It never fails. Gold rallies a little thanks to the absence of futures market purveyors who are enjoying extended holidays, and suddenly the experts are howling from the fringe about the resumption of the gold bull market. There’s no denying the tendency toward short-sightedness in the world of bloggers these days. Immediate time-sense perspectives preclude the ability to incorporate pattern recognition in a more macro scale. Thus, such upstart bullishness overlooks the fact that the trend has been for gold to be on the receiving end of futures market-driven price distortions once the holidays of the moment come to an end.
That will be January 6th this year. And so both the apparent weakness of U.S. markets – predicated by an absence of buy side participation, thanks to the expanded Christmas break – is driven by the same cause of the apparent strength in gold, which is characterized by an absence of participation by the futures shorts. So, while the sentiment-du-jour is audibly and effusively bullish for gold, I think it behooves those of a more conservative bent to hold off on the buy trigger.
The U.S. Can’t Afford to Let the Gold Price Rally Now
The combined forces of the American Coalition to Preserve the Illusion of U.S. Dollar Integrity are keenly focused on making sure this first feint toward a reduction in the quantity of capital and credit fabricated out of thin air each month do not catalyze a market swoon or worse, a flight from U.S. bonds. As the principle buyer of its own fetid paper, the Federal Reserve is in a highly escalated sense of wariness right now, and is likely to return to the office next week with hammer’s polished to pound gold into the ground so as not to instigate a stampede.
Gensler’s Departure from CFTC
Not only that, but with Gary Gensler stepping down from his role as Chairman of the Commodities Futures Trading Commission (CFTC), the last thing that can be permitted to happen optically is any sort of exuberance on the part of precious metals to suggest that a changing of the guard will be the trigger that finally breaks the gold price free from the now ubiquitous choke-hold of the futures market. Quite the contrary, the perception management division of the Great Illusion of U.S. Financial Market Integrity will be inordinately focused on ensuring an uneventful transition to new ineffective CFTC management.
Gensler’s tenure as the head of the Commission was marked by a bull-headed lack of compromise in pursuit of derivatives governance reform, and so its not surprising that he is being nudged toward the door prematurely. His swan song will likely be remembered as the Swaps Execution Facilities, a platform that is designed to drag formerly “Dark” trades of certain derivatives into the light transparent trading and reporting platform designed to loosen the grip of the world’s largest banks on the sector.
His successor – Timothy G. Massad – is described by the New York Times as “a Treasury Department official with a blank slate for a regulatory agenda”. That I find particularly troubling, since that source also suggested Mr. Massad could “take a more conciliatory approach.” Meaning, if I may be so presumptuous as to read between those lines “he won’t fight challenges to Gensler’s successes in court”. We’ll be watching that situation with interest.
Goldman Sachs is back on the ‘Sell Gold’ Soapbox
Compounding the indications that there will be a good deal of short interest to kick of the 2014 gold price suppression faction is the fact that Goldman Sachs Group Inc (NYSE:GS) is back out there bashing gold’s prospects. It was Goldman who unequivocally bellowed from its pulpit in the Wall Street Journal ‘Short Gold!’. Just like that. With an exclamation mark and everything. As you may or may not recall, that prompted a 15% selloff in gold over the next few sessions, and there is little doubt there was some high-fivin’ short covering going on at Goldman.
Well Goldman has predicted a a further 15% decrease for the gold price in 2014, and that should be your cue that gold is likely going to continue being the focus of a coordinated campaign of futures market-originated downward price pressure.
I don’t dispute the fact that the further down the price of gold is driven by derivatives markets, the greater the compression in the price for a catapult past the historic $1920 level when that racket fails. I just don’t think it’s very reliable information when pundits point to a few bullish sessions during market quiet periods and declare the death of the bear.
