Gold price crash explained: margin hikes, France and China

0:00France just pulled every last ounce of its gold out of America. 129 tons gone like that. And the excuse they gave you is one of the most insulting things the central bank has ever said out loud. Meanwhile, gold got hammered. Wiped from its all-time highs right as the shooting broke out in the Middle East, which is the opposite of what's supposed to happen. And if you own gold, if you're thinking about gold, or if you just want to understand what the most powerful institutions on earth are doing with your money, this is the most important breakdown you'll watch this year.

0:36I'm going to show you exactly who crashed gold, how they did it, why they did it, and the three-part framework that tells you what comes next. And I'll also show you what UBS, the Swiss gold people, are telling their institutional clients on the note they just put out. Because they don't send that to you retail investors, do they? They don't think you're worthy of it. I do. If you agree with me on that, write "agree" in the comments.

0:57My name is Felix Prehn. I'm an ex-investment banker. I've seen how this works from the inside. I'm also the founder of the GOAT Academy where my retired Wall Street mentors, including metal market makers, the guys who do the shenanigans that we always talk about, teach regular investors. We've taught over 20,000 students the last 6 years. And I'm dedicating my retirement to give you regular access to the kind of knowledge that's usually only taught inside Wall Street banks.

1:30And what's happening right now in the gold market is one of those moments where the gap between what Wall Street knows and what regular investors are being told is a Grand Canyon. So I'm here to bridge that gap for you. Winston, our golden retriever and chief gold analyst, had to leave the room because it's that serious.

1:53So let's start with the crime scene. Gold hit an all-time high, $5,600 or something like that, in late January. Then in a matter of weeks it cratered. We're talking 20% wiped out by late March. The biggest single decline since 1983 in any given week. And if you pause and think about that, a war breaks out in the Middle East. The US and Israel are in direct war with Iran. The Strait of Hormuz is one of the most critical oil choke points on the planet. It's in play. Oil prices spike past $110.

2:28Every textbook, every financial model says gold is supposed to go up in that scenario. It's the ultimate safe haven asset. That's what they teach you. So why did it crash? Well, the answer reveals how the gold market actually works. And it's nothing like what you're being told.

2:47Here's what happened in rapid succession. Let me tell you if this looks like an accident. The CME, the company that runs the COMEX exchange where gold futures trade, changed how it calculates margin requirements. They switched from a fixed dollar margin to a percentage of contract value margin, which sounds complicated and boring, but that one little procedural shift meant that as gold went up, margin costs rose automatically, a built-in amplifier for a crash.

3:18And then a week later they hiked again for the third time. Three margin hikes in less than two weeks. In step four, traders who were long gold, many of them regular investors, they couldn't meet the margin calls, so they were forced to sell. And they sold, prices dropped further, which triggered more margin calls, which triggered more forced selling. A textbook liquidation cascade.

3:43Now maybe you think that looks a little engineered. Let me know in the comments. But think about who actually benefits from this. Let me give you the framework that I learned from my Wall Street mentors, guys who worked in these institutions for decades. And when something doesn't make sense on the surface, follow the money. Don't listen to what institutions say. Watch what they do. These are the same guys, by the way, that I give regular investors access to inside our academy. Literally one-on-one sessions with Wall Street goats. That's what we do here.

4:13And let's follow the money. So what have we had? We've had Turkey's central bank dump 60 tons, some say as much as 120 tons, in just two weeks after the Iran conflict starts. This is the largest weekly drop in Turkey's gold reserves in forever. Why? To defend their currency, the lira. Energy import costs went to the moon. So demand for dollars spiked and Turkey just didn't have enough. So gold was the most liquid thing they could sell.

4:46We also had Gulf states starting to sell some gold reserves to fund war-related spending, shore up their currencies. And when a country like Turkey sells 60 tons into the London gold market, that's like a wrecking ball. That kind of volume moves prices globally.

5:06And then there is the dollar itself. The dollar index, and this has got a ticker symbol, it's called DXY, it just tracks or measures the dollar's strength against other currencies. It went up about 6% just as the war started. Now a stronger dollar makes gold more expensive for everyone who doesn't earn dollars. So all of us pesky foreigners. So international demand drops.

5:31But the dollar got stronger, and this is important, write this down, because of safe haven flows. People all over the world were fleeing into the dollar because the US is energy self-sufficient and US government debt still is known as risk-free. It's the label on it, like "this is good for your health" organic food. Risk-free. Believe it if you believe it.

6:00But what happens here is this little flowchart. War drives up the oil price, which drives up inflation fears, which makes the Fed do bugger all, which means rates, interest rates, stay higher in the US, which means you get more interest if you own American debt. So the dollar gets stronger because all us pesky foreigners now buy dollars and as a result gold gets crushed. It's a feedback loop. Benefits of course one player more than anybody, the United States government and its ability to keep the dollar dominant.

6:39And the final nail in the coffin is that institutions were long gold. Hedge funds, commodity traders, they were all long gold and they got margin called. How do I know that? Because it's one of the things that we track inside our Metals Minute tool, which you can get access to for $6 a week down below. You can try it out. If you like it, you like it. If you don't, just bang it off again.

7:02And literally we have this gold smart money meter here which tells you, well, they were buying last week if you looked at the data. Now they're selling pretty aggressively. Now an interesting observation, this is not financial advice, is that what happens in the past 3 years when gold was at these extreme levels of heavy selling, which is where we are right now? We had a 12, which is heavy selling, so zero to 20. In the next 90 days on average we went up 19%. I'm not saying that's ever going to happen in the future. It's just a data point for the past. We also track this on silver, but gold's looking a lot more extreme right now.

7:41So let me know if this is landing for you. Just put "landing" in the chat down below. And now if you're watching this and think, how am I supposed to navigate this as a regular investor, I've got something for you. I am going to run a free live training where I will teach you Wall Street rules for picking stocks and picking metals in exactly this kind of a market. The same framework that my Wall Street mentors taught me. It's the same thing that's been used on Wall Street for 50 years literally. And I'm going to give it to you.

8:13The link to get yourself a free ticket to that training is felix.org/training. It's down below in the description. It's free and it will change how you look at every investment decision you will make for the rest of your life. Bring your better half. Bring your children if they're of an age where they might be able to understand it. 10 or 12 upwards generally speaking is a good place to start.

8:38And as you sign up for that, let me show you why this story goes much deeper than just a market crash. While everyone's focused on this price crash, something happened that barely made the news. And it's probably the most important gold story of the decade. France, the 4th largest gold holder on earth, literally they have almost 2,500 tons of gold, emptied every last ounce of gold it had stored in the United States of America between July of last year and January this year.

9:10The Banque de France sold off almost 130 tons of gold that had been sitting in New York at the Federal Reserve. Now it had been there since 1920 and they didn't bring it home. They sold it in the US and then they bought new gold on the European market and they're storing it in good old Paris because they think Paris is more safe than the Fed.

9:41Now of course the official explanation from the Banque de France governor, who's called François Villeroy de Galhau, which is a glorious name which I'm undoubtedly butchering, was that this was not politically motivated. He said the gold in New York was old, non-standard, and it was easier to buy new compliant bullion in Europe than to refine and ship the old stuff.

10:04So that excuse, do you just want to let that sink in? They said that 129 tons of gold which had 999.9 purity, massive 12.5 kg bars, didn't meet current standards. Now I think possibly the more logical explanation to this is that France asked to get its gold back from New York and the US had already sold it, or at least maybe they couldn't deliver it.

10:34Still just see that Fed order, aren't we? So the US offered to wire the money instead and France accepted and bought new gold in Europe. Conspiracy theory. Absolutely. Let me know whether you believe that, yes or no. Put a yes or no in the comments. So both countries agreed on a story, let's talk about upgrading to meet current standards.

10:56It's probably bollocks, isn't it? Because look, gold that is 999.9 and comes in 12.5 kilogram bars, well they've always come in 12.5 kg bars in exactly that purity. And there have been repatriations of gold from the US to Europe. They never required this kind of workaround. Now the mainstream media just prints the story, right? Because they don't usually ask many questions.

11:22So I'm presenting here an interpretation that some people believe is correct, some people believe it's nonsense. Could be made up. But France, and this is the important thing, now holds 100% of its gold in Paris. And France isn't alone. Right around the same time in January, prominent German economists and lawmakers started calling for Germany to bring its gold home too. And the Germans, and I am one of the Germans if you hadn't realised, hold about 1,236 tons of gold.

11:54Yes, I think that accent should be one that we will stick with from now on. And a lot of that is still sitting in the Fed. About a third of Germany's total gold holdings are sitting in the Fed. Now a former Bundesbank, which is their central bank, economist literally went on the record and he said storing gold in the US is risky given the current geopolitical situation.

12:22So we have German politicians yelling publicly. There is nothing to really worry about here of course, but it sounds a little bit like the France deal that just happened, right? Now why am I telling you this? Why should you care about the French or the Germans? Because you might remember General de Gaulle, who in the 1960s demanded that they be given gold for all their dollar reserves because that was the law back then, gold standard.

12:50Now that triggered an outflow so severe that we got the Nixon shock and Nixon took the dollar off the gold standard. So I'm not saying we're heading for another Nixon shock, but when the 4th largest gold holder in the world quietly moves all of its gold out of the US and gives you a BS reason for it and the 2nd largest gold holder is publicly debating doing the same, the Germans, you should probably pay attention because history tends to rhyme. If you think there's some sense in that, put a Nixon in the comments and we'll see what you're talking about.

13:26Now let me explain the mechanism that makes all of this possible. And by the way, if you want to track what the institutional money is doing with their gold and silver, then there's a link down below to it in the description. You can also see everything else, the Shanghai premiums and the COMEX inventory and so on. And I want to touch upon the COMEX inventory because it's important. That is what is allowing all of this to happen and it's where most people get lost and it's exactly where Wall Street wants you to stay lost.

13:54So when you hear the gold price on the news, they are almost always talking about the COMEX futures price. COMEX is the exchange where gold future paper contracts get traded. Each COMEX contract represents 100 ounces of physical gold. But what most people don't understand is that the vast majority of these contracts never result in physical gold changing hands. It's about 5% of COMEX contracts actually result in physical gold being moved. The rest are literally just paper bets, just bets in the direction of a price.

14:35So what does it mean? It means that the gold price is largely set by paper trading, by financial fugazi, not by the actual supply and demand for the physical shiny stuff. And there is a gold to silver ratio and some people put that at some crazy level, 100x or something like that. We have a leverage ratio here of claims versus physical that is 2.8 just because claims are, well, just claims. So yes, it is complete nonsense. It is a completely fictitious price point. It is a completely fictitious market.

15:14But it allows COMEX to have a very powerful influence on the price. Because when they move their margin requirements, when the exchange raises margins like they did 3 times in 2 weeks, it doesn't hurt the big banks because JP Morgan, Goldman Sachs, HSBC and so on, they have essentially unlimited balance sheets. A margin hike is a rounding error for them. But the smaller traders, the retail investors trading futures and the smaller funds, a sudden margin hike is basically a death sentence. They can't post additional money as collateral. So they're forced to sell and that selling pushes the price down.

15:54Now the cruel irony is this. The people who can weather the margin storm, the big banks, the well-capitalised institutions, they're the ones who get to buy the dip after our small players have been flushed out. It's the oldest trick in the book. Shake out the weak hands, then buy what they were forced to sell at a discount. Now of course CME calls it a normal review of market volatility to ensure adequate collateral coverage. That's what they say. That's an actual quote. I didn't make that up.

16:21But what's interesting is that the physical market still tells a very different story. Now Winston's back because we're talking about the important stuff on gold and he's a golden retriever. Deliveries have hit a massive, massive record and the registered inventory, which you can see here on the screen, has fallen off very, very sharply. And that's gold that's actually available for immediate delivery in the COMEX vaults. So it's gone down about 25%.

16:52So while the paper price says gold is crushing, the physical markets are saying people are pulling some real gold out of the system, which typically means that they think the physical gold has a higher value than the paper. Now if that makes some sense to you, please put paper in the comments down below because we have something else here.

17:14So yes, Winston. There he is. That's a handsome face, isn't it? Golden face. While the western market's been selling off, that's what I'm telling you about. The UBS team, literally this note here, they sent a team to China. Their precious metals analyst led by a chap called Joni Teves. And they found something that's very interesting. And actually I'll put this in the free community for you guys as well. Okay, we'll do that, right Winston? I think that sounds like a good idea, Winston. We do that.

17:47So you can download this for free in the free community. I'll put a link down below for that as well so you can get access to that. And they're cautious on the dollar. They think it's going to get weaker. But their view on gold is overwhelmingly positive. UBS reported that the majority, if not all, of their conversations in China signalled an upside bias to gold price expectations over the medium to longer term.

18:15And this isn't just talk. These Chinese gold ETF inflows have been far more resilient than North American ETF inflows. While the North American gold ETFs literally saw a lot of outflows in March, Chinese gold ETFs held on or even grew. Trading volume on the Shanghai exchange, and again we track the Chinese silver and gold premiums here alive every day inside the Metal Minute, the trading volumes, they have picked up.

18:47And then there is a story that is really the big story that nobody really understands. I haven't seen anybody cover this, but Winston sniffed out insurance companies. China's financial regulators authorised a programme allowing 10 major insurance companies, including the biggest ones, PICC, China Life, to invest up to 1% of their assets in gold. Now 1% doesn't sound like a lot, but when you're talking about companies managing trillions of renminbi assets, 1% is pretty significant.

19:26And these are estimates, so don't take this as, always with a pinch of salt, that this could be about 200 billion renminbi. It's about $27 billion US of potential gold investments. And it gets bigger than that because about half of these insurance companies in this pilot programme have started becoming more active. Mid-tier insurers with higher risk appetites are apparently leading the charge and the industry is still nowhere near fully allocated. So the long-term upside is potentially a bit potential. Very clear, isn't that?

20:01Very clear. Winston, precisely. And of course if this programme gets rolled out to more than these 10 then the money could be even bigger. So while the western traders are being margin called out of their positions, Chinese institutions are actually building the biggest gold allocation in their history. It's kind of interesting, isn't it? I think it's kind of interesting. Let me know if it's interesting for you too and put it down below in the comments.

20:24But it isn't just Chinese insurance companies. Central banks globally have been buying gold at a pace that has not been seen for many, many years. Again something we track inside Metal Minute. 1,050 tons of gold purchased last year, which is pretty significant. And it isn't just the Chinese, it's Poland, it's Kazakhstan, it's Brazil, it's a lot of smart countries quite frankly.

20:50And why is that happening? Because just like the French, they don't want to keep all their money in the US and hope that they're going to get it when they want it. Because the US weaponised the banking system and the global reserve system against Russia. And maybe you think that was a good idea. I'm not saying it wasn't. I'm just saying there is a knock-on effect to that. So what comes next? All right, let me.

21:15I'll give you my three. Little Winston, stay there. Stay there. Stay there. Right, I'll put it on the screen here for you. Watch what they do, right? Words like "calm" and so on is kind of nonsense, right? Watch for their actions. Watch the paper versus physical. I think that story is important.

21:36I would monitor what the institutions are actually doing, right. This week they are selling, which hasn't historically been a fairly good indicator. Winston, sack. I'm not promising you a higher gold price. I wish I could. Winston obviously does, but he's a golden retriever, so he's a bit biased on that front.

21:55And then think about the cycles of this. Gold moves in cycles. If you're only buying when everyone's talking about it and it's the top of the market, well, you're always going to pay the most, right? Whereas if you have a little bit of a longer horizon, 10, 20 years, then the long-term drivers might still be interesting. Central bank buying, the de-dollarisation, institutional demand from other countries, just general geopolitical instability, right? They haven't gone away. It's gotten worse if you ask me.

22:26Now, are there some risks? I'm going to have to close Winston's ears here because he doesn't like to hear about gold risk. But yeah, of course, if the dollar stays strong, if the Iran conflict gets a lot worse and US interest rates keep climbing, then a strong dollar is bad for gold prices in the short term, right? And so higher rates for longer because we get massive inflation that sticks around for years and so on, then people will sell gold and buy US treasuries. I know it's hard to believe, but it's what institutions will do.

23:01And of course, conflict dragging on could force countries like Turkey and maybe other Gulf states to sell even more gold. So we might get even more pressure on the whole thing. Now you might see that as an opportunity if your horizon is long enough, or you might get freaked out by this. What I would do in either case is learn how the game is played.

23:25Whether that's gold or silver or tech stocks or anything, there is a simple systematic structure behind every trade and every chart and every price movement. And I can teach that to you in less than 2 hours if you join me on Saturday. FelixFriends.org/training. It's free. It'll be fun. Winston will be there, won't you? Will you be there? He's looking at me funny. I think he will. And he likes his ears being pulled, by the way. This is not cruelty. He does genuinely like this.

23:55Then come and join me there. And that's on Saturday at 9:00 a.m. Eastern time, New York time. I think that's about 2:00 p.m. London time. Apparently, Greenwich Mean Time is now an offensive thing to say. So, there we have it. We just said it. And I wish you guys all the best. If you got some value out of this, then say thank you to Winston and share the video with somebody who might get some value from it too. I wish you all the best.

24:21Right now, something dangerous is happening to your money and it has nothing to do with the stock market. It started with a wall, but the real damage, it's hiding in a place