The London Trader

Eric "Leading the Witness" King's listeners globally are, no doubt, familiar with "The London Trader," who my sources assure me is not Mr. King's imaginary friend, despite the fact that his interviews are never released in audio form. Rather, he is a mysterious gentleman with a knack for popping up whenever the flagging enthusiasms of PM investors are badly in need of rekindling.

So today, almost on cue, hard upon gold's slicing through its 200-day moving average like a hot knife through butter, provoking ceaseless chatter of the "death of a bull" (and just days before Christmas!) ... he has come.

"We are making a historic bottom right now ... this recent plunge was orchestrated with borrowed gold, and that borrowed gold is now gone."

"Interestingly, so many people are bearish on gold right now and looking for a collapse in the price of gold. They don’t understand what is happening in the physical market"

"[There will be] a huge, tectonic shift in price dynamics going forward, because [direct buyers are now] taking price discovery away from the bullion banks ... Every single month producers have a certain amount of gold and silver they sell. Normally they sell it to the bullion banks and the bullion banks, of course, leverage this gold and sell up to 100 times that in paper markets to control prices ... "

“The [silver] game is getting so stretched that it’s going to break ... The only way they have been able to keep silver depressed is by borrowing silver from SLV to meet immediate demand ... There isn’t enough silver for investors to buy (in large amounts), so ... SLV is over 20 million ounces short on the silver they are supposed to have in the vaults."

"Part of managing the price of silver recently has been for the central banks to attack the gold market ... [Their agents, the bullion banks] short-sell just enough tranches of COMEX contracts to surgically take out important support pivots ... turning the momentum buyers into sellers."

So, what to make of this guy, who purports to have his finger on the pulse of the Asian investor? (A constant motif of his is how Asian investors are eager to "suck up" the gold being thrown away by the desperate Western banks.) What's his track record?

He first emerged onto the scene on January 14, 2011, right after the metals had crashed from their New Years highs, saying: "The physical silver market is still extraordinarily tight here. Somewhere around the $28 area there should be a firm base as there is tremendous physical demand in that zone.”

Well, it wasn't the most auspicious start, for silver fell another $2 in the next week. But, undaunted, he made a reappearance soon thereafter, on January 26, redeeming himself by essentially calling the bottom of the correction to the day:

"Physical demand is incredibly robust from the eastern hemisphere creating a floor on the downside preventing a further breakdown. There are certain banking interests which have been making an effort to keep a lid on prices of gold and silver ... [but] big money is lining up to buy into any attempts to flush the price lower."

Also noteworthy, in keeping with his regular theme of deriding traders clueless about physical markets, he had this to say:

"Many of these hedge funds are run by kids who are only out of university for three years now and are literally just chasing a dot up and down a screen. They don’t look at what is happening with inventory levels at the Comex or what’s happening with SLV where real metal is being pulled out of that ETF"

After this formidable call, he went into hiding for over three months, as gold and especially silver rose parabolically, and PM bugs had no need for his services. But a few weeks after the May crash, out of the ethernet he emerged. He had this to say on May 16:

"[On account of Asian buying], gold is not going to go down much further at this point, so you should not see an awful lot more damage to silver."

And once again he was right. The very next day, silver began a steep ascent from the low thirties to ~$38 an ounce the last week of May. Next, we heard from him on July 18. When many of us were expecting the seasonal summer doldrums, he claimed that there was "major potential for short covering." He continued:

"If we get a pit close today in the US above either $1,600 gold or $40 silver, then you are going to see some huge capitulation by the shorts."

In this he was not quite accurate, as gold and silver finished right at his specified levels, yet still fell steeply the next day. Nonetheless, after 3 trading days, gold began the first leg of its ascent to $1900, pausing at $1650, when he made a reappearance (August 4):

"If gold closes above $1,680 we will also see some capitulation on the part of the shorts in silver as well, which will cause a huge pop because there will be an air pocket these guys are trying to cover into ... Remember, $1,680 is the key here."

Two days later, gold gapped up to $1680, and exploded into the $1700s, indeed because of massive short covering. He did not miss his chance to gloat; his victory lap on August 10 was titled: "Many Gold Shorts Wiped Out, Lost Everything!"

"These guys in London woke up with their asses handed to them and I don’t think some of these guys will ever be short again, if they are still in business."

Then, he added, correctly: "I believe there is still enough momentum to push gold into the $1,800’s."

and

“I fully expect to have $2 moves in silver and $50 moves in gold as absolutely normal at this point. If you don’t expect that, you are not going to understand what is going on."

Like Wynter Benton before him, perhaps he should have quit with a near perfect record. For, his piece on September 20, positing a "massive physical floor under the gold market" was a cataclysmic bust:

"There are massive orders between $1,715 and $1,760. This has the effect of putting a physical floor under the price of gold. If they make a push to the $1,715 level that would be suicide in my opinion. There are simply too many massive orders for physical gold down to that level for that to be breached."

Gold of course fell (briefly) to $1535 within days.

"As far as silver goes, it is possible there could be a spike to $37 or $38 in thin access trading, but the bottom line is that serious physical buying will be taking place anywhere below $40"

Here, too, he was dead wrong, although the attack did take place in "thin access trading."

Unlike Wynter Benton, however, the London Trader did not then disappear with his tail between his legs, never to be heard from again. No, he was back less than two weeks later, not to acknowledge his terrible call, but for more bullish prognostication -- though he did offer an explanation:

"The [hedge funds I spoke to] were not happy about [selling] their only good performing asset they had, in order to offset the losses on their common stocks. This was done for the purpose of end of the quarter window dressing. The indication was that they wanted to get back in as soon as possible"

"Western central banks got together, leased out some gold, and the bullion banks sold the gold. The central bank gold being unloaded by the bullion banks was not to get the best price, but to smash the price. The smartest way to sell the gold would be to do it in the liquid sessions. But the pattern during the decline was they were selling it in the overnight session when things are quiet. This was no different that what we saw at the end of April, beginning of May on that coordinated smash."

He concluded with a typical bullish evaluation of the battlefield:

"As it stands today, there are an unbelievable amount of physical orders that have not been filled. When gold was briefly down at $1,530, almost no one got any physical gold. No one was even getting fills."

But (perhaps chastened), he offered no specific price targets. Still, the metals began a slight rise that day, and in keeping with his measured optimism, sunk no lower over the next few weeks.

Then, with 2 posts on October 21, he hit another home run. That very day, when bearishness was all around, gold began a dramatic rise from the low $1600s back to $1800. Some excerpts:

"What we are seeing now is this consolidation pattern where the commercials are getting out of their short positions whenever possible. All the while they are squeezing fresh shorts. They take the metals down, make the charts look bearish to bring in fresh shorts, and later they squeeze them out of their positions on a rally and pocket the money"

"The Chinese bought a massive amount of physical today at the lows and that is why the market turned where it did ... Having said that, most of the physical orders are sitting ... between $1,585 and $1,605. We are talking about massive tonnage.” [Note that level has not yet been breached to the downside]

On silver, he continued with a favorite theme:

"The price of silver has no reality to the paper market at all, absolutely zero reality there anymore. There is extraordinarily tight supply right now in Asia. When you order silver there is so little available at these prices, that’s the trouble. Chances are you are not going to get quantity at this price."

My verdict on The London Trader is that he definitely deserves to be taken seriously, though of course skeptically. Look at the gold/silver charts below, with vertical lines marking the days of his bullish (and often contrarian) posts, and decide for yourselves.