Shake N Bake: Who's Buying the Gold Sell-Off?

Eric Muschinski |

Shake N Bake: Who's Buying the Gold Sell-Off?Gold, silver, and mining stocks were slammed on Friday, knocking gold below the technically and psychologically important $1500 level. Now, I don't think many people get the vibe that I'm much of a conspiracy theorist. But, even I took note of the coercion last week to knock gold down hard! See this common sense outline from Bill Downey at Goldtrends on Friday:

HOW TO CRASH A MARKET

Gold

Yesterday we reported the critical inventory level at the COMEX and JPM VAULTS. First the FEDs leaked out the FOMC minutes early and compounded the sell off by announcing that CYPRUS would sell 400 million dollars worth of Gold. Cyprus banking sources said no such talk took place.

SO WHAT TO DO NEXT?

There is only one way out of this. MAKE THE MARKET COLLAPSE and trip up all the stops at 1525. Then ---as the market collapses, STOP THE PHYSICAL MARKET FROM the ability to buy. And how can that happen? Read on for today's lesson in market manipulation.

Physical inventory drawdown at JPM
Physical Drawdown at COMEX
The selling began last night from 1564. By time we got to COMEX the price was down to 1542. And then the attack began. Wave after wave of selling until it got to 1525.  Then they break down the price and the stops start getting tripped up and the selling accelerates.
THEN - ALL OF A SUDDEN the LONDON PHYSICAL PLATFORM THAT BUYS AND SELLS PHYSICAL GOLD GETS LOCKED UP. THE SYSTEM FREEZES.
What does that mean?
No one can get to the PHYSICAL MARKET TO BUY at these low prices but at the same time, they CAN'T SELL or protect their position.
Meanwhile the futures market continues to drop.

So what happens? The physical market holders begin to panic. How can they protect themselves as they can't sell either?

There is only one solution, especially during a panic.

THE PHYSICAL market has no choice but to enter in FUTURES AND SELL in order to hedge their physical positions.
From there the MARKET GOES into a free fall as the physical market CAN'T BUY AT THESE LOW PRICES; they can only sell FUTURES TO HEDGE THEIR long physical holdings. Now it gets worse as underfunded players are getting wiped out and now they have to liquidate. The market goes into a total collapse as all the stops below 1525 get tripped up and all the stops at 1499 also as the market tanks to 1490.
I hope you got the picture on how the control boyz forced a major sell off. They LOCKED the physical market platform and they have total plausible deniability. HOW?
THE COMPUTER BROKE DOWN ---it couldn't handle the traffic and it shut down.
VOILA. The perfect excuse and the perfect scenario.
THE PHYSICAL MARKETS CAN'T BUY -------
Let me repeat that. THE PHYSICAL MARKETS CAN'T. They can only sell futures to hedge their positions.
That completes our lesson for today on how to force a major selloff. You start the ball rolling to where all the stops are and then you bring it down to where all the stops are at the lows and then you SHUT OFF THE PHYSICAL SYSTEM and stop them from buying and at the same time you force them to sell the future's on top of it.
Now What?
The banks and brokers will be open all weekend to issue all the MARGIN calls. If the money is not received by Sunday night the positions will have to be liquidated. Just when the market is at its lowest liquidity and the longs have had all weekend to think about it and the media has had time to tell everyone that the bull market is over. It should be interesting Sunday night.

Amazing isn't it? Well, it probably shouldn't be too surprising to many but nonetheless when manipulation of a market is this blatant it still causes mild awe to see the levers being pulled on the public. Certainly, this flush to new lows on Gold has gotten my attention but there is a good possibility that this was a run on stops to cover record short positions this week before the metals move right back up. I like to use a 3 day closing rule of thumb to verify a breakdown/breakout and as mentioned above, Sunday night/Monday some margin selling could knock prices lower first. That said, they call it "Shake N bake" for a reason! Shaking a market to trigger stocks only to force weak sellers out then to virtually and immediately leave them in the dust (aka toast aka "baked") by reversing the market is not anything new.

The fact is that the selling that is still occurring in mining shares at pennies on the dollar has nothing to do with fundamentals but only because stocks are going down and fear is rampant. This is NOT time to be selling precious metals or mining stocks but it is the time for smart money and value players to be scooping up assets at a mere fraction of their value! The CDNX is trading at the same level as it was in 2003 when gold was under $400 an ounce. This is an environment that is sowing the seeds as we speak for the next bull market in mining stocks, which looks like when it decides to begin, it will be powerful.

Here is a terrific interview of Billionaire Frank Guistra, who is betting on future inflation.

He addresses a number of relevant factors that align with our thinking as well. This worldview recently has not been a profitable one but let me give you a glimpse to the end of the book.....we win. Stay the course folks and don't get shake n baked! Proper psychology is to envision ourselves with our catchers mitt on with low bid prices in our favorite names, catching/buying/increasing positions at fire sale prices, NOT selling for pennies on the dollar. This cyclical bear market in precious metals and mining shares is a dream come true for those with cash to deploy. This brutal market could continue into the summer but as we've mentioned many times, later this year we see a much improved resource stock environment. Those that have the patience and resolve to make it to the other side of the rainbow stand to make a bloody fortune.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

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