Sinclair: “People have to understand what the motivation
was for the recent takedown in the gold price. It was so well organized,
strategized, and executed by the gold banks, in unison, even though it has had
the unintended consequence of creating a massive and worldwide buying frenzy in
the physical gold market.
There is a comparison that is obvious today because I
was very involved in the $1 billion loan which had to be made at the time that
the Hunt’s positions went into default (in 1980). This was at a time when Bache
& Company, and Merrill Lynch were rumored to be at least on the fence, if
not entirely insolvent.
You have to understand that back in 1980 when gold
had risen to $887.50, and silver traded above $51 an ounce, the financial world
was in a full-blown panic and many people firmly believed the dollar was going
into oblivion.
It was during this time of panic, but after gold
peaked, that I received a call from the Federal Reserve asking me to assist in
the liquidation of the Hunt position as the criteria of making the $1 billion
loan to bail out both Merrill Lynch and Bache. This is the frightening reality
of the kind of fires that were raging behind the scenes in the financial world
at that time....
The uniting factor between the events that took place then versus today is
supply. In both situations there was an increase in demand or an expected
increase in demand for physical metal. This is when the Board of Directors of
the COMEX Exchange actually bought into the rumors that were swirling around the
floor of the COMEX (in 1980).
You see it was widely assumed that the Hunts were
about to ask for delivery of gold (and silver). In truth, because I know what
the Hunt’s position was, they never asked for delivery, but instead religiously
rolled their paper contracts on first notice date.
So with the financial and currency markets on fire,
and rumors swirling to and fro on the COMEX trading floor, the Board of the
Directors of the COMEX Exchange basically changed the rules of the contract.
They also went to sellers only that were allowed to transact.
So the net effect of the Hunt situation, where there
was an expected demand for physical which would have greatly challenged the
existing warehouse supply, was to do all of the technical things required in
order to bring the market down. But it was done in such a vicious manner, that
it was almost as if you had backed the gold and silver markets into an empty
elevator shaft.
This was very similar to what we saw on the two-day
paper selling binge that the gold market experienced on that now famous Friday
and following Monday. So the correlation between the Hunt situation and the
present situation, both have to do with the key word, ‘supply.’
Now what has recently happened is that the physical
market has taken on a life of its own, and the warehouse supplies at the COMEX
on gold have come down substantially. There hasn’t been anyone standing for
full delivery or any headline-making demands, but if you take a look at the
condition of the gold warehouse at the COMEX, you will see that it has declined
substantially.
The expectation that this plunge in inventories might
continue is enough to have the gold banks and central planners react in an
almost similar manner to the COMEX Board of Directors when they had convinced
themselves back in 1980 that the Hunts were about to ask for delivery..."
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