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Revisiting September 2011

Abstract image of three gold bars with multiple upward trending graphs

April,10 2018

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.

That the Swiss ultimately de-pegged the franc in 2015 is of no consequence, except of course when you consider that the bear market in gold that they set off in 2011 clearly ended and bottomed later that same year. Hmmm. Coincidence?

So, please don't blindly accept the revisionist history put forth in 2018. The price of gold began a bear market in 2011 due only to direct and coordinated central bank intervention. Simply put, fiat currencies were being rapidly devalued, and a devaluation was forced upon gold, as well.

But since bottoming in December of 2015, the price of COMEX gold has continually trended higher. It now stands at the edge of a breakout above $1,400 and, once this happens, price will begin to move toward $1,500 and eventually through the highs of 2011.

For gold investors, it has been a long and painful six years. The road ahead won't be easy, as the central bankers will no doubt continue to fight us tick for tick. However, global awareness of their schemes is growing, and the inexorable march toward the destruction of their debt-based system continues. A prudent investor should continue to diversify with physical gold—and take delivery—as the next stage of this new bull market unfolds.

Don’t miss a golden opportunity.

Now that you’ve gained a deeper understanding about gold, it’s time to browse our selection of gold bars, coins, or exclusive Sprott Gold wafers.

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Since 2008, our customers have trusted us to provide guidance, education, and superior customer service as we help build their holdings in precious metals—no matter the size of the portfolio. Chairman, Eric Sprott, and President, Larisa Sprott, are proud to head up one of the most well-known and reputable precious metal firms in North America. Learn more about Sprott Money.

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About the Author

Our Ask The Expert interviewer Craig Hemke began his career in financial services in 1990 but retired in 2008 to focus on family and entrepreneurial opportunities.

Since 2010, he has been the editor and publisher of the TF Metals Report found at TFMetalsReport.com, an online community for precious metal investors.

*The author is not affiliated with, endorsed or sponsored by Sprott Money Ltd. The views and opinions expressed in this material are those of the author or guest speaker, are subject to change and may not necessarily reflect the opinions of Sprott Money Ltd. Sprott Money does not guarantee the accuracy, completeness, timeliness and reliability of the information or any results from its use.


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