There was a concerted effort to drive down the price of gold and silver this week, much moreso than any usual price correction or pullback. For those that watch the markets on a daily basis such a market operation is hard to miss, but easy for the monied interest's commentators to rationalize.
Late note: The drop Thursday was due to short selling as the open interest ROSE.
"The CME Final for Thursday confirms that volume was 252,778 lots, 29.2% or 57,000 lots above estimate. Open interest rose 1,449 lots – 4.51 tonnes or 0.24% - to 590,817 contracts. Gold fell $17.05, or 093% basis stock market close. Yet it was obviously not a day dominated by long liquidation – short selling had the edge."So why did it happen this week? Here are two theories.
The first is that JPM was given a 'green light' by the CFTC this week, which I heard from several sources. Here is a writeup on this by Chris Martenson.
CFTC Caved In to JP Morgan - Martenson
I do not know if the CFTC 'caved' in to JPM or not because I have not had time to consider the matter. I will be disappointed greatly if this is true, and if Brad Chilton was a party to it. But it is a la mode of the Obama Administration.
The second and most probable in my mind is that the US Consumer Price Index (CPI) came in much higher than expected today. The Fed and Treasury are very concerned about managing the perception of inflation, even as they levitate the stock markets on excess liquidity to manage the perception of economic recovery amidst growing foreclosures and jobs losses. I was actually on the lookout for this one since the arrival of adverse economic data is the second greatest cause of a smack down in the metals, the first being key date such as an option expiration.
"There are numbskulls in the financial media — toadies to the Federal Reserve — who would like to think that energy and food inflation do not count. Simply put, the monthly December inflation releases for the CPI-U (annualized 6.2% inflation), CPI-W (annualized 7.8% inflation) and PPI (14.0% annualized inflation) were disasters, with December inflation far from being calm, as touted in one widespread media report. The sharp increases in December energy and food prices were not due to normal price volatility in those areas, instead, they were created directly by Federal Reserve Chairman Bernanke’s ongoing push to debase the U.S. dollar — to destroy the purchasing value of the U.S. currency. As Mr. Bernanke moves to prove his contention that a central bank and central government can create inflation at will, by debasing their currency, the bad news for the Fed remains that the inflation created here reflects monetary policy distortions, not strong economic demand, as naively advertised. Then again, since much of this inflation mostly is food and energy, not yet "core," the problem of rising gasoline prices may not even be a concern for the U.S. central bank. Nonetheless, these problems are serious and are problems specifically of the United States and for the U.S. dollar.
There is little happening here that I have not written about recently (see for example Special Commentary No. 342). Since I am traveling and am heavily under the weather with a seasonal malady, this morning’s comments will be brief, but the inflation issue will be reviewed in the pending update to the Hyperinflation Special Report and supplements to same.
In the economy, it looks like the "advance" fourth-quarter GDP (January 28th) will be positive, given the numbers discussed below. Significantly, though, major negative revisions to data, such as payrolls and production, loom post-GDP reporting. As to retail sales, keep in mind that the December increase was due to higher prices, not to underlying strong demand. There remains no recovery at hand.
Increasingly, global investors will shun the U.S. dollar, as its purchasing power increasingly gets hammered by Mr. Bernanke et al. The regular gold, silver, oil and Swiss franc graphs are shown below. As investors flee from the dollar, the precious metals and stronger major currencies will continue to be the primary beneficiaries in U.S. dollar terms, irrespective of any near-term market volatility, extreme or otherwise. More-prudent economic and fiscal actions taken by major U.S. trading partners will tend to make the U.S. dollar look all the worse on a relative basis."
John Williams - Shadowstats.com
Those who do not think that the Fed and Treasury watch things like the price of gold are greatly mistaken. Much of the current activity of financial engineering these days revolves around the management of perceptions rather than real productive results. Its the modern American way.
"Turn where we may, within, around, the voice of great events is proclaiming to us, 'Reform, that you may preserve!'" Thomas B. MacaulayPlease notice that I have added the possibility of a trading range developing in gold now that the uptrend appears to have been broken, although it will take another week and the January 26 option expiration to tell the whole story on this.
