey Currie, lead analysts at Goldman Sachs, was quoted in the Wall Street Journal with the highly manipulative “Goldman Sachs:Short Gold!” headline. (Click to link to that story on WSJ)

Or, is gold going to resume its relentless climb akin to the 2002 to 2011 period, where each year gold notched double digit gains? Will we actually see gold at $2,000?

Fundamentally, we have every reason to expect gold to outperform paper currencies, considering the sheer volume of dollars, yen, yuan, and now euros flooding the global laundromat. But those fundamentals have been in place since the Fed started fabricating cash and credit through computer keystrokes in 2008. More currency produced relative to gold should fundamentally push the price of gold higher. But that hasn’t happened.

I suppose we are meant to embrace the ‘prosecution’ of the manipulators of the daily gold price fix in London last year as proof positive that no further gold price interference is possible. Never mind that the volume of gold represented by contracts for future sale and purchase exponentially outweigh the tonnage of gold available for sale and purchase, or that the physical amount available is sold and purchased in its entirety each year by bullion investors.

Average mine grade continues to decrease, and now, after 5 years of a bear market for exploration companies, the future supply is looking tighter than ever. Compounding gold’s positive fundamentals is the fact that China now has two gold exchanges and permits its citizens to hoard gold, which would account for the fact that China consumes its entire production and a third of the rest of the world’s.

Top 5 Gold Financings This Week

The Canadian mining finance market has jolted back to life on the morning of gold surpassing the $1,300 mark for the first time in 7 months.

Recently announced financings include:

  1. Osisko Gold Royalties Ltd.(TSX:OR) announced earlier today a $200 million bought deal;
  2. Detour Gold Corp. (TSX:DGC) announced a $141 million bought deal from a group led by BMO Capital Markets;
  3. Richmont Mines Inc. (TSX:RIC) announced an increase in a bought deal financing previously announced to $34 million;
  4. Asanko Gold Inc (TSX:AKG) announced yesterday a $40 million bought deal financing from a syndicate led by Cormark Securities and BMO Capital Markets.
  5. Lydian International Ltd.(TSX:LYD) announced a $16.5 million bought deal on January 15th, 2015.

Where’s the Futures Market Response to Soaring Gold Price?

So if, as is the position of most gold bugs, the physical spot market is easily overwhelmed by the paper futures market, then where is the paper response to this sudden rise in physical demand? If, as conspiracists assert, the price of gold must be kept artificially low to support the feasibility of ongoing Zero Interest Rate Policy, and Quantitative Easing operations still underway in Asia and now about to be launched by the EU, then why has that manipulative force not been brought to bear on this current price flare?

Likely, the setup is in progress, and the rug will be pulled out from underneath in due course. A chorus of sell recommendations and lower gold price predictions will presage the onset of a bear market raid in the form of dumped futures.

Jeffrey Currie of Goldman Sachs (NYSE:GS) is Conspicuously Silent

Normally, when gold rears its ugly head into the realm of bull-marketdom, we hear from Jeffrey Currie, the Goldman Sachs analyst who was most famously quoted in the Wall Street Journal with the unprecedented exclamatory and highly manipulative headline headline “Goldman Sachs: Short Gold!”. (Yes, that was their exclamation point.) This was on the eve of gold’s plummet by 15% in a single day from on April 10, 2013. Is Jeffrey Currie prescient, or did he know something that the rest of us did not?

At the time, the article stated that “Goldman sees gold falling to $1270 by the end of 2014.” Not too far off. However in September this year, Currie said he “expects bullion to drop to $1,050 by the end of 2014″. He missed. Badly.

Currie has stopped making any noises about gold since September 2014, and is now focusing on oil, having recently stated that it will go to $40 a barrel. But not a peep about gold.

With such sentiment given prominent billing in both Bloomberg and the Wall Street Journal, it comes as no shock that investors haven’t been interested in owning gold Gold has since been trading sideways and range bound between $1,100 and $1,300 an ounce throughout most of 2014.

But does Currie’s silence bely a change in position at Goldman? Are they now long gold? Might gold be the commodity sleeper trade of 2015?

Banks’ Weak 2014 Q4 Performance Portends Problems

The reason why gold is seeing so much long interest toward the end of 2014 and into 2015 has to do with a convergence of circumstances that more or less constitute one of those ‘perfect storms’ for a bullish gold price.

For Goldman Sachs, who saw net income dropped 7.1 percent to $2.17 billion last quarter after its fixed income trading division saw profit dive 29 percent as a result of lower trading volumes in equity markets, maybe gold is starting to look more attractive.

JP Morgan Chase and Co. (NYSE:JPM) reported a 6.6 percent drop in quarterly profit as legal costs exceeded $1 billion in the wake of government probes.

Jamie Dimon, JP Morgan’s CEO, blamed the banks woes on an ‘assault on banks’ by regulators. Wah.

Either way, when these two behemoths of the financial services industries start missing targets, that is when the ground underneath the financial universe generally starts to shift. If, as I suspect, Goldman, Barclays, JP Morgan, HSBC et al have been quietly accumulating physical gold to cover short positions no longer in the money, they would best be served by reconciling those trades at a higher gold price.

Many investors who had fled gold and silver for the artificially inseminated tech bull that has seen new records set in the Dow Jones Industrial Average and the S&P 500 are growing bearish on the ability of the trend to hold – especially since U.S. quantitative easing has now abated, and the Fed is making noises suggesting an imminent rise in interest rates. All soft signals that this gold market bull might get up a head of steam.

European Stimulus: Good for Gold

Mario Draghi’s threat to start fabricating capital and credit out of thin air is great for gold, in that with global investor sentiment increasingly pulling away from US markets, and bond investors glum, its looking like gold is doing what it normally does: Goes up when its the best game in town.

The intensity with which Draghi kicks off the Outright Monetary Transactions program will be tempered in large part by German demands for restraint. That said, we can expect an announcement of a likely figure in the neighbourhood of €50 billion per month.

According to a Bloomberg report today, “An ECB Executive Board proposal circulated to the Governing Council foresees asset purchases of 50 billion euros a month through the end of 2016, according to two euro-area central-bank officials who have seen the document.”

Casting a glance around the geopolitical landscape, Asia is in serious decline, thanks to what is starting to look like the beginning of the Great Unravelling. China’s reliance on building infrastructure and residential real estate with loans that are now showing signs of implosion, this could be the moment where China’s soft landing accelerates into a hard one. That outcome is increasingly indicated by the price of copper, now trading at 6 year lows.

Gold Investors, Beware

While large gold financings are ostensibly indicative of a level of confidence among Canadian investment bankers in the future price of gold, and while Jeffrey Currie’s silence on the matter is certainly suspicious, we must bear in mind that gold price market shenanigans occur on both the long and the short side.

So before you go piling into bullion or your favourite gold producer, bear in mind that when the rug is going to get pulled out from underneath the gold price, there will be little warning. And if there’s one lesson that one would hope has been thoroughly learned in the market of the last 5 years, ‘fundamentals’ need not apply.


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