“Mr. Gold” of the 1970s, Jim Sinclair, the one-time adviser to the Hunt Brothers who cornered the silver market then is flagging up an imminent change in the way the bullion banks manage their spreads, something he feels is inevitable from his own long experience of the business.
In his latest missive, Mr. Sinclair explains: “You must note how central banks are either buying or protecting their gold reserve positions now. This is total about face two years ago. There is another change coming which is a replacement monetary system and the need for some asset on central bank’s balance sheets to have positive value, especially in the USA. Soon all that is required is a change in spread management by the gold banks and you will have whatever price the gold banks want from $3,500 to $12,400.”
Spread management is rather technical for non-industry specialists. This is the profit per ounce when gold is sold, and the bullion banks juice this profit by taking both long and short positions in the marketplace to improve their real profit.
What Mr. Sinclair foretells is an upcoming move by the bullion banks to dump their short positions and go fully long, remembering how it worked for him at the top of the 70s’ bull market. At that time he instructed his team: ”Take every short off the spread making us naked long. This was when the gold price broke $400 the second time over, running like a bunny to $887.75.”
Right now the preoccupation in the bullion market is over a short-term correction, and the more alarming potential for a repeat of the 30% price crash of 2008-9. Mr. Sinclair seems to be hinting that this will provide precisely the environment for the shedding of shorts and the creation of long-only positions in the market.
As he explains: “Here comes the ‘Golden Truth’. When the gold banks perceive that the gold market is about to go ballistic, just like any bull market does, they need only reverse the strategy in place from $248 called ‘The Weak Gold Policy’ in how they handle the 75% risk-less spread. Now when gold falls you take off the short aside of the spread with gusto and let the long run.”
That would set gold up for a spectacular rebound. A bounce from say around $1,600 to $3,500 would indeed by very much like the top of the 70’s gold market. That said Mr. Sinclair is also on the record as stating that the ascent of the gold price would be far more permanent than it was then with gold becoming a part of the global currency system again.
Let’s give him the final word: “Soon all that is required is a change in spread management by the gold banks and you will have whatever price the gold banks want from $3,500 to $12,400.”