It has now become more evident the real catalyst behind the rally in the gold market that unfolded towards the end of 2013.
Venezuela pawns its gold to Goldman Sachs. The actual sourced article in Spanish can be found here.
Venezuela's Central Bank and Goldman Sachs are ready to sign an agreement to swap or exchange international gold reserves, with a start date in October, as stated in the contract, and until October 2020.
The negotiated amount, equivalent to 1.45 million ounces of gold, is deposited in the Bank of England and the transfers are made directly to Goldman Sachs once delivery times are stipulated.
The operation involves the delivery of gold from the central bank, which will receive dollars from the U.S. firm. The transactions are made through the creation of a financial instrument that is traded in the international market.
During the term of the instrument is an account called "margin," in which the central bank agrees to deposit a larger amount of gold in the event that the price of gold falls or in which Goldman Sachs deposits a larger amount when gold increases. "At the expiration of the transaction the contributions are returned to their owners," the document says.
There will be an adjustment to the asset value of 10 percent, to be used as a hedge in case the international market price falls, indicating that the U.S. bank takes care that if it produces depreciation it will be covered and Venezuela would assume risk. The annual interest rate will be a combination of dollars with the call BBA Libor equivalent to 8 percent.
On December 31, 2013, the gold market made a low of $1,187.20 during a time when Goldman Sachs was recommending that gold's drop to $1,050 was a sure thing. This common practice by Goldman Sachs to call the gold market's directional moves is not a coincidence just before a big move to the upside. The gold market rallied to a 3-month high of $1,373.4 made on March 17, 2014 after the low was made in December of last year during a time when Goldman Sachs was calling for drop to $1,050 was a sure thing and was negotiating the procurement of Venezuela's gold.
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."
Since the high was made in March of this year, the gold market has entered into a corrective wave pattern testing currently the previous bottoming formation that started back in the later part of 2013. The price coming down to the recent lows around the $1,240 levels validates this analysis.
Now from Bloomberg!
"Ecuador agreed to transfer more than half its gold reserves to Goldman Sachs Group Inc. for three years as the government seeks to bolster liquidity.
The central bank said it will send 466,000 ounces of gold to Goldman Sachs, worth about $580 million at current prices, and get the same amount back three years from now. In return, Ecuador will get "instruments of high security and liquidity" and expects to earn a profit of $16 million to $20 million over the term of the accord.
Gold that was not generating any returns in vaults, causing storage costs, now becomes a productive asset that will generate profits," the central bank said in the statement. "These interventions in the gold market represent the beginning of a new and permanent strategy of active participation by the bank, through purchases, sales and financial operations that will contribute to the creation of new financial investment opportunities."
Short-term, intermediate and long-term traders/investors should use this final window of opportunity to trade short term and accumulate to build a long-term bullish position as current prices trade around the $1,240 range and are truly in a historic environment when fortunes can be made in a relatively short period of time. The next 2 to 3 years will go down on the books as such a period of time in history for the yellow metal and current prices will be a thing of the past.
Let's take a look technically at the gold and silver markets and see what trading opportunities we can identify for next week.
The June gold futures contract closed at 1251. The market closing below the 9-day MA (1277) is confirmation that the trend momentum is bearish. A close above the 9-day MA would negate the weekly bearish short-term trend to neutral.
With the market closing at the VC Weekly Price Momentum Indicator of 1263, it confirms that the price momentum is bearish. A close above the VC Weekly, would negate the bearish signal to neutral.
Cover short on corrections at the 1230 - 1210 levels and go long on a weekly reversal stop. If long, use the 1210 level as a Stop Close Only and Good Till Cancelled order. Look to take some profits on longs, as we reach the 1283 - 1315 levels during the week.
The July Silver futures contract closed at 18.82. The market closing below the 9-day MA (19.22) is confirmation that the trend momentum is bearish. A close above the 9-day MA would negate the weekly bearish short-term trend to neutral.
With the market closing below The VC Weekly Price Momentum Indicator of 18.97, it confirms that the price momentum is bearish. A close above the VC Weekly, would negate the bearish signal to neutral.
Cover short on corrections at the 18.45 - 18.08 levels and go long on a weekly reversal stop. If long, use the 18.08 level as a Stop Close Only and Good Till Cancelled order. Look to take some profits on longs, as we reach the 19.34 - 19.36 levels during the week.
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 herein 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.