A Paper Market Intervention
London metals trader and whistleblower, Andrew McGuire, said recently in an interview with KWN, that the current fall in gold prices is driven by a paper market intervention without any physical backing.
McGuire believes that gold should be trading in the mid $1,600 range, but is not because of officially backed intervention. Our technical and fundamental analysis performed by EMA experts, predicts a similar range for gold, which was supported by Rick Rule in a recent interview.
McGuire said that every time gold has threatened to regain and take possession of the 1600 price, it has triggered officially backed intervention as bullion banks stage coordinated interventions. Why?
"To protect naked shorts just above 1600," McGuire said.
McGuire stressed the importance of the difference between a paper market intervention and a physical intervention. He said, "There's a huge difference."
Traditionally, when official buyers have come into the market, they have been able to back up the paper intervention with real physical supply. McGuire said, "What we're seeing now is none of the physical supply is there."
He sees this as a clear sign of weakness.
In the past McGuire said that there have been much, much deeper interventions, but central banks are now constrained in how far they can push these paper prices because the resulting real market discounts that result from paper market selling are actually exponentially inclusive of the real physical demand, which we see in London, Shanghai and other places. In other words, the difference between the price of gold on the paper market and the price of real physical gold can become too great, leading to other buyers and central banks picking up this discount by buying physical gold, which is just what is happening.
Since gold broke 1550, McGuire said there has been far in excess of 500 tons of paper gold that has been sold, strongly suggesting a bull market-at least on the paper market. The physical market, however, tells an entirely different story. Just in Shanghai, physical deliveries were 283 tons in March alone. In eight trading days in April another 183 tons were delivered. Some 400 tons have been delivered to buyers in Shanghai in less than a month and a half, and that is just for one exchange.
McGuire said, "Mainstream media says we are in a bear market because GLD has dumped about 200 tons since the beginning of the year. Yet just one exchange in China has taken delivery of 400 tons in less than a month and a half; since January 1, probably in the 800 ton range. It amazes me how people can concentrate on just one paper market exchange."
McGuire explained that traders are operating in the foreign exchange markets. They are going long gold and short the dollar. In other words, they are locking in the paper price, as gold cascades down into the low 15s.
McGuire said it is "laughable" that Goldman Sachs called for 1300 gold. "The smart money knows just how tight the physical markets are," McGuire said. "They're telling their clients to short gold. If this short sale was such a great trade, wouldn't Goldman Sachs keep it under wraps?"
The short selling in the paper market also hurts mining companies, which have to sell into an artificially devalued futures market. When this short selling ends, it should greatly aid mining company stock prices. Our analysts at the Equity Management Academy, supported by precious metals insiders such as Rick Rule, agree that mining company stocks could be set for a major rebound. The question is when?
"I think we've reached the point of capitulation," McGuire said. "I cannot see how all of this central bank buying can't overwhelm all of these short sales….I give it two to three days before this has a massive rebound effect."
What should the average investor do at such a time?
"Remember this is a paper market intervention and it has no physical behind it," McGuire said. "When all this central bank buying gets allocated it's going to overwhelm all of this short selling." Then, just as I have predicted before and heard from other experts including Eric Sprott and Rick Rule, get ready for an explosive rebound.
The information in the Market Commentaries was obtained from sources believed to be reliable, but we do not guarantee its accuracy. Neither the information nor any opinion expressed therein constitutes a solicitation of the purchase or sale of any futures or options contracts.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in AGOL, DGL, DGLD, DGP, DGZ, DZZ, GLD, GLL, IAU, PHYS, SGOL, UBG, UGL, UGLD over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.