As the Scottish Independence vote grows near, the idea of secession is picking up steam worldwide. In addition, Russia and China are standing up to the United States in ways they have never done before. Argentina called the bluff of NY hedge funds and their judicial puppets. The pope believes we are already in the early days of World War III. President Obama has set up the perfect pretext for an attack on Syria, which has a mutual defense pact with Iran. Both of these nations are allies of China and Russia, which have significant investments in their energy and infrastructure.
NATO forces are in Western Ukraine and the Black Sea, after the U.S.-backed coup, pushing ever closer to Russia’s borders. Putin has reminded the West about their nuclear powers and even suggested that Russia stands ready to use such weapons. Meanwhile, ISIL is running around the Middle East in U.S. tanks and armored vehicles, killing thousands in their path and beheading Americans and British citizens.
It feels like the world is a powder keg, ready to blow at any moment as sparks fly in every direction.
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Gold, typically a safe haven during periods of war and political instability, has been trending downwards despite these developments. But the gold market is also a powder keg of sorts, with a number of new catalysts that could cause the price to explode higher in the coming months.
In a surprise announcement, the Shanghai Gold Exchange (SGE) said that the international board will go live today, Thursday September 18. This is eleven days ahead of its original launch date of Monday Sept. 29. Deliverable gold will be sold in Yuan for cash and the gold trading platform will be known as the ‘international board.’
Will this lead to honest price discovery and an end to the paper manipulation?
I wouldn’t hold your breath, as UBS, Goldman Sachs, HSBC and many of the other vampire banks will be members of this new gold exchange. Furthermore, one of the goals of the exchange is the “transformation of the domestic gold market from a commodity market to a financial derivatives market.”
I am all for diversification of price discovery and a focus on physical exchanges. I also like the SGE mission: organizes gold transactions with the principle of openness, fairness, justness and honesty. I would like to think it could end the manipulation, dethrone the petrodollar and cause the gold price to revert to free market pricing. But commercial banks on the SGE such as Goldman Sachs, will be trading primarily gold futures and not physical metals.
We may eventually see a huge disconnect between the COMEX and SGE, but I don’t think it will stop the banks from their usual trickery. It may be more difficult or costly to perform the manipulation, but where there is a will (and billions in interest-free cash), there is most likely a way.
While the futures contracts on the SGE can be settled for physical metals, it remains to be seen what percentage of investors will actually stand for delivery. A large percentage of transactions are likely to continue with cash settlements, as they do the majority of the time on the COMEX. It is great that settlement will be in Yuan rather than dollars, but it still cash settlement in fiat money.
I view the launch of the SGE as another chink in the armor of the U.S. dollar as world reserve currency. But don’t expect the gold price to blast off today. In time, if enough people demand physical delivery and price discovery moves from West to East, it could have a significant impact on gold prices. Manipulation might wane or become more difficult, but the bankers are incredibly crafty at finding ways to continue their Ponzi schemes and exploitations. The United States government and their banker masters will exhaust all possible means to prop up the dollar and retain the privilege of printing the world reserve currency. A rising gold price threatens the dollar, so the price suppression must continue. As some point it will end, but that time is not today.
One event that could definitely send gold prices rocketing higher is an announcement from the People’s Bank of China (PBOC) that they have tripled or quadrupled their gold reserves to over 4,000 tones. But they have every incentive to delay this announcement well in to the future, as it allows more time to accumulate gold reserves at heavily discounted prices.
Russia and China will continue to respond to the economic warfare being waged against them by the United States and EU. As this warfare intensifies, announcing a huge increase in gold reserves or the dumping of their remaining U.S. debt would certainly be a heavy blow to the West and the dollar.
In India, trade statistics for August show a huge surge in gold imports compared to August of 2013. The value of gold officially imported into India in August totalled $2.04 billion, which was nearly three times more than the August 2013 figure of $739 million. Apparently people in India don’t like being told what they can and can’t purchase with their hard earned money. The import restrictions are a joke and the smuggling business is at an all-time high. Prohibition never works.
I agree with Harvey Organ and others that the dollar is going to collapse and the gold price is going to $5,000 or higher. Silver at $500 at some point seems like a certainty to me. But these things never happen as fast as gold bugs would like.
The developments above are all steps in the right direction. But if we have learned anything over the past 7 years, it is not to underestimate the power of the banks, the compliance and corruption of governments, the ignorance and passivity of the citizenry and the inability of mainstream investors to see the writing on the wall until the very last minute.
It takes patience and great conviction to remain bullish in the midst of a 3-year correction/consolidation in precious metals. Many have thrown in the towel. But I believe it is wise to keep stacking if you have the means to do so. Gold and silver can not trade at or below their all-in cost of production for too long. Prices will rebound as investors rush back into a relatively small market. Shorts will be forced to cover, which will further intensify the price advance. Severely undervalued miners are offering incredible value at current prices and will enjoy massive leverage during the next advance.
But it will probably not happen this week when the SGE goes live, next week, next month or maybe even next year. So, you have to be in it for the long term, buy the dips, reduce your average cost, have strong hands and make sure you only invest with money you will not need to use for the next few years. We have to wait them out a bit longer, but all signs suggest we are nearing a turning point. I believe $1,200 gold and silver anywhere under $20 is going to look incredibly cheap with the next few years.