Revisiting September 2011-Craig Hemke (10/04/2018)

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by Craig Hemke, Sprott Money:

There has been some revisionist history written lately regarding the gold price smash of September 2011. Since we at TFMR were paying close attention at the time, we are in the unique position of reminding everyone what really happened.

First, there was recently a theory put forth by a hedge fund manager that GOFO rates and physical supply somehow led to the smash that began in the wee hours of September 6, 2011. Then late last week, news of spoofing charges led to an assumption that somehow this type of malicious trading activity sparked the selloff. While it’s possible that one or both of these theories may have played a small roll in the decline, the truth of the matter can be found by looking back at the actual events of the day.

First some history …Though the price of COMEX silver peaked in late April of 2011, the price of COMEX gold rallied hard in the summer of 2011. An ongoing debt crisis led to the first-ever credit downgrade for US debt. The global markets wobbled, and cash began pouring into what were perceived as the only two remaining “safe havens” … the Swiss franc and gold.

But the Swiss National Bank did not like this appreciation in their currency. They feared that a soaring franc would put them at a competitive disadvantage economically. Thus a decision was made in early September to peg the value of the franc to the euro. Here’s an old summary from Reuters written the day the news broke: https://www.reuters.com/article/markets-precious/p…

With the franc now pegged to the euro, there were no remaining fiat currencies that could be perceived as a safe haven. It was thus expected that gold would soar on the news. The Reuters link above states this quite clearly. However, that’s not what happened. Instead, just before the news broke, the price of gold was slammed for over $50. It was hit again after the COMEX opened in New York and then, for good measure, it was pounded once more later that evening.

The chart below is from September 6, 2011, and you can clearly see the price slams, complete with the volume bars that display the amount of firepower used to break the back of the bull market. Those surges of 7,000-10,000 contracts to sell represent 22-30 metric tonnes of digital gold, all dumped in a rush. This is NOT the work of spoofers nor is it some sort of GOFO arbitrage. Instead, this amount of intervention can only be accomplished at the central bank level.

We summarized this all back in 2014 when the Swiss people were set to vote on a referendum that would demand the repatriation of some of their gold. Please take a moment to read this before you continue: https://www.tfmetalsreport.com/blog/5731/turdville…

In a sense, it was a fool’s errand for the Swiss to attempt to repatriate their gold, because they had no gold left! The “gold” on the balance sheet of the SNB is nothing but paper claims and lease agreements. The actual physical metal is long gone, as the Swiss went “all in” with their support of the euro and other fiat currency in September of 2011.

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