160 THE BiG DROP
We talked about that, and I said, “Well, that’s interesting,
because your firm is calling for $1,000 gold. You’re the head of
commodities trading. Why are you telling me you’re expecting
a demand shock when you’re calling for $1,000 gold?”
That’s when his associate said, “Well, that’s our research
department. We don’t listen to them.”
I found that revealing. Goldman Sachs research was telling
every institution in the world at the time that gold’s going to
$1,000 dollars. Meanwhile, the head of commodities trading
at Goldman Sachs is telling me he’s positioning for a demand
shock.
It sort of pulls the rug out from under the idea that firms
like Goldman Sachs are evil, monolithic forces manipulating
the world. I know that’s not true because I’ve known a lot of
these people very well. It’s also revealing in the sense that
here’s a major dealer that doesn’t listen to his own research
department.
The main point however is that there are major risks in
the market right now. A threat I’ve already described, like a
Chinese credit shock, could start this gold demand shock that
the guy described to me. Then, that could feed into a failure
to deliver physical gold somewhere else in the system, maybe
Switzerland or London, and then, quickly, the situation spins
out of control.
Where does it go from there?
The first thing that would happen is people would start to
panic buy gold. The price would start to run up and then, gap
higher. Instead of increasing by $10 per ounce, it goes up $100 per
ounce. At that point everyone on CNBC would say, “Well, that’s a
bubble,” but it could continue increasing $100 the next day, $200
the day after that. Within a week or ten days, it’s up $1,000, and
now everyone’s calling it a bubble, and it keeps going.
Then, people might start selling stocks, taking money out
of the banks to go buy gold. What does that do? That starts to