Are Central Banks Losing Control Of The Gold Market?

Includes: GLD
by: James P. Montes

The gold futures (paper) markets have become an entity (virtual casino) all on its own with the central banks as the house in control. Since the highs made in September 2011 above the 1900 level, we have seen nothing but persistence central bank naked short selling against a background of relentless demand by China and its neighboring economies. This has skewed the real balance of supply and demand globally by historic proportions.

Turning to gold, Dr. Paul Craig Roberts, Former Assistant Secretary of the Treasury and Wall Street Journal columnist remarked, "The intervention in the gold market is part of the plan to prolong the life of the dollar." He continued, "The policy is to sell naked shorts to prevent the strong demand for physical gold from driving up the price. If gold is rising so rapidly against the dollar, he said, "it raises the question of how can the dollar be worth the same against other currencies?"

In a recently published Reuters article, Deutsche Bank (DBKGn.DE) will withdraw from gold and silver benchmark price setting, it said on Friday, as European regulators investigate suspected manipulation of precious metals prices by banks.

According to a recent article published in BBC, some HSBC customers have been prevented from withdrawing large amounts of cash because they could not provide evidence of why they wanted it, the BBC has learnt. This could have major economic consequences globally.

This echoes my comments and interviews I have done in the recent past and it confirms that the central banks are losing control on monetary policy and the paradigm of ownership in the gold and silver markets is making a major historic transformation from the West to the East in front of our eyes. From the US futures (paper market) to the physical market controlled by China and India.

With the price of the yellow metal historically undervalued to the real physical market fundamentals of supply and demand, the present price levels are without question one of the best buying opportunities in a lifetime. Not only to make an intelligent trade or investment in precious metals but to prepare and protect against the inevitable, the acceptance globally that the US dollar will not be the only worlds reserve measure of global trade currency unit in the very near future.

In a recent phone interview Bill Murphy, Sr. VP of IRA Advisor Group made the following comment and he said, "This is probably one of the best opportunities to add physical gold and silver assets to your retirement accounts and offset the zero base interest rate mentality prevalent in US Treasuries, and consequently protect one's assets against the inevitable, the US dollar collapse."

What is really disturbing is the logic behind the current US monetary policies to devalue its own currency simultaneously during a time when the debt ratio to GDP is at a record level and interest rates are on the way up and simultaneously depleting its gold reserves. As we have seen it historically, this strategy does not work and it is completely unsustainable with devastating long-term economic consequences.

"We're rolling toward the collapse of the dollar," Roberts predicted, "and with it the collapse of American power." He argues that the United States will have massive bills, which the US will be unable to pay.

The US Dollar

The US dollar crashed last week from a test of the 81.53 high made on January 21, 2014 to close on Friday at 80.56 with a low of 80.22. A close below the 80 level could take out any major stops below and test the 79.50 levels of support.

E-MINI S&P 500

At the same time the stock indices completed major tops last week and are expected to drop sharply into the late February time frame.

Echoing my comments made on December 26 2013 regarding stock indices, "The rise in short and long-term rates does not bode well for the world bond and stock markets globally. It would serve well for those that are holding bonds or have substantial profits in stocks to begin taking some profits off the table or to hedge their positions as the low rates mentally inevitable will come to an end - sooner than later."

Gold Validating a Major Multi Year Bottom

The gold and silver markets are confirming a potential multi year major bottom has taken place. The VC Weekly Price Momentum Indicator published in Seeking Alpha on December 22, 2013 initially confirmed the expectation of a major bottom in gold between December 23/24. The price of the February futures market closed at 1203 on Friday December 20, 2013.

Since then we have seen a test of the 1181.4 low on December 31, and rallied to the high we saw last week of 1273.2. This validates the probabilities that the expected bottom has taken place. Any corrections towards the 1241 to 1215 price should be used to add to your long positions.

For long-term traders/investors it is an ideal place to add, as these levels are beginning to attract very strong buying interests. Protect this position just under the 1200 level with the idea to re-enter the long side if new lows take place.

The close on Friday January 24 of 1267 and the December 2013 high in gold signals a 2-3 month advance with the possibility of a sharp move up towards the end of the month and ideally into the January 30/31 period that could exceed the 1300 price levels and potentially extend this rally to the middle or the end of February.

Let's take a look at the technical picture for gold and silver futures (paper markets) and see if we can identify some trading opportunities for next week.


The February gold futures contract closed at 1267. The market closing above the 9 MA (1238) is confirmation that the trend momentum is bullish. A close below the 9 MA would negate the weekly bullish short-term trend to neutral.

With the market closing above The VC Weekly Price Momentum Indicator of 1257, it confirms that the price momentum is bullish. A close below the VC Weekly, would negate the bullish signal to neutral.

Cover short on corrections at the 1241 to 1215 levels and go long on a weekly reversal stop. If long, use the 1215 level as a Stop Close Only and Good Till Cancelled order. Look to take some profits on longs, as we reach the 1238 to 1299 levels during the week.


The March silver futures contract closed at 19.90. The market closing below the 9 day MA (19.91) is confirmation that the trend momentum is turning bearish. A close above the 9 MA would negate the weekly bearish short-term trend to neutral.

With the market closing below The VC Weekly Price Momentum Indicator of 19.99, it confirms that the price momentum is bearish. A close above the VC Weekly, it would negate the bearish signal to neutral.

Cover short on corrections at the 19.55 to 19.21 levels and go long on a weekly reversal stop. If long, use the 19.21 level as a Stop Close Only and Good Till Cancelled order. Look to take some profits on longs, as we reach the 20.68 and 21.06 levels during the week.

Disclaimer: 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

Trading derivatives, financial instruments and precious metals involves significant risk of loss and is not suitable for everyone. Past performance is not necessarily indicative of future results.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in AGOL, AGQ, DBS, DGL, DGLD, DGP, DGZ, DSLV, DZZ, GLD, GLDI, GLL, IAU, PHYS, SGOL, SIVR, SLV, SLVO, TBAR, UBG, UGL, UGLD, USLV, USV, ZSL 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.