What does a huge sell-off in the gold market have to do with SMBs, the small-to-medium sized ones that are the “engine” of the US economy? And why would the resulting shift of enormous wealth back into the hands of a few bullion banks even interest those business owners?
For those not following what is referred to in some circles as the Gold Slam, here are some statistics. On Friday, April 12th, the market opened to nearly unprecedented sell off of 3.4 million ounces (100 tonnes) of June futures contracts driving the price down to around 1540, a key support line.
Then, 2 hours later, beginning at about 10:25 and ending about 10:55, sales of the same contracts on 10,000,000 (300 tonnes) hit the market forcing the price of an ounce from $1535 to around $1492 per ounce.
The trades actually began Sunday night, relatively unobserved, and then continued with such speed that they must have been being done by computer trading robots that can crunch this enormous amount of data. Human traders can’t work that fast and these robots drive right through stop orders leaving those investors thinking they had protected themselves, looking a significant loses.
So what does this mean to the SMB and our economy in general? An obvious conclusion is that as the economy stays weak and interest rate stay low, more investors were going to precious metals as a hedge.
By blowing the bottom off the market, the big traders and the Fed were able to say, “See gold is a bad investment”. In order to keep things rolling, the Fed needs people to be borrowing and spending to cover up the reality of the situation.
SMBs are owned, primarily, by smaller investors – people who might have had some of their personal and business security, long-term, tied into this market. They just got a shock. Now the uncertainty that is inherent in owning a business just got more uncertain.
And although many large banks benefited by this huge sell off (they had large short positions), you can bet they won’t be increasing lending to the SMBs because compared to manipulating billions of dollars worth of gold, and winning, loans to businesses are risky in comparison.
What nest? The stock market is an obvious next thing to fall. If the money wasn’t flowing into precious metals, it has been filling up Wall Street driving the DJA to new highs. Get investors burned in the stock market and they just might head for the “safety” of Treasury notes and bonds, or funds that specialize in them.
Then the Fed has the money right back where they want it – under their direct control.