Take a look at the data in the table above - specifically the data for October 3. Look at the low and the close for the day, and especially at the VOLUME. WOW! On October 3, Gold did little or nothing in Asian and European trade. In London, the PM Gold fix was $US 384.25 - $US 2.05 HIGHER than the PM fix on the previous day. Then, once London had closed, the New York Comex market had Gold all to itself. KABOOM - Gold swandived as low as $US 368 before closing in New York at $US 369.70. That's a fall of $US 13.70 on the day, and spot future Gold's lowest closing price since August 26.
As the title of this report states: SHOCK AND AWE - Comex style.
Certainly, Gold traders in India were shocked and awed. On Friday, October 3, the National Mutual-Commodity Exchange of India (NIMEX) launched futures trading in Gold and Silver for the first time since such shenanegans were banned in 1962. The stated purpose of these new trading instruments is to: "Help maintain price stability in these precious metals.". Gold and Silver futures will, by the way, be traded online.
As everyone knows, India is a major physical consumer of Gold and Silver, with an annual demand for 800 and 3500 tonnes respectively. Those in charge of global fiat currencies in general, and of the US Dollar in particular, do not like demand for PHYSICAL Gold and Silver, they far prefer demand for paper claims to the precious metals - claims which can and almost always are settled in paper, not in Gold or Silver.
Suffice it to say that anyone who decided to get his or her feet wet on the long side in Gold and Silver futures trading in India on October 3 has now seen their position taken dive deeply into the red. Just as India launches a market to try and damp down "volatility" in the physical metal, volatility is ramped skyward on the hedges to the physical metal.
The whole situation is very reminiscent of what happened at the beginning of 1975 in the US. Back then, for the first time since 1934, Americans were allowed to own Gold. No sooner was the new law signed by President Ford than the Gold "markets" got busy and started pushing the price of Gold down. That'll teach 'em to own Gold!
Between 1934 and 1975, Americans weren't allowed to own Gold but they could trade the paper. Between 1962 and 2003, Indians weren't allowed to trade the paper but they were allowed to own Gold (and Silver). Unlike any other "commodity", these were two halves of an unfinished whole. When Americans were given complete access to Gold, the rug was pulled out. Now that Indians have the same access, the attempt is being made to pull the rug out again.
That is one factor behind this desperate Gold selloff by the Comex in New York. It is not the main factor. The main factor is the continuing fall of the US Dollar, and the growing risk that Americans might come to perceive some potential "downside" for this fall by looking at the Gold price expressed in US Dollars.
When the Dubai G-7 meeting broke up two weeks ago, a "sea change" was heralded. The message was explicit in the G-7 statement which was released at the end of the meeting: "We emphasize that more flexibility in exchange rates is desirable for major countries or economic areas to promote smooth and widespread adjustments in the international financial system based on market mechanisms".
If your memory stretches back as far as the "Plaza Agreement" of late 1986, you will recognise the flavour of this immediately. The Plaza Agreement was the result of a G-7 meeting at which the participants privately conceded that despite all the market mechanics of which they were capable, they could not prevent the $US Dollar from falling. The Dollar started falling in March 1986, the Plaza Agreement was announced with great fanfare in September 1986. Having agreed that they could not stop the Dollar's fall, the G-7 did what all political entities do in like circumstances. They let it be known that something they could not stop was in fact something which they wanted. They claimed that a lower Dollar was G-7 policy. It worked, for a while. Then came 1987.
This time, the Dollar has been falling since February 2002. Gold broke decisively back above the $US 300 level in March 2002. Ever since, the financial world has managed to maintain the facade of business as usual remarkably well, the major irritant being a slowly but steadily climbing $US Gold price.
Gold was stalled in the last half of 2002, before breaking out in December 2002/January 2003. It was knocked on the head again in February 2003, as the US invasion of Iraq became inevitable. It was knocked on the head again in July/August 2003 as the $US rebounded from 2003 lows.
By the end of August, the Bank of Japan had been using the aforesaid "market mechanisms", buying Dollars with Yen, since the beginning of the year. They had spent $US 80 Billion, more than they had spent in any previous entire year, trying to help the market to work.
At the beginning of September, the Bank of Japan backed off. The $US promptly swan dived again and even worse, much worse, Gold rose in $US terms. By September 22, Gold had hit new 2003 highs in $US terms and thereby established a new UPLEG on its post April 2001 bull market.
September 22 was the first trading day after the Dubai G-7 statement was issued. The Dollar kept falling, but Gold stalled. The "market mechanisms" were already at work, if not precisely the way the G-7 hoped their statement would be read. The G-7 wanted to make a virtue out of a necessity by pretending that the currency markets would now be left free to function. They also implied, they hoped, that a lower Dollar was quite acceptable to them.
As far as "market mechanisms" are concerned, they are still BEING WORKED assiduously. Japan has spent the past four trading days back in the market selling Yen for Dollars. And on Friday, the Comex futures "market" was used to drop the boom on Gold and Silver. There was no legitimate reason for Gold to fall anywhere on the horizon on October 3. It did not fall on any other market. But once the Comex got Gold and Silver to itself, the bottom dropped out. Clearly, the "market mechanisms" so beloved of the G-7 are still working.
With the Bank of Japan and now the Comex having shown their hand in such blatant a fashion, it is a moot point as to how much longer the "market mechanisms" can keep on working. Everyone who pays even cursory attention to the news knows that governments routinely manipulate their economic statistics. Two of the better known examples of this is the use of "hedonic pricing" in US growth statistics and the "participation rate" (if you are not looking for work then you are not officially unemployed) in almost everybody's employment figures. They don't confine their attention merely to statistics though. Any outfit whose fundamental raison d'etre is "price stability" (in other words, any Central Bank) is going to have a vested interest in manipulating prices themselves, to keep them "stable" of course.
In today's paper currency world, there are two prices which ultimately matter. One is the exchange value of the US Dollar against other paper currencies. The other is the exchange value of the US Dollar against Gold (and to a lesser extent Silver). The first measures "stability" within the system, with the recent exception of the Euro, which does NOT need the US Dollar as a "reserve". The second measures the stability OF the system. Gold is NOT part of the modern official financial system. It is merely historical money. It stands at odds with the modern system, a monetary system which, for the first time in history, has no official connection with Gold.
A fall in the US Dollar on the currency markets, as long as it is not too abrupt and/or severe, is happening WITHIN the system. As such, it can be managed by modern "market mechanisms". If this proves impossible, as it is at present, then a falling Dollar can be presented as being all part of the systemic plan.
A fall in the US Dollar against Gold is a direct threat TO the system. Historically, the abandonment of a currency for other currencies with more reliable ties to Gold, or for physical Gold itself, has always led directly to the demise of the currency in question. When the currency in question forms the reserves behind (almost) all other currencies, then any concerted rise in the "price" of Gold expressed in that currency is a direct threat to the GLOBAL system.
The direct threat became acute when Gold broke through its old 2003 highs two weeks ago. The primary "market mechanism" used to control the Gold price is the Comex in New York. Hence the "market action" of October 3. The savagery with which Gold was put back in its bottle illustrates clearly the severity of the global financial situation. There are only so many shots of this magnitude left in the lockers. When they run out, look out above.