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Friday, March 2, 2012

But seriously... What happened to gold?

The gold flash crash on Wednesday certainly freaked out a lot of gold investors.  And it provoked an amusing round of jeering from everyone who's missed the entire gold rally so far.  Which is a lot of people.

J P Morgan (a bank that is a principal owner of the Fed) dropped three million paper ounces of paper gold onto the comex futures exchange all at once.  They ran stops and took the paper price down pretty hard - from 1800 to 1700.  They can do this any time with money they borrow for free from the Fed.  They did this in conjunction with a Fed press conference.

But think about this: Does J P Morgan own three million ounces of gold that they wanted to sell?  No.  Of course not.  What do they own?  They own the Fed.  Literally.  They are majority share holder of the Federal Reserve Bank.  They are part of the banking consortium that owns the Fed.

1800 to 1700.  That's a big move in one day.  Get used to it.  That's what the comex is for.  The Fed plays this game in the other direction with stocks.  Every time the market falls J P Morgan can buy 10,000 SP contracts, rally the futures, and the cash price follows like a panting dog.

It's fun and profitable - if you're J P Morgan.

If you're one of the many analysts and fund managers who refuse to believe in market manipulation because it ruins your religious belief in America's Great Free Market, it's not so fun.  You get to be right about the stock market going up - a tiny bit.  And you get to be right about Gold being a dangerous trading market.  And you get to steadily lose 20 percent a year for you fund and your clients. 

Make no mistake.  Nobody's making any money trading these markets - except the banks that own the Fed.  Hedge funds run by trading geniuses like George Soros also make money.  Because he takes a long term macro fundamental position and knows he's right and waits it out.  Everyone else using quant based technical trading programs and stupid momentum trading strategies are getting killed.  Year in and year out. 

So don't trade.  Gold is on sale right now.  Buy it cheap.  Buy bullion.   Put it away.  Because all the Central Banks in the world can't change the primary trend of markets - over time.

And remember this: in June the Pan Asian Gold Exchange goes live in China.  A real exchange for real gold.  Each contract backed by physical gold that will be delivered.  That's the beginning of the end for  J P Morgan and the Fed's short term control of the gold market. 

That's not far off.  And they know it too.  So hang on to your hats til then.

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