Posted on 11/13/2009 6:45:21 AM PST by SeekAndFind
The past two weeks have brought two massive paradigm shifts to a Gold market that has been morphing literally on a daily basis for the past few months. During this time, the pundits and purveyors of misinformation and tripe have done their best to ‘student body left’ Gold back into obscurity as an ancient, barbaric relic. They certainly get an ‘A’ for effort. Now that Gold has made its debut above $1100 an ounce, they’ve switched their tactic and are now calling it a bubble. We’ll deal with why this cannot be the case in a bit.
For the past 9 years now, students of history and common sense have been literally shouting from the rooftops that Gold was the place to be as the monetary tradewinds shifted back in 2000 and the fiat inflationary cycle began to go parabolic. While the multi-trillion dollar deficits might be a surprise to many, for those who understand how these things work, it is just a mundane repetition of history and yet another confirmation that man cannot alter the laws of economics or his own intrinsic predilection to ignore events past.
From 2000 up until recently, there was a constant battle going on. Central banks and the IMF would sell off their physical Gold to suppress the price. Between 1999 and 2002, Gordon Brown, then England’s Chancellor of the Exchequer made the extremely wise decision to sell a good chunk of Mother England’s Gold (395 tonnes) in the $275-$300/oz area. The people were so enthralled by this obvious economic genius that they made him the Prime Minister. All sarcasm aside, this was only one prong of the tactic to suppress Gold prices.
The second prong consisted of large New York and London banks mercilessly shorting Gold in the paper futures markets. For most of the last nine years, the bulk of these futures contracts were rolled over or settled in cash; taking delivery wasn’t really en vogue. There have been many people such as Jim Sinclair working hard in the trenches to educate people on the merits of taking delivery and fighting the cartel by taking their playing chips off the table. Gold in your possession cannot be leased out by a central bank to various third parties, nor can it have futures contracts written against it.
Despite even these Herculean suppression efforts, the price of Gold made the journey from $275 to $940 in fairly short order. Surely, there were many gut checks in there; days when the metal lost 5% and the pundits would scream the bubble had burst and it was all over, now please buy some mortgage backed securities. There were some epic struggles like the Battle for $700 shown below.
Through the past nine years the game was played under the rules of central banks and the IMF. In the past two months, countries, large players, and even Gold producers have turned the game on its head. Suddenly everyone wants physical metal, not paper promises. And don’t give us the 90% bars either; we want the good stuff. Suddenly, there are instant buyers for IMF sales that were previously guaranteed to suppress prices. Suddenly an IMF sale sparks a rally to a new all-time high. China tells NY and London banks to take a long stroll off a short pier by issuing a directive to its state banks to walk away from commodity derivatives contracts. And, even more telling, central bank selling has been dropping steadily over the past few years and has been nearly nonexistent in 2009.
And finally, Barrick is closing its infamous hedge book. What was once a 20 million ounce boat anchor on the price of Gold has become a multibillion dollar boat anchor around Barrick’s neck and they’ve finally had enough. The book, now around 3 million ounces will be closed by next year according to Barrick boss Aaron Regent.
Oddly enough, it is not the collapsing US Dollar that is driving this decision, but rather a realization that Gold production likely peaked in 2001 and that even a tripling in exploration budgets across the mining sector has yielded precious little in the way of new discoveries. During this entire time period, demand for Gold has been rising consistently, thanks in no small part to the continual abuse of paper currencies by governments around the globe. The existence of serious supply-demand dislocations immediately rules out the prospect of a speculative bubble. Granted, there are plenty of smaller players who are dabbling in Gold without the slightest bit of understanding as to why they’re doing it. The next correction will undoubtedly send many of them running back to mainstream newsletter writers demanding a refund. After all, they were supposed to be living on the beach in 6 months; the advertisement said so!
The shattering of the old paradigm as it relates to Gold is very similar to a paradigm that was shattered with regard to stock investing nearly a decade ago. In that case, the conventional logic was that the market always went up in the long run. And for 18 years, that had absolutely been the case. Even the crash of 1987 hadn’t done much to derail the bull market. However, when we crossed into the new century, the paper paradigm changed with the major indices going nowhere in the past 9 years and change. Yet many conventional financial professionals are still investing as if it were 1995 then blaming the markets for client losses when they should be blaming their own inability to see that our world has changed dramatically.
Unfortunately, another of the very negative sides of the attack on Gold have been the ad hominem attacks on proponents of Gold-backed currencies and those who promote the reality that Gold is in fact real money. The attackers use the term ‘Gold Bug’ to paint a picture of little men sitting in fallout shelters wearing tinfoil hats with stashes of food, water, and enough weapons to make the debate about Iran seem pretty foolish. That just isn’t the way it is. Simply put, a Gold bug is someone who understands Gold’s historical role as money and seeks to educate others in this regard while protecting their own assets from the abuses heaped on paper currencies by their custodians.
So today I, an admitted Gold bug, ask: Now… do we finally have your attention?
Can you offer a shred of proof to back up your rumor?
I could just as easily post that you are a Chinese communist spy disguised as an American, with equal "proof."
Ending B-W was the final step in a process that took almost seven decades. Nobody's going to say we were better off in 1910 than we are now. At least not with a straight face maybe...
Gold was pegged at 35 bucks an ounce (after confiscation from the public and banks) in the US. Treasury stood ready to buy and sell to foreign central banks at that price. Other countries pegged their currencies to the dollar, thus providing a link to gold. The US ran out of gold by 1968, and by 1971 all currencies were floated, and not backed by anything other than taxing authority, etc. There isn’t enough gold to run a world economy.
Read about the gold plated tungsten bars last night on FR. Scary! and has klintoon written all over it.
ping for later
Why so defensive???
Check this link the PRC bragging about gold plated tungstan bars AND coins http://www.tungsten-alloy.com/en/alloy11.htm
I read that too. I checked the density of tungsten (19.25) and gold (19.32) and they are close enough there might be some truth to that. Making the tungsten bar just fraction of millimeters larger in all dimensions would make it weigh exactly what a true gold bar would weigh. The size difference would be too small to tell without exact measuring instruments. Scary.
In that case...do just that.
How do you do your check to make sure the gold bars are not the ones found stuffed with $10-a-pound tungsten?
You offer ZERO proof, just some illiterate Chinese website offering to make tungsten jewelry with a gold veneer.
Please link a sourced article on actual gold bars being traded, that have been found with tungsten cores.
Not rumor mill articles from bogus websites. Actual articles, from real news sources.
Or is a grand conspiracy afoot, where thousands of traders, reporters etc are all refusing to print the truth that you somehow know?
A simple drill would discover the fraud. You are posting what would be a huge story. Please post a link to a real article about gold bars being traded, that were found with tungsten cores.
I will eagerly read them.
Just don't post juvenile rumors and bogus websites as "proof."
Please post a link to an actual news story proving this.
Nobody would electroplate gold over tungsten. A simple scratch test would reveal the tungsten. Now, a tungsten slug could be molded inside of a gold bar, that’s true. But if these rumors have any basis in fact, then when physical delivery is made, a simple assay test involving a drill will reveal the fraud, and the “tungsten scare” will soon be behind us.
I invested in copper last year and I’ve doubled so far.
http://www.freerepublic.com/focus/f-news/2385151/posts
Not good to act sooooo defensive. Makes folks start to wonder what someone’s hiding or trying to peddle.
Straight out tell us this gold plating of 640,000 tungstan bars in Fort Knox ain’t so, that the story is all wet.
“””””When *everybody* is saying buy, it’s long past the right time to buy - same is true with any investment, be it real estate, bonds, stocks, porkbellies, whatever.”””””
I agree in a normal market but with the gov. spending the dollar into infinity - dollar collapse, or significant devaluations are likely.
Commodities like energy or food will always be in demand regardless of other asset declines and can serve as store of wealth. You have to be an active investor, there is a time to be in gold and at times to be in other assets like corporate bonds, RE or stocks, each has it’s day, sometimes years
Dow 10,000 today is inflation adjusted to Dow 7,500 in 2000 dollars
If you truly believe the dollar is going to appreciate over the next 5 years keep your paper money in your mattress, If you think it is going to fall significantly you want to put it somewhere where you will preserve it’s value.
The trend is your friend
Place your bets and we will see where it all settles out in 5 years.
LOL, "Ammo bugs": Coined term of the day!
I happen to agree, but am playing it safe by having pre-1965 silver coins too.
Coincidentally, I just sold off all my gold. I think we're at a peak, and I expect a correction soon, probably down below $900 (at which point I'm going to buy up a bunch again).
Not enough for 100% reserves maybe, but that was never the issue. The real problem is that the price of gold is just not stable enough. People complain about inflation/deflation a lot these days but what we got now is heaven compared to what we had with gold.
Do we still own real gold??? I have no idea.
http://www.financialsense.com/fsu/editorials/kirby/2009/1112.html
THIS IS A MUST READ !!
Nam Vet
As much as people love $1,114/oz gold now, with inflation it's only twice what the price was in 1935. That same time frame saw a 120-fold increase in the real value of Dow Industrial stocks.
Seems like the trend is really trying to say something here.
“we’ll be trading in bullets, beans, and bandaids”
That was the investment advice I got. Food, medicine, ammo.
And I’ll add toilet paper, people will trade six cans of beans for a roll of TP.
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