More pain for gold bugs as gold futures take sickening dive

Stocks will likely continue their weak, low-volume rally this morning. UPDATE. Photo: Wikimedia.

WASHINGTON, June 26, 2013 – Stock market futures are looking good this morning, promising to add a little more to yesterday’s low-volume relief rally on Wall Street. Only the Almighty knows, however, whether this rally will even extend to the afternoon, let alone have any kind of staying power. Meanwhile, the massive bloodletting in bonds looks like it will continue today, sickening the conservative investors and unfortunate retirees who depend on them.

(UPDATING: First quarter GDP numbers just out and looking anemic. Futures soften somewhat, 45 minutes before the opening trade on Wall Street.)  

Worse even than bonds, however, is the action in gold. We’ve never been big fans of the yellow metal, taking the occasional ETF position in the stuff, usually at the wrong time, but just as a hedge. But lately, gold’s hedging power has been nonexistent. Futures trading this morning points toward another sickening drop in gold, with trading today promising to add to the nearly suicide-inducing cannonball decline that seems to have begun quietly, but in earnest, late in the summer of 2012.

While most people don’t actually deal with gold, we have to pay attention to what’s going on here, as this is more than just a commodity trade. In tough times, like the ones we’re still in, gold still serves as what economists like to call “a store of value.” So why does everyone seem to be selling it in these continuing difficult economic times, particularly when every first, second, and third world country seems bent on devaluing its currency to promote prosperity? 

We are not gold experts here, but there’s a persuasive case to be made for a little bit of hanky-panky being played by the Powers That Be with, perhaps, a little help from their friends, Goldman Sachs and the Gnomes of Zurich. We have seen some writers putting together a case wherein paper contracts for gold actually exceed the availability of physical gold, creating a potential catastrophe for world markets if this is ever found out. 

Concurrent with this, it’s also been noted that certain governments, specifically Germany, have been quietly moving government old physical gold from rented-out vaults around the world to their own government vaults. A third piece of the puzzle involves huge short positions by major banks and trading firms which seem to be counting on continued downward pressure on the yellow metal. 

SEE RELATED: Bond vigilantes waterboard investors, markets whacked again

Conspiracy theorists—and we’re not necessarily dissing them here—figure that at least on one level, this is all a concerted plan to get a massive quantity of physical gold, held at least custodially to back popular gold ETFs like IAU and GLD, out of the hands of the small investors that effectively hold the gold, and back into the vaults of governments and large financial institutions.

At least that’s what the highly-suspicious Jesse of the Café Américan thinks, with explanations by the Maven in square brackets: 

Each time they smack down the paper prices of gold and silver, they free up bullion from GLD [gold ETF] and SLV [silver ETF].  I wonder who decides where and how that bullion is sold into the market.  

With TOCOM and COMEX [Tokyo and U.S. commodity exchanges] scraping the bottom of their deliverable inventory, and big drawdowns on the customer inventory held at JPM [J.P. Morgan], the release of tonnage from the ETFs matters. 

SEE RELATED: Thursday’s stock market taper tantrum: Safe to come out yet?

Who is the custodian for GLD again?  Oh yeah.*  

If and when gold finds a footing, it will be interesting to see who is holding bullion, and who has had it stripped away by this price operation that started in October of last year.   [Underline, Jesse.]

I suspect its purpose was ‘to save the system’ which is another word for the Banks who were caught short on that big run higher. 

But this is all for conjecture for now.  Let’s see what happens when it happens.

[*For the uninitiated, HSBC Bank USA is the designated custodian, but stores the gold in its London vault, while also using vault facilities of the Bank of England and the London Bullion Market Association, FWIW. –-ed]

None of the gold info we’re presenting here has a lot to do with today’s upcoming trading action, except if you happen to be trapped in a long position in GLD or a similar instrument or are holding physical gold that you bought up around $1800 an ounce. (It’s now approaching $1200 with futures down some $40 an ounce this morning.)

But the underlying actions, again clearly on a massive scale, that are meant to pry gold out of smaller hands and back into bigger, more secretive hands, bear watching. That’s because they may have a lot to do with the security of currencies, not to mention governments and banks, in the weeks and months ahead.

As far as you and the Maven are concerned, this is likely another day to steer clear of active trading. If you hold some bonds, like the Maven does, it’s also going to be hard to protect your portfolio from the current downdraft as well. Hedging with various short strategies could equally backfire given market volatility. And the usual approach—loading up on stocks as your bonds take a hit—is just as risky here, since virtually everything seems eager to go down in this market at the least provocation.

So in the end, cash is still king. At least our moneymarket funds are paying a tiny bit more now. So let’s keep our chips safe for now and come back to fight another day.

Disclaimer: The author of this column maintains several active trading and investment portfolios and owns residential and investment real estate.

Positions mentioned above describe this author’s own investment decisions and should not be construed as either buy or sell recommendations. The current market is highly treacherous and all investors travel at their own risk, so caution should be exercised at all times.

Illustrations, charts, commentary, and analysis are only the author’s view of current or historical market activity and don’t constitute a recommendation to buy or sell any security or contract. Views, indications, and analysis aren’t necessarily predictive of any future market or government action. Rather they indicate the author’s opinion as to a range of possibilities that may occur going forward.

References to other reporters, analysts, pundits, or commentators are illustrative only and do not necessarily represent an endorsement of such individuals’ points of view. If specific investment vehicles are mentioned in any article under this column heading, the author will always fully disclose any active or contemplated investments in said vehicles.

Read more of Terry’s news and reviews at Curtain Up! in the Entertain Us neighborhood of the Washington Times Communities. For Terry’s investing and political insights, visit his Communities columns, The Prudent Man and Morning Market Maven, in Business.

Follow Terry on Twitter @terryp17


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Terry Ponick

Now writing on investing, politics, music, movies and theater for the Washington Times Communities, Terry was formerly the longtime music and culture critic for the Washington Times print edition (1994-2009) before moving online with Communities in 2010.  



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