Shades of 2013 – Craig Hemke
Shades of 2013 – Craig Hemke for Sprott Money
Six years ago this week, COMEX gold and silver prices were deliberately smashed in order to take out critical support levels that had held since 2011. The parallels to present day circumstances are obvious and must be fully considered.
The key to understanding this is to recognize that the situation in 2019 is reminiscent of 2010. We’ve been writing about this for months, and below is the easiest link for you to review if you need to be brought up to speed.
We could lay all of this out for you again, but let’s just cut to the chase…
Ultimately, the dollar price of gold is an inverse reflection of confidence in U.S. monetary authorities and the dollar itself. This paradigm is regularly on display in other currencies, where structural issues lead to a crisis in confidence and the price of gold as expressed in those currencies moves higher. Two examples are shown below. Note that gold priced in Australian dollars and Indian rupee is currently near all-time highs.
As you no doubt recall, gold priced in American dollars saw all-time highs under similar conditions in 2011. The advent of QE2 and political discord led to a crisis in confidence in the dollar, and the dollar price of gold hit $1920 in early September of 2011.
Price soon fell dramatically but was still near $1800 when QE3 was announced in October of 2012. Many analysts, myself included , assumed that this further debasement of the dollar through $1T in additional currency printing would send gold to new all-time highs in 2013.
Instead, in a counter-intuitive move designed to retain confidence in the US$, the dollar price of gold began to fall, and by April of 2013 it sat perched upon extremely important support near $1525. This level had held as support on multiple occasions over the previous nineteen months, and many were watching to see if this level would hold again. And it did… until it didn’t.
Friday, April 12, 2013 saw the beginning of a historic price raid designed to break the $1525 level and send the dollar price of gold cascading lower. Price fell $63.50 on Friday, April 12, taking out and closing below the key $1525 level. It then fell $140.30 on Monday, April 15, bringing the two-day loss to over $200 and sending price all the way to $1318 at its low. This event is one from which price has yet to recover, six full years later.
With the gold price trampled and global sentiment crushed, this drop in the dollar price of gold helped to maintain an illusion of confidence in the dollar and the central bankers who control it ... even while global QE continued with fiat currency debasement accelerating at an unprecedented rate.
And now here we are in 2019, price remains in the same $200 range that has mostly contained it since the events of April 2013.
Fast forward to today, and with The Fed and other central bankers capitulating to the extremes their policies have created in the ten years since The Great Financial Crisis, these Bankers face another crisis in confidence in their fiat currency. And what has been their response? Clearly it is to create a similar environment of counter-intuitive gold selloffs. All of these being staged in order to control sentiment and, by extension, create and maintain the illusion of confidence in their policies and their dollar.
Note, below, the price action of COMEX gold since December 2018 and the last rate hike of this cycle. Each subsequent FOMC meeting and the release three week later of those meeting minutes has been greeted with a smash in the dollar gold price. This despite the fundamentally positive news of rate hike and balance sheet reduction halts.
What you see above is a clear and obvious strategy being employed by The Bullion Banks, which seek to dominate and control price for the BIS and the Central Banks… and it’s nearly identical to the events of 2012 and 2013.
Where the introduction of QE3 should have been extraordinarily positive for the dollar price of gold (and, by extension, extraordinarily negative for the U.S. dollar), direct Bank intervention led to a break of support and a crushing of sentiment.
Where the reversal of QT and resumption of QE with negative interest rates and “every tool in the toolbox” should be extraordinarily positive for the dollar price of gold (and, by extension, extraordinarily negative for the U.S. dollar), direct Bank intervention in 2019 is leading to a drain of support and a depression of sentiment.
Unlike 2013, the current target is not a long-standing and vital support level like $1525. Instead, The Banks are clearly gunning for a break of the 200-day moving average in the hope of engendering a wave of Spec HFT selling that would be used to further depress price in the weeks ahead.
So, watch to see if The Banks are successful in this latest operation. While we have no doubt that our macroeconomic forecast for 2019 is correct… and this SHOULD lead to the best gains in gold and silver since 2010… crushing sentiment through a counter-intuitive price move would clearly have an impact on WHEN these gains are finally realized.
1. MONITOR the 200-day moving average
2. ANTICIPATE the Bank desire to break it
3. UNDERSTAND why this is their strategy
4. WATCH the price action that follows
5. ACT accordingly
As you’d expect, we’ll be watching this at TFMR, too, and we’ll keep you updated in the weeks ahead.