Today, legendary trader Jim Sinclair warned King World News about the full-blown panic that has erupted in both the financial world, and the gold market as well, as people ask, “Where is the gold?” Below is what Sinclair (who was once called upon by former Fed Chairman Paul Volcker to assist during a Wall Street crisis) had to say in this remarkable interview.
Sinclair: “People have to understand what the motivation was for the recent takedown in the gold price. It was so well organized, strategized, and executed by the gold banks, in unison, even though it has had the unintended consequence of creating a massive and worldwide buying frenzy in the physical gold market.
There is a comparison that is obvious today because I was very involved in the $1 billion loan which had to be made at the time that the Hunt’s positions went into default (in 1980). This was at a time when Bache & Company, and Merrill Lynch were rumored to be at least on the fence, if not entirely insolvent.
You have to understand that back in 1980 when gold had risen to $887.50, and silver traded above $51 an ounce, the financial world was in a full-blown panic and many people firmly believed the dollar was going into oblivion.
It was during this time of panic, but after gold peaked, that I received a call from the Federal Reserve asking me to assist in the liquidation of the Hunt position as the criteria of making the $1 billion loan to bail out both Merrill Lynch and Bache. This is the frightening reality of the kind of fires that were raging behind the scenes in the financial world at that time….
“The uniting factor between the events that took place then versus today is supply. In both situations there was an increase in demand or an expected increase in demand for physical metal. This is when the Board of Directors of the COMEX Exchange actually bought into the rumors that were swirling around the floor of the COMEX (in 1980).
You see it was widely assumed that the Hunts were about to ask for delivery of gold (and silver). In truth, because I know what the Hunt’s position was, they never asked for delivery, but instead religiously rolled their paper contracts on first notice date.
So with the financial and currency markets on fire, and rumors swirling to and fro on the COMEX trading floor, the Board of the Directors of the COMEX Exchange basically changed the rules of the contract. They also went to sellers only that were allowed to transact.
So the net effect of the Hunt situation, where there was an expected demand for physical which would have greatly challenged the existing warehouse supply, was to do all of the technical things required in order to bring the market down. But it was done in such a vicious manner, that it was almost as if you had backed the gold and silver markets into an empty elevator shaft.
This was very similar to what we saw on the two-day paper selling binge that the gold market experienced on that now famous Friday and following Monday. So the correlation between the Hunt situation and the present situation, both have to do with the key word, ‘supply.’
Now what has recently happened is that the physical market has taken on a life of its own, and the warehouse supplies at the COMEX on gold have come down substantially. There hasn’t been anyone standing for full delivery or any headline-making demands, but if you take a look at the condition of the gold warehouse at the COMEX, you will see that it has declined substantially.
The expectation that this plunge in inventories might continue is enough to have the gold banks and central planners react in an almost similar manner to the COMEX Board of Directors when they had convinced themselves back in 1980 that the Hunts were about to ask for delivery.
I think the reality is the supply situation is extremely volatile at this point, and even discussing it is like rubbing a raw nerve to the people who are in charge. The amount of discussion on the subject of warehouse supply, supply that is represented by the gold leases, indicated to the central planners that the demand for physical was going to continue to effect the exchanges.
Although they did not expect any grandstand delivery, the mere continued draining of physical inventories was threatening the very functioning of the paper exchange. That threatening of the paper exchange and its ability to continue functioning is really taking off the blinders and revealing the truth behind the critical question, ‘Where is the gold?’
The question now is, ‘Where has the gold gone?’ Who has all of this gold? Because of the nature of gold leasing, all of this gold has been purchased and it has gone somewhere. The reality of the empty vaults reveal that the gold has gone missing
Look at ABN AMRO Bank which decided to change the rules on its clients, against contract rules and against storage obligations, this certainly made a statement that the gold was gone or there was much less than would be required to deliver.
So I believe that what we have just seen is a replay of an exact market condition, except that this time it was executed by the central planners, whereas back in 1980 it was executed by the Board of Directors of the COMEX.
But rather than the recent takedown doing what they expected, which was to significantly reduce the demand for physical gold, especially among the developing nations and among the BRIC’s, the demand for physical gold at a lower price has in fact multiplied.
People need to be reminded that when the market broke in 1980, from $887 down to $449, it then recovered in a straight line to $750. It was If it wasn’t for the fact that Volcker had taken the cost of overnight money into the 20s (percent), and that 10-Year money was at almost 15%, gold would have gone and made a new high based on the tremendous amount of fear that was present at the time.
I think we are in for a repeat of that type of massive rebound in gold, based on the fact that it’s become obvious to anybody who understands the gold market that the paper market is a total fraud. Key market participants also understand that the Western central bank gold has been leased out and it is gone. It’s not in the vaults where the West pretends it is.
This has created an atmosphere where individuals are now panicking in an attempt to get possession of their physical gold, but they are being met with strong resistance, or the contracts are simply being changed unilaterally just like we saw back in 1980 on the COMEX.
What is concerning to key players right now is the fact that this is occurring not just in unallocated accounts, but in many allocated accounts as well. In other words, the pile of gold that is supposed to be there, in your name, isn’t there.
So in the fullness of time the history books will show that once again the gold market went through a crisis brought on by the dwindling supply of available physical gold. The striking difference between 1980 and today is that this time the physical really IS gone. This is the frightening reality of what the financial world is facing today, and I can assure you there will be hell to pay before this is over.”
Eric King – KingWorldNews.com