Flash Crashed
Welcome to a new week!
Shockingly, global stock markets had a down week last week, led by the US.
That’s right folks, no rescue, US equity markets down almost 2% for the week on the back of the 4th straight week of the US Fed threatening to take some of the punchbowl away without actually doing anything.
As we’ve outlined on many occasions, systemic risks are such that the spectacularly leveraged speculative asset bubble will not be allowed to burst.
In the event of such a threat, Central Banks will be straight back in with bigger and better “whatever it takes”.
It’s truly amazing that only a very few investors/analysts consider what an eventual loss of confidence in central banking may actually look like for financial markets. More on this below.
For now, is it any wonder investors are chasing whatever is moving? The cost of money is at 5,000 year lows!!
Bonds, Stocks, Real Estate, CRYPTO, currencies (v precious metals), food, coffee, building materials, cars…. wherever you look, prices of everything are being lifted as result of cheap money.
Central Banks and Governments have first said this inflation is temporary, soon they’ll say its suppliers and manufacturers fault for putting prices up until finally they blame the actual consumer for bringing this shit on themselves.
Only in the darkest corners of “official” news will you find the real culprits, central banks and governments themselves, same as it ever was, absolutely no appetite for voluntary reform.
This inflationary situation is making it more and more difficult for an average investor to try and protect their capital and find some sensible return.
Amazingly, energy and precious metal prices have yet to feel the full force of the inflation tidal wave.
Subdued energy prices are quite easy to understand with the backdrop of a global pandemic. But as the globe reopens, energy demand may make investors heads spin, add to this reopening a healthy dose of woke ESG investing and you’ll soon see what we mean.
However, the precious metal complex has some particular and peculiar “anomalies” worth a little more attention.
The early August (see spot gold price chart below, August 4) drive by shooting of the “Gold Price” thanks to the paper “players” has been the best example since April 2013 of “anomalous behaviours” in the precious metals derivative complex.
We thought the initial Wednesday action (below) was quite bizarre. Gold price started rising throughout the evening session then “boom”, the ol no news knock down. The time frame on this was so short and seriously bizarre.
But the real action was the following SUNDAY night. That’s right folks, premarket for most major markets, THE quietest time, on NO NEWS, “someone” pukes 24,000 contracts into the market, $4 BILLION of notional value.
Bid stack destroyed in a matter of minutes and Gold falls $80!!
Luke Gromen, who writes the brilliant Forest for the Trees newsletter, pointed out on Twitter that:
‘$4B in notional gold contracts for sale on a Sunday night is not a market, it is a currency intervention. Most private traders would lose their clients and/or their jobs for executing an order in such a fashion. So the questions are “Why?” & “Why now”?
This, below, from the crew at Zerohege, deserved more air:
“the sellers of these gold futures contracts had only one motive, and that was to bomb the gold futures price and trigger stops and further selling by other contract holders, simultaneously torpedoing the international spot price and achieving the desired effect of negative gold headlines around the world, but above all else attempting to disarm the gold price as the barometer of inflation expectations, and strangle the gold price as the canary in the coal mine.’”
Painful as that week’s government intervention against gold was for gold investors, at least it may have demolished what was left of the credibility of the World Gold Council.
The council’s “chief market strategist,” John Reade, tiptoed up to the intervention and then ran away, writing:
Could the sell-off have been a ‘fat finger’ or something malicious? Either are possible:
https://www.gold.org/goldhub/gold-focus/2021/08/twitter-golds-recent-movements
A “fat finger”? More like a fat sledgehammer.
And what exactly was meant by “something malicious”? Was that a timid acknowledgment that the gold market is manipulated by largely unseen powers that the gold council dares not name?
How pathetic and humiliating.
Let’s see: Money creation has exploded around the world in the last year and a half, most real interest rates are heavily negative, inflation and commodity prices are soaring along with the major cryptocurrency, stock market valuations are at record highs, and the World Gold Council presides quietly over a steadily falling gold price, meekly advising investors that gold is a wonderful “diversifier” for a portfolio — if they happen to need some losses to offset their fantastic capital gains elsewhere.
Great work for an organization with a budget in the tens of millions of dollars, financed by mining companies that in exchange get billions cut from their capitalization.
The World Gold Council calls itself “the market development organization for the gold industry,” adding, “Our purpose is to stimulate and sustain demand for gold, provide industry leadership, and be the global authority on the gold market.”
In fact the World Gold Council’s purpose is to ensure that there never is a world gold council and that gold never again gets in the way of central banking’s destruction of markets. That is, the council is a wholly owned subsidiary of the London Bullion Market Association, custodian of the world’s greatest gold short position.
Really, gold mining companies, why do you pay dues to this sham? And really, gold investors, why do you invest in companies that belong to the World Gold Council?
First: Inflationary policies (a true gut-punch to Main Street) are the new normal for debt-soaked sovereigns seeking to inflate away their unsustainable debt levels.
Secondly: Those same debt-soaked sovereigns need to keep rates low to meet interest expenses on their unsustainable national IOUs.
Thus, when you combine: A) rising inflation with B) increasingly repressed interest rates, voila: You get inflation rates outpacing interest rates and hence more negative real rates and thus more positive tailwinds for gold, despite what the paper gold tape is showing.
In fact, the level of negative real rates we are seeing since August of 2020 (-1.1) is just the beginning.
Those rates can fall far, far more toward the negative in the backdrop of global economies drowning in debt and commercial banks already “derivatively” neutered by Basel 3 and being prepped for more centralized controls and the well-telegraphed “re-set toward” a central bank digital currency.
In this backdrop, gold will see un-natural headwinds, but the tailwind north is natural, as is the trend south for real rates.
As a reminder, real rates–after a very real World War II–went as deep as -14%; and real rates after the not-so-real “war on COVID” could fall much further tomorrow.
Investors who ignore this trend are ignoring a massive opportunity in precious metals.”
To us, the opportunity gets larger in precious metals the more Gold’s participation in the road to systemic redemption is not fully understood.
Actions in the paper market may have seriously spooked investors in Australian Gold Producer Equities, as per the chart below from Euroz Hartleys. Most of these company’s below are still generating serious cash flow!!
Furthermore, the above mentioned paper price action has not dampened demand for the physical metal from China and other sovereign players at all.
Hey, maybe they’re just getting set to “build back better”??
Then there’s this:
Peace!
