The Current Cap
Less than two weeks ago, gold again bounced from the same $1180 level which had supported it in the past. The "safe haven" bid has pushed gold higher since but now it seems stuck and capped at/near $1245. Why would this be? Regular readers know the answer...for the same reason gold has been capped all year!
It's not complicated. Really, it's not. Late last year, Ken Hoffman of Bloomberg Industries informed the world that "the gold vaults of London are empty". Haven't seen the clip? Well, here you go:
As Ken clearly states, the key questions for 2014 would be "what happens should Western investment demand return in 2014" and "from where will this gold come"? Having isolated the key issue facing The Bullion Banks, it became clear that their primary goal (if they fail, it threatens their very survival) for this year and going forward would be to enforce the ongoing downtrend in paper price and they would do so at all costs.
In mid-March of this year, with price having broken the down trend, price was suddenly and viciously raided for over $100 in two weeks. Later, after price broke the downtrend again in June, The Bullion Banks created nearly 80,000 new naked short contracts in just five weeks in a desperate attempt to contain the rally. This effort succeeded and price eventually fell back below the main trendline in late August.
A sample of our archived charts show you how we've been following this trend all year:
So now let's get back to the question...Why is there suddenly such a great interest in capping price at $1245?
Total Comex gold open interest has surged by more than 18,000 contracts in just the past week as price rallied $22. With prices heading higher, a surging open interest is a sign of new Spec buying coming into the "market". And which organizations were quick to supply the new naked paper to meet this demand? The Banks, of course! And they did it again yesterday when, on a price rise of over $10 in the face of tremendous financial market volatility, preliminary reports show another open interest jump of over 5,000 contracts.
Obviously, The Bullion Banks are moving quickly to once again contain and cap price. Why? Well, for your answer, all you have to do is look at the latest update of the chart we've been following all year:
As you can see, price is once again pressed up against the main, down trendline. The reason for the cap at $1245 is the same reason the aggressive capping was seen in March and in July. Price must be kept down because, as Ken Hoffman noted last December, the vaults of London are empty and there is no readily available supply should Western investment demand suddenly return to 2010 and 2011 levels.
Finally though, as you can see on the chart above, we are rapidly closing in on a tipping point where the downtrend line from May 2013 intersects with the solid floor of $1180-$1200. What will happen when this chart pattern closes off in early 2015? Will The Banks be successful in crashing/smashing price down, through $1180 and well below the cost of gold production? Or will, instead, The Banks be defeated and forced into another managed retreat to much higher prices? Time will tell but, for now, all you need to do is watch that primary trendline. The price action around it will tell you all you need to know.