Market manipulation is visible in all investments; the very currency we use to price our investments in is openly manipulated. Interest rate fixing, bond purchases, and liquidity injections are the norm these days, but this is a very obvious manipulation of the price of our money.With the precious metals market, it’s very tiny, and it creates an enormous opportunity for larger institutions.
Investing in the precious metal-related markets here in 2017, I see this manipulation as a gift. So do China, Russia, and other eastern central banks. Since 2009, central banks have been net buyers of gold – China and others have been gobbling it up by the pallet.
The truth is that the world is going to face a serious monetary crisis in the next few years here, and those who are positioned to protect and profit are going to make extraordinary gains.
Just like the movie The Big Short, about the housing crisis, in 2020, I predict there will be a gold thriller called The Big Long.
This isn’t the be-all end-all trade, but it is certainly one we want to profit from, since this will be a once-in-a-generation type of transfer of wealth. Today, you can buy gold and gold shares at a suppressed price. This is a great deal, because just like in the movie The Big Short, the smart trade didn’t pay off until the large institutions flipped into the position themselves.
Today, gold investors are patiently waiting on China, central banks, and the world’s billionaires to fully enter the trade in order to see the gold price flip like a light switch, sending the metal quickly past $3,000 per ounce.
George Soros, for example, recently took a 240,000 share position in the GLD. Stanley Druckenmiller bought $323 million in the GLD this year! Anyone who looks at the fundamentals for gold is a buyer.
We have peak production, the supply pipeline has seen severe destruction, no major discoveries have happened in 15 years, and there are countless monetary reasons to own it.
The manipulation of gold is criminal, but as far as we are concerned, it’s a gift to all who invest in the sector today.
Here is How Gold Manipulation Works
1. The big dumps: For years, central planners have been dumping large amounts of gold at the worst possible times. What I mean is that when the markets are least liquid, such as on a holiday evening, there have been some very notable sellers of gold unloading large volumes in a matter of minutes, sometimes dumping orders that are even larger than the annual mine supply.
Dumping gold, either through real physical gold or digital gold (paper gold), is the easiest and most identifiable manipulation in the gold market. The honest truth about these daily attacks is that no one with money would sell large amounts of gold exactly when they will get the worst price, which leads me to believe this is being done by governments and central banks.
2. Here is where the majority of gold trades. For every few hundred ounces of gold, there is only one physical ounce to support that trade.
Electronic trading on the COMEX, where traders are leveraged, can wreak all kinds of havoc. From stop losses to margin hikes, the COMEX has been an easy place for gold manipulators to beat the price down, as well as slow any real rise in the gold price.
3. Gold storage: Unfortunately, gold leasing and unallocated accounts are the norm in the gold industry. There is actually a very small amount of gold that is delivered to its owners. Most of it is stored in bank vaults.
Just like your $1 deposit can turn into $9 of lending for the bank, your gold is treated the same way, being legally leased out to others. And with unallocated accounts, who knows how much actual physical gold there really is? EverBank, who I actually really like as a bank, won’t even tell you where your gold is stored if you use their storage. Policies like these are highly suspect.
Why Manipulate Gold?
For this answer, I always refer back to former Federal Reserve Chairman Paul Volcker’s response in the early 1980s when asked about his regrets during a decade of double-digit inflation. He said something to the effect of “we didn’t control the gold price.”
Former congressman RonPaul recounts a story about when he sat down for lunch with Volcker in the late ‘70s, saying that Volcker was obsessed with the gold price, constantly receiving updates from his staff.
With the U.S. insolvent, Europe in crisis, and technologies like the blockchain (cryptocurrency) attacking central banks, we are going to have one hell of a fiat currency crisis in the near future.
I can’t put a date on this, and certainly don’t recommend an all-in moment, but I do recommend everyone take part in what is perhaps a historic set-up for the ultimate trade.
It’s not the natural order of things or a resource cycle that makes this the ultimate trade, it’s the price suppression. Imagine a beach ball that is held 4 feet under the water, and then one day it just bursts through the surface. That’s what we will see in the gold and silver prices.
Profiting from a major move in gold, specifically through the mining shares, even if it’s just 2% of your portfolio, is a must.
Here is what I love most about this trade: gold is in a bull market cyclically, so over the next 3 to 5 years, we will see a rising gold price. But the sweetener is that it’s very likely that during this bull run, a major black swan event will take place that sends the price to new levels that no one is predicting.
Think of Bitcoin at $1 in 2012, and then $1,000 a year later. We could see the same type of mood in a gold market that has gone parabolic.