Gold Signals Possible New Shock|
December 15, 2009
After getting as high as about $1,230 in early December, gold retreated to a low of about $1,115 a troy ounce on Dec. 14. The question on everyone’s mind: where is gold headed from here?
My crystal ball for short-term moves is a bit cloudy. In years past, when the price of gold dropped sharply, it was not unusual to see the price fall at least 25 percent and take months to recover lost ground.
So far in 2009, the attempts to suppress the price of gold have been much milder and have not had a long-lasting effect. In fact, many times gold’s price recovered within 1-2 hours on the very same day. Multiple major buyers have been constantly jumping in to buy gold on price dips as small as 1 percent.
The gold trading patterns in the past 10 days have several quick significant drops. This indicates that the sellers were not looking to maximize the proceeds from the gold they were selling. Instead, these are the telltale signs of blatant price suppression.
In 2008 and 2009, when there was such a concerted effort to knock down gold and silver prices, they always seemed to be associated with unexpected horrible financial news. In March 2008, the price of gold topped $1,000 for the first time ever. In response, the Federal Reserve dropped key interest rates by 0.75 percent. The price of gold was pushed all the way down to $918 on March 21 and later to as low as $849 on May 1. All of this activity occurred coincident with the failure of Bear Stearns, a company that had a huge naked silver short position (a position that now burdens JPMorgan Chase).
On July 15, 2008, gold was again threatening to rise above $1,000 when it closed in U.S. markets at $977.75. At the behest of the U.S. government, a small number of major U.S. banks started selling short huge quantities of gold and silver paper contracts. By Aug. 6, the price of gold had fallen more than $100. On Aug. 15, the U.S. markets closed at $796. We know now that this price manipulation was being done in advance of the Lehman bankruptcy in September. Altogether, there were $1 trillion of U.S. bank failures in a two-week period. From Sept. 16-18, the price of gold jumped $117! Later, Rep. Paul Kanjorski, D-Pa., would reveal how the financial world as we know it almost came to an end at 2 p.m. on Sept. 18, 2008.
In response to the severity of the financial crisis last fall, the price of gold was knocked all the way down to $715 (this was a higher working spot rather than the technical COMEX close) on Nov. 13.
On Feb. 20, 2009, the price of gold again closed above $1,000. This signal of a lack of confidence in the new U.S. administration resulted in a new round of horrific inflation of the money supply. To try to stifle runaway consumer prices, the price of gold was once again beaten down to a low of $874 on April 6. After this drop in gold’s price, we saw the fiascos of the “cap and trade” (or “cap and tax”) legislation passed by the House of Representatives and the push for a major overhaul of the health care industry. Between these two pieces of legislation, the federal government would effectively be nationalizing a significant percentage of the U.S. economy.
As you can see from these recent examples, it has been possible for the price of gold to be held down as long as one to two months if the forthcoming economic news was that horrific.
There are still plenty of buyers of large quantities of gold. The longer it takes for gold to get back above $1,200, the more I worry about what will be the next terrible financial bombshell that will soon explode. There are so many possible sparks, ranging from counterfeit gold bars in bonded warehouses, the potential nationalization of more than 50 percent of the U.S. economy, more failures of mega-banks, the imposition of trading limits on U.S. commodity exchanges, a surge in downgrades of sovereign debt (after Greece and Dubai, can the United Kingdom be far behind?), and many more.
Today, it is still possible to purchase many forms of physical gold and silver, though premiums are higher than they were a few weeks ago and it may take a few weeks for delivery. With many potential massive financial calamities ready to unravel, I think it would be prudent to add to your precious metals positions right away – while you still can.
Patrick A. Heller owns Liberty Coin Service in Lansing, Mich., and writes “Liberty’s Outlook,” the company’s monthly newsletter on rare coins and precious metals subjects. Past newsletter issues can be viewed at http://www.libertycoinservice.com. Other commentaries are available at Financial Sense University (www.financialsense.com). His periodic radio interviews on WILS-1320 AM can be heard at http://www.amlansing.com, on the Korelin Economic Report at http://www.kereport.com, and on Coin Chat Radio at www.coinchatradio.com.
• Standard Catalog of United States Obsolete Bank Notes 4-CD Set, 1782-1866
• Fascinating Facts, Mysteries & Myths About U.S. Coins
• 2010 Standard Catalog of World Coins 2001-Date, 4th Edition
• State Quarters Deluxe Collector's Folder
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