The drop in gold prices over the past two weeks has had little to do with interest in the actual metal and more to do with the U.S. central bank having to implement desperate measures to protect the currency from falling below 92 on the index. In fact, it was nearly unprecedented what regional Fed Presidents did last week by having four of them publicly attempt to promote a rate hike in June that may or many not actually occur.
As we learned a month ago from regulators investigating Deutsche Bank, manipulation of gold prices is a real thing and has been going on constantly since 2011 when the price reached an all-time high of $1940 per ounce. And the dichotomy of course is that while interest and purchasing of both paper and physical gold is at their own all-time highs, the price continues to fall, meaning that the central banks know what would happen should investors wake up to the fact that the economy is not in as good of shape as they have been attempting to portray.
So with this in mind, and the fact that despite a pullback of the gold price from just under $1300 to where it sits now at $1213, remember that we are still up 16% from the beginning of the year, and that manipulation during a time of heightened buying will only mean an explosion in price when even the slightest bit of tension is relieved.
And this is what well respected London metals analyst Andrew Maguire sees also as he looks towards the next leg up which will be around $1400 per ounce.
Andrew Maguire: “Whenever we see such a synthetic divergence develop between the wholesale physical markets and the paper-centric non-delivery markets, it allows the commercials (and central planners), who have exposure to the physical markets, to not only take the short side of these naked longs, but to do so with impunity…
Andrew Maguire continues: “Bear in mind that the bulk of these naked short commercial positions were only able to be added above rising aggregated physical interest levels, but exponentially larger in defense of the Rubicon line at $1,308, a breach of which would threaten what is known as a ‘commercial signal failure.’ We came close to triggering this commercial signal failure but without the close proximity of an underpinning physical market, a short term price gap had been opened which was easy for commercials to fill on the downside.
That is exactly what we have just witnessed — a price gap that closed on the downside, and as is par for the course, we now have the same hot money rinsed and wrong-footed, which is the polar inverse situation of what was occurring near $1,300. The hot money is now overshooting to the downside while the commercials are profitably covering all the naked shorts they added. Commercials are also going long to hedge physical exposure at these levels. This action is no more than healthy backfilling with a fresh, higher stair step being cemented for a sustainable move into and eventually through the $1,300’s.” – King World News