Why the Government’s Fears
Mean a Gold and Silver
Opportunity for You
By Andy Hecht, Senior Commodities Editor
Dear Sovereign Investor,
Over the course of my career, I have felt the direct hand of the U.S. government regulators - and my Wall Street sources tell me that it very recently just happened again.
I remember the stock market crash of 1987 well. I was sitting on a trading desk in New York City when the U.S. government stepped in to support the stock market and crushed gold and silver prices.
Again, in 1995, I bought a huge chunk of silver, more than $1 billion worth, because I believed the price was too cheap - and it was.
When the silver price started to move higher, government regulators appeared on the scene. Those regulators told the management of the company I worked for, Salomon Brothers, to sell the silver we bought. We obeyed. We had no choice.
There are countless other examples of the long arm of the government meddling in the free market.
And on the last day of February, just a week and a half ago, it happened again...
The action in the precious metals markets again reeked of Washington and perhaps Brussels.
The day began with gold and silver moving higher.
Gold traded up to $1,792.30 an ounce, while silver traded up to $37.58 an ounce, running right through its $36 resistance level. At the same time, gold was fast approaching its key psychological level of $1,800.
It just so happened that on the morning of February 29, Fed chairman Ben Bernanke was speaking before Congress. Meanwhile, the ECB was printing, injecting or simply giving $803 billion to more than 800 banks as part of its long-term financing operation amid the Greek debacle.
Over the past few years, every time Uncle Ben has flapped his lips publically, the prices of precious metals have exploded higher. This time, as Bernanke spoke and the ECB printed euros, something different happened.
A Huge Sell Order in Gold
Some close friends who trade goldin the futures pits on Wall Street told me that as Bernanke spoke a huge order came into the gold futures pit.
That order, given by financial giant JP Morgan, was to sell 15,000 contracts of the yellow metal, that’s 1.5 million ounces of gold. And at $1,790 an ounce, that is $2.7 billion worth of the precious metal. That is a huge order that took less than one minute to execute.
Now I’ve been trading precious metals for more than 30 years. I have executed some of the biggest orders in the gold and silver futures pits that the market has ever seen during that time.
And, I have seen other market players execute huge orders. Finesse is often an important factor in executing a large order - and I can tell you there was not a hint of finesse used to execute that massive order on February 29.
The price of gold cascaded lower because of JP Morgan’s giant sell-order. And that opened the floodgates. Silver dropped as well. And, as we used to say on Wall Street, prices came off like a prom dress!
Gold tumbled $100 from the highs of the day and silver fell $4 from its trading-session highs.
The stars lined up for the precious metals bears on February 29, 2012. Bernanke started to speak; the ECB provided liquidity in Europe and JP Morgan sold a huge chunk of gold.
I sat here scratching my bald head as I watched the action. To a veteran of the markets like myself, there could only be one reason. Someone wanted the price of precious metals lower.
Now let’s remember that in the early morning gold and silver prices were moving aggressively higher. In fact, both metals had been rallying for weeks, and both were at key technical and psychological levels. And both metals had also attracted new buyers - fresh speculative longs.
However, as soon as the selling came into the market, the weaker longs bailed out. And the lower the markets went, the more selling kicked in. Computer driven funds started to sell gold and silver short, all of which drove prices even lower.
Rallying Precious Metals
Prices Scare Governments...
Higher precious metals prices have put the hot spotlight on the governments who have been on a binge of uncontrolled printing of paper currency that is backed by nothing but the full faith and credit of the governments themselves.
Rating agencies have downgraded many of these governments’ credit over the past year. And as far as full-faith is concerned - how much faith do we really have in this paper today? It was in the interest of the “powers-that-be” to get rid of that hot spotlight of higher precious metals prices.
And the 15,000 lot sell order in gold did just that. It sent the gold and silver markets tumbling - for now.
Free Markets Will Prevail
In fact, the action on February 29 was nothing more than a short-term blip in the long-term bull markets for gold and silver.
The reasons that gold is $1,400 higher than it was 11 years ago and silver is $28 higher than it was at that time still persist.
And that rationale is becoming more serious by the day as deficits grow and governments continue to print worthless paper currency. And, at the same time, governments around the world continue to buy gold because they know that it is the ultimate reserve currency. In 2011 alone, central banks around the world bought 450 tons, or 20%, of the gold mined during the year.
So, it turns out that we owe a debt of gratitude to whoever was responsible for the selling on that last day of February. It has presented us with a massive investment opportunity.
Those sellers made it possible for us to trade our worthless paper currency for more gold and silver at lower prices.
Gold and silver will shoot higher in 2012. I expect them to make new all-time highs this year. My advice is simple: Use these opportunities to increase your holdings of real money.
Happy trade hunting...