When Gold Has No Friends

There are likely, at minimum, half a dozen reasons for the swift correction in precious metals over the past week. The real reason might be one, two, or even all of what I’m going to lay out below.

I’m going to go way out on a limb here. Right now gold has no friends. Even some of its biggest proponents are declaring the bull market to be over. The deflationists are loving this as it gives them ammo. I have gone on the record several times as stating there is no way we can have hyperinflation given what currently exists as a monetary reality. And I’ve also explained why, while readily admitting that could certainly change. That said; I am not a deflationist either. I recognize that regardless of how the dollar standard ends, the banksters will arrange the chess pieces so that they win. And in the arrangement of those chess pieces is the accumulation of vast amounts of gold, and to a lesser extent, silver. That is a fact that cannot be denied.

These same elites also want Cyprus’ gold and this puts the gold of nations like Portugal and Spain, as well as several others, on the potential chopping block also. The possibility of all this metal hitting the markets was easily enough to spook many folks into abandoning long positions. Why? Do they think there isn’t enough demand to soak up a one-off blip on the supply side? Just a quick look at the gold buying habits of central banks alone should be enough to blow that theory right out of the water. Or perhaps Vladimir Putin: he loves gold. Throw in fat cats like George Soros and John Paulson and their purchasing habits and that alone should have been a good reason to hang onto positions rather than sell them. Clearly there are a lot of folks in this market who really don’t understand how it works or why they are even holding metals to begin with. They’re treating real money like they would any other piece of paper like a stock or a bond and, as such, the results are predictable.

Sadly, the level of ignorance really hasn’t changed much since 2005. We’ve seen these little blowouts from time to time and right on cue the media jumps all over gold, declares the USDollar to be ‘king’, gold to be a ‘barbaric relic’ and so forth. They hate gold out of one side of their face and with the other are calling their favorite coin dealer. Yes guys, we know you’re buying like crazy. And still people cringe and crackle and you can almost hear their flimsy resolve shatter when the avalanche starts.

So all that said, let’s kick around a ‘short list’ of potential reasons for what caused the latest bloodbath and then I’m going to make yet another bold assertion that will no doubt cause me to receive untold quantities of charts, factoids, and other insipid details with accompanying epistles telling me once again that I am crazy. That is the great joy of the First Amendment and I’ll go to my grave defending your right to tell me I’m crazy. Either everyone is free or no one is free; we’d better start figuring that out in a hurry.

1) Force Cyprus and the rest of the ailing EU fiscal influenza-ridden nations to liquidate all their gold. The mechanism here is obvious. Demand the sale of gold to meet bail-in requirements, then drive the price down, which forces these countries to sell even more – if not all – of their gold. This has the fingerprints of Mario Draghi and his henchmen written all over it. The Eurozone benevolent society is committing the ultimate fraud. Separate the now slave nations from any means of an independent monetary base, then put the people of those nations into debt slavery. Tell me I’m nuts. Please. But this makes perfect sense and jives with everything else that has gone on to date.

2) Force physical sales to meet orders. I am not a gold market analyst per se, but I do pay a good deal of attention to those who are and the word last Friday was that there was literally no physical gold for sale. It was nearly all paper. For a long time now there has been talk of growing reductions in physical inventory and the notion that much of the gold in the warehouses is already spoken for – perhaps several times over. Would another Ponzi scheme really surprise anyone here? If there is little ‘clear title’ gold to deliver, then there has to be a means for shaking the tree branches, and what’s better than a paper-driven rout to blow the weak hands out of their positions?

3) Maintain confidence in the USDollar. This is where the talk becomes inflationary. Obviously the USDollar is being printed into oblivion while at the same time there are efforts of a Herculean scale being made to keep that printing away from finished goods prices. It isn’t working all that well, but it isn’t near as bad as it could be. Anything that rises up as a currency alternative must be defamed, marginalized, and crushed. And yes, lovers of Bitcoin, that includes your precious digital dollars too. I do believe we’ll eventually end up locked into such an electronic currency system, but right now we’re still in the dollar standard (albeit losing strength) and rivals will not be tolerated. Countries have been bombed, leaders taken out, and resources pillaged because those countries dared sidestep the USDollar. But the pressure is mounting and the panic moves are going to get more and more spectacular. Russia and China, just for starters, cannot be bullied at this point. They’re doing their own thing and daring anyone to challenge them.

I don’t want to get too far into geopolitics here, but I don’t think all the saber rattling by PDRK and others is just a coincidence. There are huge monetary moves going on just across the Sea of Japan and elsewhere, and there will be a war about all this eventually, as sure as I’m sitting here and as surely as you’re reading this.

As far as maintaining the confidence in the Dollar goes, that is really the last bastion of a fiat currency before it dies. The rest of the world has already given the USDollar a resounding vote of no confidence in the form of various extra-Dollar trade deals, a lack of willingness to accumulate more USBonds and a trickle of sales of such bonds. For those who are still accumulating, they seem to be focusing on shorter-duration bonds while the not-so-USFed is left to buy up the longer-dated bonds with its QE. If gold has no friends, then the USDollar is sitting in the corner of the classroom with a giant dunce cap on its head and a ‘kick me’ sign taped on its back.

4) Pound the metals in advance of subsequent highly inflationary monetary moves. A popular tactic of the banking syndicate has been to knock the precious metals complex down a notch or two in advance of what it feels is going to be a big move for either technical, geopolitical, economic, or monetary reasons. The recent announcement by the Bank of Japan to buy virtually unlimited amounts of Japanese government bonds (monetization) is going to have massive ripple effects. They’ve joined the race to the bottom. So three of the four major central banks (BOJ, ECB, and USFed) are fully on board the monetization/quantitative easing bandwagon. The Bank of England is all but on board as well.

These other banking entities are facing crises of confidence in their currencies as well. It is to everyone’s best interests (those in the cartel, that is) to bash metals, gold in particular. It serves many purposes at once and will make the government of Cyprus (and probably some others too) look like Gordon Brown in a few years and maybe a tad sooner. Poor Gordon. He sold Britain’s gold for a song only to watch it soar in the years to follow. That move, in and of itself, is an entire essay.

The Bottom Line

For years now those interested in gold have been divided into two camps. Those who feel gold will protect wealth in an inflationary environment and those who feel gold is a foolish investment because we’re likely to see a deflationary, Great Depression-like event. I’ve always leaned towards the inflationary side, but haven’t discounted the possibility of another attempt to ‘reset’ the system through a deflationary flush. The collapse of M3 growth from the end of 2009 through the beginning of 2011g was particularly interesting, as was the response. Governments and central banks alike fought that trend and eventually reversed it. Ostensibly they said ‘If you won’t borrow, then we’ll do it for you’. That is abundantly apparent here in the United States and that lends itself well to some of the other social agendas at work.

At this point, while I won’t rule out a deflationary reset, it really looks like the urge is to put the worst kind of beating on the commoners of the world by sticking us with an extended period of stagflation, which is what we’ve gotten for the past half dozen years now. Wages aren’t moving very much and prices are continuing to march higher. We have no ingredients for a spiral, which would actually be more pleasant in many ways. When we look at policy, this makes sense as well. Policy is aimed at keeping the consumer handcuffed – and using debt rather than disposable income to do the majority of its discretionary spending. 

In this kind of an environment, the shenanigans of the JPMorgan/Goldman Sachs crew notwithstanding, precious metals are a tangible way to protect your purchasing power. These machinations are intended to convince you otherwise. If that weren’t really the case, do you think all these top-tier elites would be grabbing it up? Seriously. Follow the money. When I wrote back in 2008 that gold was the ‘Opportunity of a Lifetime’ I meant it. That is just as true today as it was then. Granted, it’ll cost you quite a few more FRNs to get yourself some, even after the recent stunts, but this episode, like its predecessors, will soon be nothing more than a memory and then gold will once again have many friends.

For now I’m content to stick with the money of monies and the only money with a 6000-year track record. Gold is the real McCoy; not these cheap substitutes pushed by greedy banks and governments. For those with the enough fortitude, today is to gold what March 6, 2009 was to stocks. 

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Andrew W. Sutton, MBA Chief Market Strategist Sutton & Associates, LLC www.sutton-associates.net[email protected]