Appenzell
Switzerland |
A Daily Compendium
of Free-Market Thinking
|
|
|
|
News & Analysis
What's Behind Gold's Recent Moves?
Monday, July 12, 2010 – by
Staff Report
Secret gold swap has spooked the market ... It takes a lot to spook the solid old gold market. But when it emerged last week that one or more banks had lent 380 tonnes of gold to the Bank of International Settlements in return for foreign currencies, there was widespread surprise and confusion ... The news that a mystery bank has just pawned the family jewels gave traders a jolt – nervous about the sudden transfer of almost 20% of the world's annual gold production and the possibility of a sell-off. ... In a tiny footnote in its annual report, the bank disclosed its unusually large holding of gold, compared with nothing the year before. The disclosure was a large factor in the correction of the gold price this week, which fell below $1,200 for the first time in more than a month. Concerns hinged on whether the BIS could potentially sell on this vast cache of bullion in the event of a default, flooding the market with liquidity. – UK Telegraph
Dominant Social Theme: The gold market is a mystery and can't be trusted.
Free-Market Analysis: As we pointed out in today's other article, we may be reaching a point where the elite's attempts to continually reinforce dominant social themes actually begin to be counter-productive. This may be seen in recent downward moves by the gold market. There are plenty of reports, as usual, about pressures being brought to bear to slow the price progress of money-metals, especially gold. But given the general upward trend, we begin to wonder if the elite's attempts are analogous to putting a cork in a bottle – and then shaking. The result will eventually just be more explosive. The markets cannot, in this sense, be contained.
Certainly, what is clear is that the higher gold goes, the more unsettled trading will become. If gold ever gets to US$3,000 an ounce, we would anticipate a market with tremendous volatility. In fact, it is no coincidence that manipulations become more apparent and inevitable toward the end of a bull market – and gold and silver, too, are certainly in at least the middle stages of a bull market. What is also true about gold is that the power elite itself probably will not give up the fight, no matter how hopeless, when it comes to constraining the inevitable upward moves of both gold and silver. But this extends even beyond price control. The elite will inevitably use the soaring price of these money metals for other manipulative purposes. Here's some more from the article:
It appears to have raised $14bn for whoever's been doing the swapping – small fry on the currency markets, but serious liquidity in the gold market. Denominated in euros, gold has fallen 8% since the beginning of the month and is now trading at a seven-week low of €937 per troy ounce. The big gold exchange traded funds (ETFs) – having peaked at record inflows in May – have also been showing net outflows over the past few days. Meanwhile, economists and gold market-watchers were determined to hunt down which bank is short of cash – curious about who is using their stash of precious metals for what looks suspiciously like a secret bailout. At first it looked like the BIS was swapping gold with a troubled central bank. After all, the institution is the central bankers' bank and its purpose to conduct transactions with national monetary authorities. Central banks in the troubled southern zone of Europe were considered the most likely perpetrators.
HELP US SPREAD
FREE-MARKET THINKING!
When truth is discovered it is difficult not to want to tell others and help to spread awareness.
ARBP has assembled an international team of leading free-market thinkers to provide you with a reliable and efficient conduit through which you can help make a positive change today and for future generations.
Thank you in advance for your support. We look forward to working together with you to make "real" change a reality.
DONATE NOW
All this of course is hearsay of one sort or another as central banks are not subject to disclosure agreements on these issues. But moves of this size will tease out reports from all over the world. This also has the purpose of making the gold market look "shady," which some may hope will slow its momentum as well. One such report making the rounds involves hedge-fund magnate John Paulson, who is under considerable pressure for his "role" in the shorting of "packaged mortgage derivative products." Paulson also happens to have made huge bets on gold, and it is perfectly possible that these have not gone down well with the powers-that be.
There's certainly smoke surrounding this subject, if no fire. Absolute Return+Alpha reports that John Paulson's $33 billion hedge fund is now substantially lighter in AUM courtesy of scared investors pulling $2 billion in redemptions out of Paulson's funds by the end of June. What is relevant is that this confirms our suspicions that gold's volatile moves in recent days may be driven in part not just by bank manipulations but by liquidations – perhaps those emanating from John Paulson's massive gold portfolio, including gold stocks.
If reports of $2 billion or more in redemption requests for Paulson's funds at the end of June are correct, then the recent plunge in gold and the weakness in gold equities that has occurred (all admittedly peculiarly in the face of the dollar's recent weakness) could certainly, at least in part, be explained by this one hedge fund being forced to liquidate various gold-related investments in order to meet redemption requests. Or perhaps certain powers-that-be felt that Paulson should lighten up a little bit. The idea, of course, would be that he should do so in a manner that is inconsistent with a logical liquidation strategy designed to maximize shareholder profits. Instead, such a liquidation was to be purposefully reminiscent of an attempt to pound the yellow metal over the head and create panic selling by others ...
Either way, the gold plunge has taken its toll on sentiment as well. HGNSI (the Hulbert sentiment indicator) recently collapsed 14.3 points to just 9.2 percent, or just 9.2 points from indicating most gold timers are actually net short gold. The last time this sentiment index was this low was on August 28, 2009, which was just two days before gold rallied US$200 over the next three months. What is likely most painful to anti-gold powers-that-be, is that there are plenty of elements militating in gold's favor at this point in time despite whatever pressure can be brought against it. Chief among them is increasing pressure for further central bank money printing in both Europe and America.
There is also the specter of additional US military activities in Iran and elsewhere in the world. According to RawStory, "Costa Rica's Nacion newspaper reported last week that the new agreement will see 7,000 US Marines, supported by 200 helicopters and 46 warships, 'enter and leave the country at will.' A June 2 letter from Costa Rica to the US apparently stated that US troops will have "the right to carry out the activities it deems necessary in carrying out its mission."
Many in the gold community hadn't actually expected any sort of significant upside for gold and gold stocks until after the FOMC meeting in August, where presumably the Federal Reserve would indicate that it was returning to more money printing operations. But now it would seem there could be significant action in the gold market even before August, given what might be seen as artificial selling pressure.
Conclusion: Our point here is that once again matters may be moving beyond the elite's ability to maintain control (see other article this issue). At the very least, it is ironic that, given the strength of the market, efforts to restrain the price of gold – whether by manipulation or intimidation – may only end-up reinforcing money-metal price appreciation.
Post Feedback
We look forward to reading your feedback. All comments are automatically posted. However, please note that any posts containing harassment, vulgarity, personal attacks or those which are deemed to be of a violent nature are not welcomed and will either not appear or be removed.
View Feedback
Posted by John Mahler on 7/12/2010 5:31:39 AM
Short sweet and simple answer. The allure and mystique of gold lies in the double standard confusion in the mind of the public and in the minds of investors. Gold has no value. It is just another metal. Business has value. Companies have value. When gold sets the standard of purchasing power for fiat currency in circulation, then gold has value. Otherwise, it is simply an expensive metal. Go a couple light years away from Earth and discover the rarity of gold. Yep, scarcity drives price and demand, yet no one out there cares. So, why do you care? Invest in business, not a myth called gold. When business prospers, investors prosper. When gold seems to prosper, the purchasing power of fiat currency fails.
Reply from the Daily Bell:
Here is a short and simple response. Gold and silver are malleable, transportable and highly sought-after. It takes an incredible amount of effort to mine them and thus the value of these metals is intrinsic to their circulation. Gold and silver have been highly prized for millennia. There is nothing, therefore, accidental either about their allure or their utilization as money.
Posted by Bionic Mosquito on 7/12/2010 5:55:14 AM
Certainly, manipulation to keep the price of gold down serves a purpose for those in power -- to attampt to hide the destruction of value in the fiat currency. I will suggest it also serves the purpose of allowing those in power to buy gold at lower-than-otherwise available prices in a intermittent manner such that the large purchases necessary do not further spike the market.
@John M -- Too much to comment on in your post, others may take up the effort, however:
"Go a couple light years away from Earth and discover the rarity of gold. Yep, scarcity drives price and demand, yet no one out there cares. So, why do you care? Invest in business, not a myth called gold."
1) Do you have some inside knowledge that a couple of light years away they care about investing in IBM or Royal Dutch Shell? My guess is they don't much care about these, either, and
2) If there is any type of advanced society a couple of light years away, it is only possible via a division of labor, which is only possible with some form of tradeable, divisable currency (assuming they even care about anything material -- maybe their god drops grapes in their mouths). In this case, odds are good that they use whatever they have that is also rare and not duplicable...unless, of course, they also have created a central bank. Then I guess I feel sorry for them, too.
Posted by George Sign on 7/12/2010 5:55:37 AM
John Mahler says Gold has no value and business has value. To a dead man both have no value. Value is a word that humans put on something that is useful. What ever we decide is valuable IS valuable. A business can produce as many widgets as it likes but if nobody wants them they have no value. Very few people seem to know what they are talking about when is comes to Gold and Silver.
Posted by Mac on 7/12/2010 7:31:26 AM
@ John M.
I used a Time Machine, that I built in the garage, to travel 200 years into the future. I knew that I would need some form of money to barter with and buy food and essential items. I took with me $1 Billion in Fiat Federal Reserve Notes, $1 Billion worth of manipulated Stock Certificates in major businesses, 100 ounces of gold and 1,000 ounces of silver. I was totally dumbfounded and shocked when nobody, I met, was interested in the beautifully artistic green fiat dollars or the important looking Stock Certificates I had. However, I was able to use the gold and silver to buy myself a small abode and some provisions to last me for one year. The dollars and Stock certificates were good for starting a nice fire with to keep me warm.
Reply from the Daily Bell:
A fable!
Posted by Eddie on 7/12/2010 8:33:23 AM
I'd like to share the two main points that put to rest the fiat vs. gold debate for me:
1 If gold is an ancient relic, why do central banks hoard it? And
2 It is the lack of trust amongst the central banks and their sovereigns themselves that makes gold the ultimate trump. They cannot and will not trust each other to reign in their ability to create money at will. Gold and silver are money by default.( At least on this planet.)
Posted by B.Benhamid on 7/12/2010 8:52:46 AM
G*d is the author of the gold standard,not man. In the scriptures,He established the weight,the measurements and set the value of gold and silver. He created this monetary law in order to protect the poor and to keep the greed and manipulative power of Rulers under control.
Question: From where did the middle man all of a sudden come from?
Reply from the Daily Bell:
Ah, middle-man prejudice?
Posted by Pat Fields on 7/12/2010 9:20:13 AM
All these 'gold-bubble' brainwash stories are so gossamar they've become a joke. I WANT some REAL softness in the paper 'pricing' mechanism, so I can accumulate a few more ounces of silver below the premium spread and none of these measley little occillations are sufficient to get me there!
Reply from the Daily Bell:
Silver is very much below the traditional 1/16 gold-silver ratio. Many who understand this historical ratio believe it to be a buy with or without dips.
Posted by Eddie on 7/12/2010 9:29:23 AM
B.,The old argument.
If G*d created the world why did he create the devil and all the evil that goes along with it? The mind has the ability to reconcile everything til black is white and white is black. Call that power the gift of G*d or Satan spawn, here it is.
Bottom line: If G*d created the gold standard, he created the middle man also along with the manipulative powers thrown in the mix.
Reply from the Daily Bell:
"middle man also along with the manipulative powers"
Not saying you are prejudiced, only that It is an old prejudice, not often remarked upon these days.
Click to View Link
Views on Middlemen. COMMENTARY MAGAZINE
READER LETTERS
September 1949
To the Editor:
Since the beginning of settled communities, or even earlier, the functions of the merchant or trader have been tangled with all manner of real problems. Does the trader perform a service worth the reward he harvests, or does he prosper by beating down the producer and loading excessive charges on the consumer? Is the foreign trader to be tolerated or should direct trade with the consumer, at least, be a privilege of the citizens? Is it socially desirable to have certain groups specialized in trading functions?
These are some of the real problems. In the July issue of COMMENTARY Abba Lerner presents a discussion of the position of the trader, whom he designates by the late term middleman.
. . . Like all of Abba Lerner's writing, his 'Myth of the Parasitic Middleman is impeccable economics, and like all impeccable economics, is very bashful about making contact with the real problems. Abba Lerner's argument turns on the problem of the productiveness of trade. Is the merchant a producer, as the artisan and farmer are producers? Or must we leave the merchant in the old category of non-producers, along with doctor, lawyer, beggarman, thief?
Nobody cares whether we do or not. All mankind from the earliest times has known that the merchant is useful and worthy of his hire, if his hire is not excessive and corrupted by sharp practices. That is the real problem.
Posted by Jack Burns on 7/12/2010 9:31:24 AM
It is funny how different my satisfaction and comforting feeling is when I hold some of my gold coins versus my brokerage statement and reserve notes. I too, find it interesting how little the value has changed in the past 3,000 years.
Reply from the Daily Bell:
10,000 years?
Posted by Peter Underwood on 7/12/2010 12:29:14 PM
My ode to Gold:
Ah, Gold, you are the ultimate extinguisher of debt,
Having no counterparty, you are the honest money.
You fulfill all the needs of my token of exchange.
Limited in supply you are impossible to counterfeit,
Infinitely divisible you do not degrade over time,
Being portable and malleable, you are easily concealed,
You are none of these: magnetic, corrosive, toxic, false,
You are beautiful, reflecting the rays of the morning sun,
And just as others love you, so do I
Which offers your greatest attraction, desire.
Bring me my bow of burning gold, bring me my arrows of desire....
...... dum de dum de dum.....
Posted by Jack H. Swift on 7/12/2010 1:43:30 PM
There is an ages old maxim in monetary economics that bad money drives out good money. Where a society – such as the early colonies – utilizes two systems of monetization – specie and fiat money, the public will hoard the valuable and it will disappear from circulation.
This standard phenomenon is driving the gold market today. As credit based money and printabucks become more and more suspect in terms of their monetary value, people – from private individuals to nations and banks – are diligently converting their suspect cash into something of predictable value, leaving us with nothing but monetary inflation.
Economically, the world is on something a great deal steeper than a slippery slope and every move by the government to correct the situation is simply sending us farther down the slope faster.
Posted by Floris Naaijkens on 7/12/2010 4:37:25 PM
@ John Mahler & @ Bell
I would submit, that direct exchange is cumbersome in larger communities, and indirect exchange more effective, and with lower transaction costs.
As value imputations change with preference, circumstances and time, those monies are mostly sought after, whose supply cannot be easily augmented. Enlargements without cost would be tantamount to fraudulently changing the meaning of contracts by non-parties to said contract, after the fact.
No change to the money supply would be even preferable (Rothbard, it conveys no additional social benefit). But as Mises showed with his regression theorem, money had to emerge from the physical marketplace as a highly marketable good. As economic goods are elements human transformation, additional moneystock cannot be avoided.
The lowest growth, with the highest effort would then render the best social benefit. Hmmm, palladium, anybody? Of course, silver has always been it!
Posted by Lowell L Morse on 7/12/2010 5:29:48 PM
Value. To a peasant such as myself, shelter, food and drink. A good cast iron pot, some sharp knifes perhaps. Tools are a true value.
I see gold/silver as freeze dried money. I am not asking anyone for interest or to protect it. I honestly earned it, I should therefore be able to keep it.
The folks here, are obviously out of my league, but yet a simple existence doesn't necessarily constitute a simple mind.
I enjoy reading a more "learned" crowd's comments.
Respectfully,
Lowell L Morse
Posted by Lila Rajiva on 7/12/2010 7:13:53 PM
@DB
Merchant and middleman. Two different things, no?
Middleman " his worth depends on what he is adding to the product. Today, he is subtracting value. Which means that today the middleman is often worse than worthless. He is injurious to the process.
Reply from the Daily Bell:
Click to View Link
Passage in Bastiat, "What Is Seen and What Is Not Seen," section 6, "The Intermediaries," could be translated as "The Middlemen." Hungry people in England, not enough wheat; lots in the United States and lots in the Ukraine, 1800s. Bastiat suggests (written in French)"When the stomach that is hungry is in Paris and the wheat that can satisfy it is in Odessa, the suffering will not cease...." Can't each go get it ourselves. If we leave it to the people who trade how do we know we won't be ripped off. They are doing it for profit. We could have the State do it, getting rid of the middleman, and do it cheaper. Sarcasm; seems like a syllogism. State will not be motivated by profit. What's wrong with that argument? Russ and Bill McKibben debate at U. Vermont on Oct. 28 on the topic of Buy Local. Another solution then is England should grow more wheat. Stark example of problems people see with commercialism: the intermediary's taking of a slice above and beyond the cost could be eliminated by a more benevolent provider of the service--the State or a charity. Two incentives that middlemen have: profit is the trivial one, will be driven to zero by competition. The main thing middlemen do is find ways to reduce cost. Out of greed and self-interest they work on finding ways to transport corn (wheat) as cheaply as possible. The State does not have an incentive to try to reduce cost. Hayekian. Middleman knows what people want, varieties wanted, etc. Almost nothing to do with profit. Motivated by profit, but main effect is to improve variety and quality and cost is driven down. Huge benefit. Unclear why we miss that benefit. Bastiat: the thing that's not seen. If you want to ask the state to do this, they can't do as good a job.
Posted by Slim Pickens on 7/12/2010 7:33:33 PM
The choice, in this environment, is not between PM and Equity Shares...it is between PM and cash (fiat currency or short term treasuries). Shares can and always do go to zero. Fiat currencies can and always do go to zero. Gold has never and will never go to zero because it has intrinsic value the same as water. It is a resource. Water in the desert is as gold in an overleveraged world.
Posted by Steve Cooper on 7/12/2010 7:33:51 PM
There's only one thing to remember when it comes to gold and money. Money got it's value because it was gold. Gold did not get it's value because it was money!
Posted by Iop on 7/12/2010 8:19:04 PM
I would add to the Daily Bell's short an simple response this; When businesses don't prosper, and investors don't either, confidence suffers, preservation is on an investor's mind and gold is the answer.
Posted by Pat Fields on 7/12/2010 8:23:53 PM
LL Morse Cite: " a simple existence doesn't necessarily constitute a simple mind."
Sir, a humble course affords the luxury of deep consideration. An incalculable wealth lost upon the mean who crave only that taken to hand. Revel in it! Cherish it! For if there be re-birth to another dimension, your adornment will be as the finest raiment possible to attain!
Posted by Philip Mccormack on 7/13/2010 12:19:04 AM
OK, How was 380 tons of gold moved to the BIS Switzerland or was it just another load of paper gold; another mystery, what banks, not the one's I have shares in I hope-just kidding?
Which country's paper money 'paid' for it, hope it was mine? Is this the latest dominant social theme or the same thing, insider trading?
Manipulation or intimidation-have we so quickly forgotten Barrick Gold selling forward on gold at ca $350 USD? The same fate awaits the 'Banks.' Happy days.
Reply from the Daily Bell:
It is all paper transactions - and the gold never moves ... You know that.
Posted by Boatman on 7/13/2010 7:53:34 AM
in the coming BIG runup on gold/silver, manipulation and volatility will go DOWN, not up.
the flood of people buying it will overcome both.
by my next door nieghbor is buying it, i will be looking at my selling point.
Posted by Pat Fields on 7/13/2010 1:03:53 PM
Boatman Cite: "by my next door nieghbor is buying it, i will be looking at my selling point"
'Selling'? Asking what media?
Post Feedback
We look forward to reading your feedback. All comments are automatically posted. However, please note that any posts containing harassment, vulgarity, personal attacks or those which are deemed to be of a violent nature are not welcomed and will either not appear or be removed.
|
News & Analysis
Guest Editorials
Subscribe to the
Daily Bell Newswire
|
Exclusive Interviews
|
|
© Copyright 2008 - 2010 Appenzeller Business Press AG (ARBP). All Rights Reserved. The Daily Bell is an informative compendium of independent economic views and analysis, which is published by ARBP. The information contained in the Daily Bell is for informational purposes only, is impersonal and not tailored to the investment needs of any particular person and should not be construed as financial or investment advice. ARBP does not accept any liability or responsibility for, nor does it verify the accurateness of the information being provided in the Daily Bell. Daily Bell articles and interviews may include the contributions of several Daily Bell editors and may require factual editing after their initial post. Readers of the Daily Bell or any affiliated or linked sources or sites must accept the responsibility for performing their own due diligence before acting on any of the information provided within the report regardless of the source. In addition to proprietary, internally generated content, the Daily Bell publishes guest editorials from a selection of free-market thinkers, which may have been reprinted elsewhere and are not necessarily representative of ARBP's editorial views. Copyright is attributed to the author of any guest editorials featured at the Daily Bell, unless noted otherwise. ARBP often uses images licensed from Getty Images on the Daily Bell website.
|
|
|
![[Most Recent Quotes from www.kitco.com]](http://www.kitconet.com/images/sp_en_6_207x100.gif)