Behind the Scenes Glimpse At The War On Gold & Silver

With global stock markets remaining strong, today a man who has been trading major markets for over four decades gave King World News a “glimpse” into what is happening behind the scenes in the war on gold and silver as well as major markets.  Below is what James Turk had to say in his fascinating interview.
Turk:  “The gold and silver markets lately have become a waiting game, Eric.  The buying power from new money coming into the market over the past couple of weeks has been pretty much stifled by new shorts, as we can see from the Comex numbers, which do give at least a partial glimpse into what is happening....

“Open interest is up, particularly for silver, but both gold and silver prices are stuck near support.  The price of gold has hardly moved over the past week, and remains in a narrow trading range on either side of $1280.  Normally one would expect to see a rise in price with the jump in open interest like this, particularly given that both precious metals are in areas where there has been good support as a result of physical buying. 

We know the new short positions are not coming from momentum players because there is no downside momentum, nor are the gold miners adding to hedge positions.  So that leaves the usual culprit, the central planners.  They are obviously worried about gold and silver running away to the upside from all their money printing, so they have drawn a line in the sand around $1290 and $20.85.

These kinds of markets are particularly frustrating for traders because so little is happening.  But everyone should instead be focusing on what the long-term accumulators of physical metal are doing.  They continue to stock up on any dip because they are focused on accumulating value, rather than short-term price fluctuations.  They know that gold is good value, and that this undervaluation will eventually be reflected in market prices.

Nonetheless, it is frustrating to see the Dow Jones and S&P climb higher because of all the money printing, while gold and silver remain stuck in a trading range.  But these conditions will change.  The money printing will continue to boost the stock market, and eventually gold and silver will break higher because in the end, precious metal prices are driven by physical demand.

Here is an important point:  The biggest mistake one can make when viewing the precious metals is to assume that physical gold and paper gold are the same market.  They are not.  Most of the time their prices intersect, and the market is cleared at that price, or in other words, supply and demand of physical metal and the supply and demand of paper-gold balance out against each other.  But not this year. 

If the supply and demand for physical gold were in balance, there would not be 2500-to-3000 tons or more gold flowing this year to Asia.  And central banks would not be emptying their vaults - like happened back in the 1960s.  That is to say, they emptied their vaults until they recognized the hopelessness of their attempt to control the market.  

The result as we all know now is that the London Gold Pool - which was the name the central planners gave to their price rigging operation - kept a lid on the gold price at $35 per ounce until their price rig finally blew up, and the gold price took off.  It took off because the physical market was out of balance.  More physical was being demanded at that $35 price than the amount of available metal, and the same thing is happening today - but at much higher prices because inflation has caused the dollar to lose so much purchasing power since the 1960s.

There is one other point of importance, Eric, and that is physical gold and silver have no counterparty risk.  Paper-gold and paper-silver have counterparty risk.  As an example, much of their short position is built upon a daisy-chain of interlinked derivatives that will blow-up sooner or later, just like it did when Lehman collapsed.  So the market intervention will end just like the London Gold Pool.

While I am mindful that central planners can destroy a market long before they ever understand how markets work, I am also mindful that in the end, markets forces are bigger than anything a government or even a group of governments can muster.  That clearly describes the battle that has been raging in the precious metal markets.  It is the central planners versus the free market.  It is a repeat of what happened in the 1960s.  And in the end, the market always wins, regardless what the government throws at it.”