November 26, 2013 at 11:29 AM EST
Is Owning Gold A Waste Of Time?
NYSEARCA:GLD, NYSEARCA:SLV, NYSEARCA:IAU Related posts: Rationale For Owning Gold In The Coming Deflationary Bust The Case for Owning Frontier Market ETFs SPDR Gold Trust ETF: Why The Tumble In Gold Prices Actually Predicts A Bullish Market How SPDR Gold Trust (ETF) Demand Could Lift The Gold Price Dramatically Higher Do ETF Outflows Mean The End of The Gold Bull Market, or Just The End For Paper Gold?

record gold holdingsDavid Levenstein: Gold prices fell the most in more than two months last week mainly due to renewed speculation over the timing of the US Federal Reserve’s (FED) tapering of its monetary stimulus program.

After breaking below certain key support levels, the price of spot gold ended the week with a 3.5% drop to end the week at $1243.70 per ounce. After dropping below $1300 an ounce, the selling accelerated on Thursday taking gold through the support level at $1,250, which many analysts saw as important for the market to hold. While prices have managed to hold above $1240 an ounce, traders are eyeing this level as a break below could signal more technical selling with some analysts even suggesting a dip to the $1,220s as possible as bearish technical charts and little positive news is available to offset the price-negative sentiment in gold.

Interestingly, gold trading on Comex was interrupted twice last Wednesday, according to Nanex, which provides exchange data and summarizes high frequency trading activity.

Nanex reported that about 1,500 gold futures contracts traded in one second at 6:26:40 a.m. Eastern time on Wednesday, triggering a $10 drop in prices and a 20 second trading halt.

Damon Leavell, a spokesman for the exchange said trading was halted for about 20 seconds at 6:26:41 a.m., New York time. The December contract fell about $11 in less than a minute before trading was suspended.

Then, immediately after the release of the Fed minutes, came another burst of selling which led to gold futures being suspended for another 20 seconds. The second bout of concentrated selling is believed to have been even more than 1,500 contracts. Each contract is worth 100 ounces so 1,500 contracts is worth nearly $200 million.

Shortly after 1 am Eastern Standard time on Monday, someone tried to dump 1500 gold contracts into an entirely illiquid gold futures market. The 150,000 ounce notional sell order ($184.5 million), sent the price down $10 instantaneously and tripped the exchange’s circuit breakers and halted the market’s trading for 20 seconds (once again). This is now the fourth time this has happened in the past 3 months, and this time on no news whatsoever.

It is becoming increasingly obvious that someone out there is trying to suppress the price of gold and this is happening far too often to be a mere coincidence. The market was halted on similar drops on April 20, 2013, September 12, 2013, October 11, 2013 and November 20, 2013.11.26

This repeated action suggests that someone out there is determined to undermine the confidence of potential gold investors.

Since the end of October, traders have dominated the gold market, betting on the possibility that the Fed will soon reduce bond purchases even though Janet Yellen said last week that she would continue with the bank’s ultra-easy monetary policy until officials were confident a durable economic recovery was in place that could sustain job creation.

While the tapering of the Feds stimulus is mere conjecture, it has nevertheless created a bearish sentiment amongst traders who have used the futures market of Comex to sell massive amounts of gold contracts causing prices to fall by around $100 an ounce in the last three weeks.

As far as I am concerned, this frequent irregular action is part of a strategy of central bankers and Western politicians to beguile individuals into investing in equities and bonds or simply get further into debt. The major central banks, the US Fed, ECB, BoJ, and BoE are all engaged in monetary expansionary program renamed quantitative easing. In simple terms, they are printing more and more money. At the same time they have dropped interest rates to almost zero. So, individuals who have saved are getting nothing on their savings while at the same time the purchasing power of their money is becoming less each month.  It is a dilemma for pensioners because the money they are receiving in interest payments is not enough to get by. And, for those hard working individuals who like to save, having money in a deposit account is hardly a proposition. So, in order to find a higher return, they are being persuaded to invest in equities.

While investing in equities is not a bad thing at all, the current scenario is anything but healthy. Prices of global equities are being artificially propped up by the policies of these central banks and have nothing to do with stellar economic growth.

As the prices of stocks continue to rise, individuals are being persuaded to buy these to keep prices moving upwards. Alternatively, they are being induced to use the low levels of interest to buy homes and cars and thus get themselves further indebted to banks.

In the UK total personal debt has reached record highs – 1.4 trillion pounds.

According to a report by the Centre for Social Justice (CSJ) an average household debt of 54,000 pounds is now almost twice the level of a decade ago. Indebted households in the poorest 10% of the country have average debts more than four times their annual income.

According to the report, entitled ‘Maxed Out’, over 130,000 people declare bankruptcy or some other form of insolvency each year in the UK. More than 8 million households have no savings at all, affecting about 50 percent of low-income households. Consumer debt has trebled since 1993, reaching nearly 160 billion pounds in 2013.

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Related posts:

  1. Rationale For Owning Gold In The Coming Deflationary Bust
  2. The Case for Owning Frontier Market ETFs
  3. SPDR Gold Trust ETF: Why The Tumble In Gold Prices Actually Predicts A Bullish Market
  4. How SPDR Gold Trust (ETF) Demand Could Lift The Gold Price Dramatically Higher
  5. Do ETF Outflows Mean The End of The Gold Bull Market, or Just The End For Paper Gold?

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