Gold Battle Lines Drawn at $1,000 - Again

Here we go again. The forces of legitimate money versus the incumbent purveyors of the candy floss economy squared off at the $1,000 an ounce line over which yet another battle will be fought. Arrayed against either side are formidable new elements and tried and true old ones. As usual, the first volley has been catapulted over the walls of the hucksters by the defenders of the essential timeless truth of gold’s naturally stored value against the counterfeit paper currencies.

The liabilities of the enemy have increased, and the short positions in the COMEX market are sufficiently stacked that the big bank defenders simply cannot allow gold to win decisively. G7 governments are allied against gold to a man, while emerging economic behemoths China and Russia stand in opposition.

In particular, China’s revelations that it has been in a continuous accumulation mode for the last several years and is now the fifth largest sovereign reserve of gold has created an impetus in the gold camp that has been seen lacking in the past. Institutional and sovereign investment entities now perceive a floor in the gold price based on this information, and one must beg the question as to why China would make such a revelation when it threatens to undermine the value of its $2 trillion in U.S. debt holdings.

China has also been careful to avoid buying gold on the international market, for fear, it says, of creating a stampede into the precious metals that would immediately increase the cost of its stated intention to continue accumulating gold towards the backing of the yuan (renmibi) as a global reserve currency.

Yet that is precisely what has happened. Ostensibly, the justification for tipping their hand exists in the fact that they’ve resigned themselves to the fact that selling poison toys and pet foods to Americans in exchange for a currency that loses value like light into a black hole is an acceptable if imperfect transaction. With $50 billion a year in interest payments from the U.S., they can hedge the risk buy using it to buy gold.

With the perceived floor arguably at $850, downside risk is limited in gold far more so than in U.S. treasuries, which, if mainstream media is to be taken as remotely credible, is the current favorite of safe haven investors.

‘Safe Haven’ is about to get painted with same fragrant brush as ‘AAA-rated’ investments.

Goldbugs are salivating at the prospect of vindication, but seasoned veterans of the war know that the governments and central banks arrayed against gold are not fair fighters. Since the largest players in the futures market occupy both sides of the contract, and never take delivery of the physical gold, they can orchestrate a perpetual negative sentiment towards gold by driving the future price downward by simply amping up the short positions, thus making gold appear poised for a sell-off. This has been standard operating procedure for the last decade, and it is interesting to note that ever-bigger short positions are having less influence over shorter durations before the bulls shrug off the flimsy performance and take gold higher.

Critics and observers of this U.S. Dollar image management program point to the fact that such activity, while shoring up demand for U.S. Dollar debt in the short term, effectively undermines the entire global economy, and is among the fundamental causes of financial crises such as the housing collapse and the whole current global financial fiasco.

Proponents of this manipulation, who are increasingly legion in number, correctly predict an inevitable bursting of the damn catalyzed by investment demand overwhelming the short positions, forcing them to buy and cover to limit losses, which will, in itself, stimulate the gold price even further.

With the limited oversight and feeble reporting standards of the CFTC, the ploy is facilitated by complicit (or ignorant) regulators who ensure data is obfuscated and disclosure limited. It has been this collective effort on the part of the Dollar Defenders that continuously defeats gold’s advances, repeatedly castrating the bulls and sending them whimpering to lick their wounds and regroup.

But China is now leading the charge, and the bet is that they’re willing to forgo the lost value of their USD holdings to decisively undermine the global reserve currency once and for all and replace it with the Yuan, a move that would effectively mark the beginning in the shift of the global balance of power from west to east.

The United States, overextended militarily across the Middle East and Asia, with new fronts threatening to open in Iran and Pakistan, is perilously close to an international nervous breakdown. China’s opportunity is to ride to the rescue bearing smiles and steamed pork buns while dividing up what is left of the American industrial asset pool.

Our leadership of the last decade (or more accurately, absence thereof), eager to lubricate the workings of multinational financial interests, have inadvertently played into the patient hands of their biggest creditor by prostituting the national currency shamelessly to the point where every nation in the world can see what used up piece of spent jet trash the old USD has become.

While mainstream media dismisses the idea of the Yuan replacing the dollar as the international monetary standard, those of us who have tuned out at the perception management program on CNN recognize the event as halfway accomplished.

The truly explosive moment for gold will occur when the Chinese, at their discretion, decide to spring the trap, and abandon USD completely in favor of gold, suddenly spiking the price of gold straight north in tandem with the complete collapse of the U.S. dollar.

Don’t pay any attention to the second rate hacks trying to claim credit for predicting the fall…it's been predicted repeatedly throughout history from Nostradamus to Roubini. Any student of economic history with 20/20 vision could see this coming, and here it is. “I told you so” is a waste of time. Who’s offering a solution?

Whether or not this particular battle at the Great Wall of $1,000 an ounce is the mother of all battles remains to be seen. Desperate times call for desperate measures, and while G7 governments collude to retain power, the unforeseeable is the greatest threat to gold.

That being said, veteran observers are optimistic, to say the least.

According to Bill Murphy, intrepid soldier of gold wars and standard bearer for the Gold Anti-trust Action Committee,

The Gold Cartel is giving it all they have no, as evidenced by the sharply rising gold open interest on the Comex ... up some 23,000 contracts on Wednesday and Thursday. They are doing all they can to counter new spec buying.

My hunch is the next time we see $1,000, and that could be very soon, gold ought to take off from there, giving us more upside dynamic daily moves. The reasons to own physical gold are off the charts ... HUGE investment demand, shrinking visible central bank supply (unrelated to the cabal), shrinking mine supply, shrinking dollar, concerns over sovereign wealth debt, a horrible US economy, and a US printing press that is going flat out and will have to for some time to come.

In my opinion, all gold has to do is to stay over $1,000 for a few days, and then all kinds of bells and whistles go off.

Bill is not the only one who thinks the breakthrough is at hand. Bob Moriarty of 321gold.com, himself a historically prescient oracle of market crashes agrees and warns that the stock market will be the first casualty of the new financial reality.

If you take a look at the dollar and the long bond, it looks as if they jumped off a cliff. This isn’t gold going up, it’s the dollar and bonds going down. When the market wakes up the stock market is going to take a giant dump. No more fake rally.

Investors by now should be well equipped to read the writing on the wall. Whether gold breaks through $1,000 and holds there, charts new territory at much higher levels, or is beaten back down through the offices of JP Morgan (JPM), HSBC (HBC) and Goldman Sachs (GS), is irrelevant.

Gold producer stocks are up, on average, over 22% this year in the Midas Model Portfolios, while intermediate producers and close-to-production juniors have piled on gains ranging from 20 to 200%, all since January this year.

You won’t hear anybody pointing that fact out on television, and you won’t hear that from your broker, in most cases. But the lesson is clear. Gold bullion is the place to be for wealth preservation, and gold producers and explorers is where risk capital is going to see utterly stupendous gains this year.

If you buy the hype of Wall Street and Washington and wade into the general equities markets, you have nobody to blame but yourself for the heavy losses you will surely sustain.

Comments

[HardRock:]

Gold gonna move over $1000USD onna June 12th..................... soon.

.........chart here: seekingalpha.com/user/...

"Great Wall of $1,000 an ounce is the mother of all battles remains to be seen."

May 28 09:17 AM

[yellowhoard:]

The Middle East is taking physical delivery of gold too.

What happens when China and Middle East gold buyers back up the truck for gold delivery and the loading dock is empty?

That oughta be an interesting conversation.

May 28 09:42 AM

[doubleguns:]

Even the Ruskies have been buying gold.

We continue to preach to the choir so it seems but the new reader showing up needs to know this and know it NOW!!!

Any reader not in some amount of Precious Metals best get off the couch and get it now. Your dollar is getting slaughtered!!!!!

TOMORROW COULD BE TO LATE!!!

May 28 10:02 AM

[psig:]

This article hit pay dirt. We may be at the point where either the rubber hits the road or the banana republic gov't and their banker buddies are able to pull something out of their butt and keep it below a grand. MANIPULATION CANNOT AFFORD TO BE EXPOSED. What can they do to prevent this: Make possession illegal or is there another option to protect manipulation?

May 28 11:38 AM

[cihat:]

Gold will go up past 1000USD so fast you will all be astonished...

How do I know?
1- Platinum is above 1000USD for years and it is well accepted by everyone... why shouldn't gold be accepted... METAL is METAL

2- It is not gold gaining value, it is USD losing value...Investor Faber said US inflation will be something close to Zimbabve...
Gold value calculated in USD, in that case even 960.000.000 USD Ounce (960 Million USD an ounce is possible) Zimbabve's annual inflation is %273 Million...

Now.. DO you also believe that we will be above 1000 USD very soon!!!

YES but you will probably have to spend 1000 USD to fill gas in your cars tank.....Don't blame me it is the famous Investor FABER who claims this, I am just calculating for you to see....

May 28 12:02 PM

[silverwood:]

This quote from President Andrew Jackson is befitting for what needs to occur in the pits of the Comex...."You are a den of vipers and thieves. I intend to rout you out, and by the grace of the Eternal God, will rout you out." Now that was a time when America had real politicians!

May 28 12:14 PM

[Donald Ingram:]

James -
A most excellent article with an entertaining turn of a phrase!

Agreed. The classic fight is on! Has it ever been off? Only this time the "old barbarous relic" will not be denied. There is too much pressure from all sides for the foilers of free market dynamics to suppress the ancient coin any longer.

May 28 12:18 PM

[Donald Ingram:]

Agreed -
Do not own shares in gold ETFs, after all they are just paper certificates. Hold physical gold. There is some question of physical supply on hand to fulfill all the certificates issued!
Would love to be a fly on the wall when the truck does back up to take physical delivery! Old Mother Hubbard went to the cupboard...

On May 28 09:42 AM yellowhoard wrote:

> The Middle East is taking physical delivery of gold too.
>
> What happens when China and Middle East gold buyers back up the truck
> for gold delivery and the loading dock is empty?
>
> That oughta be an interesting conversation.

May 28 12:25 PM

[ScroogeMcduck:]

Not to mention, with this continued run up in the price of gold i havent begun to see any upgrades from anaylist for minners. How much higher will there stock prices go up then?

May 28 03:47 PM

[5142152-337:]

TERRIFIC article, as usual, James! Thank you, sir!

Don't worry, posters, about the manipulation by the EGB's (elitist greedy bastards), China, Russia and others WILL force their hands, buy backing up the trucks to haul off whatever gold is STILL available. We, on the other hand, must do our parts, by buying up all the gold AND silver we can get our hands on to ensure we get a "piece of the action". God bless us all!

May 28 06:39 PM

[mlonz:]

This time its going to be like a hot knife through butter, and straight up to $1,200

May 28 07:04 PM

[bkdc:]

The Federal Reserve price suppression team has an unfair advantage. It can bankroll an unlimited number of short positions in trading because it can print an unlimited amount of money. Taking PHYSICAL DELIVERY is the only way to beat the con game. When demand for physical bullion overcomes the short positions, we will see a supercharged takeoff, baby.

May 28 08:12 PM

[raytayzmd:]

...now let's see -- you were the dude pumping CHQ when it was at $4 a share:

seekingalpha.com/artic...

...and you were also pumping OILXF.PK when it was up around $15 a share:

seekingalpha.com/artic...

...and CHQ is trading NOW around 50 CENTS a share and OILXF.PK is trading NOW around 8 CENTS a share...oh, yeah, like that makes me REAL CONFIDENT that you know what gold's going to do!

May 28 11:35 PM

[cameroni:]

Dear James West,

I will admit I laughed at some of the beautiful one-liners in your article. You have a good sense of humor and a way with words. But I have to tell you that I totally disagree with your premise that America has somehow lost it's might to China or that the Chinese are about to "decisively undermine the global reserve currency". That is just crazy talk and I think you know it.

The Chinese after all control less than 2 Trillion of US Government debt (Actual figures vary wildly as you will know). They have some leverage on our economy but let's not exaggerate their power. It's still only a fraction of our total indebtedness. For the Chinese to undermine our currency we have to also accept that they are prepared to discard a large percentage of their interests in the foreign incomes they control (including European earnings and all things western).

You also need to understand I think that those that govern in China are not in a good bargaining position politically with their own people to start with and that there are consequences to rash actions that will deprive their economy of those earnings. There are more factors at play here than meet the eye. Asia is not stupid. They are in the same game as us now and the ruling parties are as vulnerable to our economy as we are to theirs.

In short, they do not hold all the cards. Neither do we. This is a relationship of symbiosis. We do need each other and that is why the US lead in dollar devaluation will fly just fine (thank you very much) and the US will maintain it's reserve currency for a long, long time to come.

Lets stop looking at our economic vulnerabilities from the perspective of weakness all the time. Those you perceive to have a greater power over our economy than our own government may not be as strong as you think.

China, quite unlike America is at constant risk of blowing apart politically at all times. They are not a cohesive society arranged around a single language, political structure or properly functioning judiciary. China is a nation of nations. It is their strength and weakness too. Let's not give them more power than they merit.

There are consequences to their actions. More at home than abroad.

Cam

On May 28th the Author wrote:

"But China is now leading the charge, and the bet is that they’re willing to forgo the lost value of their USD holdings to decisively undermine the global reserve currency once and for all and replace it with the Yuan, a move that would effectively mark the beginning in the shift of the global balance of power from west to east".

May 28 11:50 PM

[harammph:]

Unless you wave your Magic Twanger Frogie, the Chinese have $1.3 trillion of debt in other currencies with $700 Billion US or so.

But you are totally out of your Mind if you believe that Gold will go straight up to $1,200. As is the thought that it will hit $1,000 tommorrow.

Buy Gold now, buy Gold now. Buy Silver because the % will be greater.

May 29 01:05 AM

[chux08:]

GTU - Central Gold Trust - gold-trust.com/

It is to gold bullion what The Central Fund (CEF) is to silver. No funny business with too much paper and not enough gold and also SAFELY out of the US and located in resource rich Canada. Plus John Embry from Sprott Asset Management is co-chairman. If you're looking for a gold play that's MUCH, MUCH safer than GLD, this is it....

May 29 02:05 AM

[cihat:]

Gold hit 973 USD an ounce as I write this mesage..
27 USD an ounce later we will hit the 1000USD for the 3rd time in a year............ so this is becoming a resistance level in a few months....
I am an importer and most countries quit giving prices in USD and started giving price quotes in Euros..(which is also risky but not as much at the moment compared to USD)
Can you imagine an Australian Company giving quotes in EUROs?
This is the worst real life blow to USD... so I would not bet on low gold prices anymore as long as its price is determined in terms of USD...

May 29 05:00 AM

[tb1975:]

Where's Rolex18Daytona or whatever his name was? He was always spouting short propaganda but seems to be MIA.

May 29 04:14 PM

[Mad Hedge F...:]

this time gold will win. If you have been aggressively long commodities of every size, shape, color, and flavor, as I have been all year (www.madhedgefundtrader...), then you just had one of the best trading months of your career. The CRB index rocketed by 17% in May, the best move since the early days of the first oil shock in 1974. That year I spent weekends driving my Volkswagen van from Los Angeles down to Mexico, where I filled it with jerry cans of gasoline, because it was still selling for 25 cents a gallon there (an early attempt at arbitrage). I finally sold the vehicle and used the cash to buy a one way ticket to Japan (remember that John E?). My favorites went up the most. Crude leapt 29%, Silver clocked in a 23% return, and gold was up 9%. The producing stocks also did spectacularly well. Coal producer Massey Energy (MEE) soared by 44%, dragged up by oil, while my beloved Freeport McMoran (FCX), with the world’s largest gold and silver reserves, rose by 30%. While these things are all superheated on a short term basis, the ten year agreements are still good. You can find massive Chinese buying behind almost every one of these.

May 29 09:40 PM

[inflation:]

Is that what you are going with raytay? I guess you have never been wrong before with a stock pick. Sheesh how can I sign up for your service? No one on this planet will ever be right all the time and those who tell you differently are lying. I believe if you look at West's record much more often than not he has been correct.


On May 28 11:35 PM raytayzmd wrote:

> ...now let's see -- you were the dude pumping CHQ when it was at
> $4 a share:
>
> seekingalpha.com/artic...
>
>
> ...and you were also pumping OILXF.PK when it was up around $15 a
> share:
>
> seekingalpha.com/artic...
>
>
> ...and CHQ is trading NOW around 50 CENTS a share and OILXF.PK is
> trading NOW around 8 CENTS a share...oh, yeah, like that makes me
> REAL CONFIDENT that you know what gold's going to do!

May 31 01:58 PM