Subscribe to Money Morning get daily headlines subscribe now! Money Morning Private Briefing today's private briefing Access Your Profit Alerts

Has the Great Gold Crash Divorced Bullion from Futures Prices?

In mid-April, a black swan crash-landed on the gold market.

Over just two trading days, gold futures prices shed 13%, falling from $1,575 to $1,375.

That $200 cliff dive was the largest two-day drop in 33 years.

Gold prices already had been in steady consolidation mode for 18 months. But the magnitude and swiftness of this dramatic move were rare…to the point of suspicion.

How did markets react? Unlike almost anyone expected.

What caused such a landslide, and who may be behind it? More importantly, what are the implications for the precious metals markets moving forward?

The conclusions will surprise you — and help you invest more wisely.

Past as Prologue

To understand what happened, we need to first dissect the circumstances surrounding the event.

The gold futures selloff were so extreme, it's difficult not to conclude that whoever may have initiated this effort achieved exactly what was intended: a gold panic.

However, the law of unintended consequences tells us that some actions have unanticipated effects. And given the reaction in the physical gold markets, it appears the perpetrators of a gold panic (if they indeed exist) will find it difficult to achieve their goals in the future.

The Timeline

Join the conversation. Click here to jump to comments…

About the Author

Peter Krauth is the Resource Specialist for Money Map Press and has contributed some of the most popular and highly regarded investing articles on Money Morning. Peter is headquartered in resource-rich Canada, but he travels around the world to dig up the very best profit opportunity, whether it's in gold, silver, oil, coal, or even potash.

Read full bio

  1. amr | May 10, 2013

    The last decade rally in gold price was mainly due to the high tend investment of paper gold ETF. The panic house wifes around the world made a marginable increase in the gold demand after the price crash, where they could have invested most of their savings to purchase the gold. Because of it alone, if the gold price fell down again, I can’t foresee a compensating physical gold purchasing by these house wife’s. Likewise, as long as most paper ETFs are selling off, gold price wont go upwards any further now.

    • Jerrold Minyard | May 13, 2013

      I totally agree. Thy physical price, and the demand will grow colder, if downward pressure persist. You better believe the near and long term out look for the metals is a down trend.4/13/2013

  2. Benton H Marder | May 10, 2013

    This is long overdue. We're tired of these bleeps screwing up our investments. We're tired of the long-term crookery in our markets. I've held for quite some time that investors would abandon the US and UK markets for something more honest and above-board. If we look carefully, we can see where those markets might be—-HongKong, Shanghai, Singapore, Bombay. The crooks will be left to snake each other instead of snaking us.

  3. don larson | May 10, 2013

    Excellent analysis – – or speculation; yet Logical. Food for thought, though. Let's hope you are correct.

    If EVERYTHING is now Manipulated in our Economic and Political System; may we pronounce the demise of American Democratic Capitalism; and it's alleged Free Market System? Has the Rising Oligarchy gained, essentially, complete control of all things Financial?

    May Historians now declare that the, "Great Experiment," failed; and; like so many other Countries; Cronyism, Market Manipulation, and Sleight of Hand, Fraud; are the Reality of a Democracy that permitted too much freedom, that led to the rise of a new class of Robber Barons? Did the former system – – Founders Style; and, the Theories of Adam Smith; fail to consider fully, the need to rein in and restrain the selfishness and greed in Man?

  4. Al Kowsky | May 10, 2013

    This is one of the best assessments of the precious metals market that I've seen. Hooray for Peter Krauth. Most investors in the gold & silver markets realized there would be a sizable correction when gold broke the $1,900 an oz. mark, however, from that point it appears that paper traders & other sources have been manipulating the markets for their own personal gain. Krauth is correct in suggesting that the physical markets for gold & silver will divorce from the paper markets when deliveries are not met. The real will overshadow the imaginary, & we are close to that point now.

  5. reid | May 10, 2013

    Thank you for a very good article. It is difficult for an individual to put all the pieces together to the show the big picture. You did a marvelous job.

  6. Jeff Pluim | May 10, 2013

    With several countries insisting that they repatriate their gold reserves, that gold had to come from somewhere. Rumours abound that the U.S. treasury does not actually have the gold that they are supposed to have and so countries like Germany are insisting that the U.S. returns Germany's gold to Germany. The U. S. reserve was not able to do so and asked for some time to do so. Did the U.S. Reserve buy a bunch of gold from a large holder of gold, like one of the ETFs? And did that sale of the gold by the ETF spark the fall in gold prices?

  7. gordy | May 10, 2013

    a panic? are you for real? i would call a 13% drop major profit taking, but not a panic. when you see a 30-50% drop or more than you have a panic. quit trying to stur up panic with your article

  8. R100CAF | May 10, 2013

    Great article…I agree with all commennts exect yours gordy …im afraid you have not yet seen the reality….In terms of physical gold price in the future…apply facts then logic

    It costs over $1200 an ounce to mine….
    Suppliers of physical gold running out of it..
    Constant quantative easing by western governments…debasing currencies in the hope that eventually they can print their way out of debt…refer to history
    If interest rates were to go up in America…the government could not even pay off the interest on their loans every month never mind make a dent in the debt

    Golds future is in the end very very rosey..
    I do not relish this as I know what this will mean for the people and the economy…but I know 'veniet dies golds' (golds day will come)

    • DDearborn | May 11, 2013


      More than $1200 dollars an ounce to mine? Not even close. Take a look at the quarterly reports just released of a host of miners. Only a handfull are over $1000. And if you look at those that are most of the inflated costs are related to non mining expenses. Expenses such as interest and carrying costs of all sorts of shady back room "financing" deals. Massively inflated "administrative expenses" Ridiculously high "costs" associated with deriviatives. These are not "hedges" these are gambling deals with lots of kick backs.

      Then there are the multitude of clearly suspect "mergeres aquisitions" and fire sale liquidations to pay off bogus "debts" Good grief

      But the point is that raw mining costs for gold are a lot closer to $500 an ounce than they are to $1200. It is as they say a con game……

  9. SL | May 10, 2013

    Jeff Pluim completes the excellent logical analysis of mr.Krauth.
    It is self evident that major manipulation caused thow artificial gold crash,with all the usual suspects participating:JPM,GS etc,and behind the scenes,take your guess…
    On retrospect,it will seem obvious…For now,we are waiting for the Master Plan to unravel.

  10. Ken | May 10, 2013

    When you look at the overall economy, it's amazing that more people do not see what is going on.
    Our government is run by mendacious, lying prevaricators, who are also the modern manifestation of organized crime.
    I am a researcher in macro-history, i.e., what can we learn from the past 5,000 years? Conclusion: we are at the end of the third historical cycle. According to my calculations the dollar has lost 97% of its value since the Fed was established. I believe that when the inflation reaches 99.5% the whiole governmental edifice will collapse. Financial advisors now talk about such a collapse as if it will be a fleeting event. If it were an individual or a small economy like Argentina or Mexico, there would be less of a problem, because they are part of a larger economy which enables them to recover within a relatively brief period of time. But when you have a large economy like the U.S. the fallout is much more serious.
    Look at the world economy today. There is probably not a single country in the world that does not have extensive holdings of dollars in one form or the other. This is debt. When these countries get tired of the economic tricks this government is doing, they will become unhappy enough to begin repatriating their dollar holdings. This will bring on a hyperinflation such as has never been seen. It will bring down no only the U.S. government, but also every other government, because the hyperinflation will become pandemic and bring down all other governments. This has happened twice, around 1200 B.C. and during the 5th until the 8th century A.D. The Germanic tribes are often blamed for the collapse of Rome, but they were actually trying to save what they could.
    Only one large government escaped. The Byzantines. Why? Because when they realized what was happening, they reinstituted the gold standard, and they continued until 1450 when they were conquered by the Turks, but by that time Western Europe was going into the Renaissance. If you are ever in Athens, go to the National Archaeological Museum and view their chronological display of Byzantine coins.

    That is what we need to do very soon, or we will experience a full-blown middle age, which is certainly not what we want for our descendants. If this happens, it will not only be a political, but also a total cultural loss. Need proof? There has been a number of journal articles as well as a recent television documentary about the Antikythera computer, which was discovered in a 2,000-year-old shipwreck about a century ago. There is a lot of info online also. A middle age period not only results in monetary collapse, but also a loss of most technology, increased illiteracy, increase in famine and disease, abandonment of large cities, collapse of most large businesses, abandonment of trade routes, and so many other advantages of civilization.
    What can the average person do? Use the current prices of gold and silver to acquire as much as you can. Learn to grow your own food, and do all you can to prepare. If you would like a current example, read up on present-day Detroit. A large part of the city receives no city services and there is a current trend toward urban farming to provide food. There is so much additional roof which could not be presented here.
    We should also use our power as voters to change the government to one which will bring back gold as the principal monetary unit. This will not be easy, because the government has used inflation to pay its debts for decades. We need to abolish the Fed, because it is nothing more than a (criminal) banking cartel, which has as its only goal enriching the big banks.

    • roy | May 11, 2013

      Spook, Ken. But you may be right. I hear there is still some affordable farmland in Ecuador..

    • IrateNate | May 13, 2013

      sorry, but the gold standard cannot possibly be the answer, because Ron Paul has been stating the same for decades, and we all know what a kook he is…

      • Mark | May 23, 2013


        Your comment is awaiting moderation

        Mark | May 23, 2013

        I disagree IrateNate. First off, not all people think Ron Paul is a kook. Secondly I do agree with Ken that we have to go back to the gold standard simply to stop all this printing of the green back. You can not print money out of thin air with nothing to back it and expect this paper philosophy to hold its value.

        The Federal Reserve? Let`s wake up fellow American`s. The Fed is welfare for the wealthy and they continually take care of their own kind by the means of bailouts. A number of my friends have lost their jobs and then their homes with no bail out offered to them at all.

        Getting back to Ron Paul. If Ron Paul was running for president in 2016 with Governor Jessie Ventura as his running mate or vise versa they have our family vote. Both these two guys have something the others do not offer and that is integrity, honesty and credibility. They also can not be bought by the " To Big To Fail " These two people would not be part of the status quo.

  11. Leslie Belden | May 10, 2013

    Great article. Also some great comments, especially "Ken." Thank you.

  12. fallingman | May 11, 2013

    This is a good article, and let's just fill in some of the blanks that Mr. Krauth can't without getting into trouble with his legal department.

    IT'S JPMORGAN working in concert with the FEDERAL RESERVE. And those sold out miscreant scumbags at the CFTC PRETEND to protect us while they aid and abet the criminals.

    • Maniad1 | May 31, 2013

      Great article. Ending the fed and going back to a gold standard is just a tiny piece of the modern capitalism disaster. Natural market forces are gone. Rules are not enforced leading to manipulation and fraud. LIBOR for example. And like a cockroach, when u see one, there are thousands you dont. ETFs in general are bogus especially when naked shorting is allowed and they MUST be naked because there isn't enough gold and silver in the world to cover the paper trades. If someone is selling in this quantity, who is the buyer? No one. The stock market was invented to help businesses get capital to grow for a healthy economy. Trading stock increases the velocity of money which is also good for the economy. But complex derivatives? CDOs? Credit default swaps? Wash trades? What the heck are these? Wall Street has become a gambling casino and not a place to invest anymore. Only the house wins (JPM, GS and central banks). If you own physical you get out of the game and eliminate third party risk.

  13. tj | May 12, 2013

    take heed to the book off instructions before leaving Earth better known as the Bible and revive in the old and future currency gold silver and other precious metals.. amen

  14. Tib Csabai | May 13, 2013

    Iran is the real issue, and I don't understand the dearth of comments on this.

    The anti-Iran sanctions are failing in large part because Iran has access to a lot of gold to trade with. If the price of gold is depressed, Iran's ability to bargain with the use of gold as a medium tightens a currently very loose noose around their neck.

    When the sanctions are over from whatever cause (Iran throws in the towel or the West does), the price of gold will shoot over $2000. It will probably occur before YE 2013.

  15. Chris | July 5, 2013

    I know that gold hasn't been one of the most stable investments lately, but it still has apperciated about 500% since 2001.

Leave a Reply

Your email address will not be published. Required fields are marked *

Some HTML is OK