Eric King: “Andrew, you made a fantastic call at the end of last week. You said that gold absolutely could not stay below $1,300 for more than a few days. We saw the bears holding the price below that key level Monday through Wednesday, but they capitulated on Thursday as gold soared solidly back above the $1,300 price level.”
Maguire: “Eric, last week we talked about the Fed being cornered. The reason we saw the price of gold being held below $1,300 is because the Fed was literally being forced to react to the price rise of gold against the US dollar. This had to do with the government shutdown, and it was forcing their hand -- to give the appearance of stability as the dollar was declining and under tremendous pressure.
So, the Fed moved in to short gold and buy the dollar in the FX markets. Now, the reason I told you gold wouldn’t be able to hold below sub-$1,300 for more than 3 days is because of ‘spot market indexing.’ While these synthetic paper markets for gold are putting pressure on the price of gold, the underlying physical market is on fire....
“Last Friday, as gold was headed into the lows, I reported a major sovereign ‘spot purchase’ to KWN. Remember, we said it was about 90 tons (of gold) being accumulated, some of it at $1,270. You and I were literally speaking on the phone as gold was making the lows. But that sovereign order had been patiently waiting for weeks and it finally filled.
These trades fly under the radar sometimes because they are initially just a foreign exchange trade, and it’s just part of a major paper gold shuffle in London every day. But it’s only when these paper gold buyers have the audacity to turn up at a PM fix in London and demand the physical gold that alarm bells are triggered.
The bullion banks are then forced to buy at market to fill these orders, and there is no bullion bank I know that can turn up that kind of supply overnight. That’s why we saw 1 - 3 month GOFO rates spike negative once again mid-week. As these orders stood for delivery, it actually forced gold into backwardation again. And it’s going to happen each and every time the gold price is now pushed lower.
So, this is an underpinning that paper traders simply don’t understand. We are actually talking about the cash value of gold vs futures being at a premium. China is going to continue to milk this discount window. They are continuing to exchange dollar reserves for gold, without directly disrupting Treasury and gold prices. But we are now very, very close to the point where China is the gold market.
The Chinese, through Shanghai, have already absorbed the bulk of all global mine production, if not all of it in its entirety. In July alone, Shanghai gold imports exceeded all of the imports for 2012. We also know that official Shanghai gold deliveries have accelerated since that time.
Last week I reported the September numbers to you and it was over 225 tons of gold being delivered. But as of today, for the 9 delivery days of October, we already have over 101 tons of gold delivered. This is an incredibly powerful and diverse underpinning for the price of gold.
Al of this is being reflected by the premiums, recorded deliveries, and what is paid daily above synthetically diluted gold prices. The Chinese don’t care what Goldman Sachs or any other brokerage shills say about gold. Instead, they are focusing on building their savings, real wealth, according to age-old ideas, and with a state-sanctioned 20% savings rate invested in gold.”
Maguire added: “All of this paper manipulation has just been a short-term desperation move on the part of the West. Obviously we’ve seen interventions in the foreign exchange gold market, which is complimented by activity on the Comex. And basically what is being done by the Fed is a defense of the US dollar.
It simply results in physical gold flowing out from West to East at an enormous rate. Unfortunately, that is the self-destructive move that continues to take place as the West destroys itself. And when you look at China, who thinks in 500-year or 1,000-year time frames vs the West which thinks in one-week and one-day time frames, crisis-to-crisis terms, no wonder the West is collapsing.”
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