What’s Behind The Plunge In Gold?

Monty Pelerin / EconomicNoise.com

As most readers know, I am not a traditional gold bug but do believe that gold is one asset that will enable you to survive what lies ahead.

This belief was shaken last Friday and Monday when gold (and other precious metals) was crushed. As painful (and expensive) as this shakeout was, the reasons to believe in gold are at least as strong today as they were last week, month or year. Central banks around the world are inflating their currencies. The Cyprus bank account confiscation signals that banks are no longer a safe-haven. Geo-political tensions are becoming more, not less, dicey.

While a case can be made that markets are wrong, the reality is that gold plunged as did the net worth of anyone holding significant amounts of it. Logic and theory are of little use in stemming a market panic and that was what occurred in the precious metals. Various analysts have different explanations for the sell-off. Some utilize conspiracy theories to make their case. Others believe gold was simply overvalued and that some bell went off that signaled everyone to get out of the bubble at the same time.

I have puzzled as to why gold was taken down at this time. That last statement implies two things:

1. the likelihood of manipulation.
2. that gold as a safe-haven vehicle is not over.

The manipulation possibilities arise as a result of the suddenness of the price adjustments, as well as some suspicious trading (see the video below for one of these discussed by Chris Martenson).

There are a number of candidates who would benefit from manipulation. Here are three:

• Governments who are debauching their currencies. Gold is an obstacle to what they are doing. The rising price of gold is nothing more than the dropping value of fiat currency.
• Banks who have borrowed and then re-lent gold. At some point this gold needs to be returned. Martenson discusses this problem in the video.
• The world financial system. The faux pas that was Cyprus threatened the solvency of banks. This stupid act signaled to the world that money in bank accounts is not safe. A flight to gold (or some other safe store of wealth) could start a world-wide bank run. Clobbering the value of precious metals makes that less likely to be an alternative.

All three considerations potentially motivate an attack on gold by governments/banks. Economies and financial systems of the world are on the brink of destruction, despite what government and media propaganda tell you. Manipulation, legal or otherwise, has been and will continue to be used to attempt to prop up the failing world order. The incentives for such actions are easier to describe than is the presentation of hard evidence.

Chris Martenson, who I consider one of the better analysts of the world’s economic and financial problems, believes that central banks have leased out their gold and are unable to meet demands from countries like Germany for its return. He discusses this issue in the following video:

H/T Goldsilver.com

http://www.economicnoise.com/2013/04/17/whats-behind-the-plunge-in-gold/