WORLD MARKET UPDATE

By James Corbett

The fallout from the recent turmoil in the precious metals markets continues to rock markets. The data on the carnage that tore through gold prices Monday is still coming in and it's staggering. The 20-year 5-day rolling average indicates that the 15% plunge in gold was a 7 sigma drop, i.e. an event rare enough that it indicates something very strange is happening under the surface. So far, there is a lot of finger-pointing.

Goldman is blaming it all on the recent news that Cyprus is being forced to liquidate much of their gold holdings to cover their still-expanding bailout. Of course, this is the same Goldman that more than covered their $1450 short position from last week but refuses to close it out, instead lowering their target to $1400. Goldman posted a $2.2 billion 1st quarter profit on Tuesday, though, so they continue to laugh all the way to...themselves, I suppose.

Citigroup, meanwhile, is positing that the gold plunge “may” be related to “some break in technical levels” and a growing appetite for risk, which hardly sounds like an evidence-based analysis. And any number of establishment hacks are opining that this represents the bursting of the goldbugs' “bubble” and the final victory of Ben Bernanke and the QE-Infinity printing press gang.

The truth is likely a much darker story. The attack on gold appears to be a coordinated raid that began with the dumping of 500 tons of naked shorts on the markets on Friday. The huge short positions were fed into the market in intervals to maximize its impact, first sending gold prices down to technical support levels and then with a further flood of shorts to drive it down and kick in the algorithmic sellers. The initial dumping of 100 tons of future contracts at market opening was rumoured to have been routed through Merrill Lynch's floor team and source back to a single entity. According to Andrew Maguire (the whistleblower who shot to fame in 2010 after correctly predicting a JP Morgan-led raid on the silver market in February of that year) says that the trades source back to agents of the Federal Reserve. Given that the Fed gang has the most to gain from a takedown of precious metals (thus continuing to prop up the illusion of dollar strength), this explanation rings true, although more facts need to come out.

The precious metal raid seemed to have a knock-on effect on other commodities, especially Brent Crude which is now flirting with the $100 level. The lower support level for gold also impacts gold miners, who are now flirting with the $1300 threshold where the cost of mining starts to overtake potential profits.

As of press time on Tuesday, prices are once again rising towards $1400 once again as investors flood back in to buy the dip. If the events of the past few days have demonstrated anything, though, it is the extent of the disconnect between the paper and physical markets. Even as investors scramble to get out of gold ETFs, reports are flooding in from bullion and jewelry dealers from across the globe of record buying as individuals see the new low as a bargain price. They aren't the only ones either; the likes of Bill Gross, Marc Faber and John Hathaway are contending that this really is a buying opportunity and although we may not have hit the new bottom yet, the market will be on the way back up shortly. As Faber puts it: “The bull market in gold is not completed.”