Gold: War of Attrition 28 comments
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The spot price of gold as quoted by NYMEX is no longer an accurate representation of the real price at which physical gold bullion is being traded. It is, in fact, a lie.
This is apparent by the great disparity between the availability of gold and the virtual shutting down of all sales operations related to delivery of anything denominated in one ounce units. Buffalos, Krugerrands, Eagles….you name it, you can’t buy ‘em.
The idea of “futures” was originally established as a mechanism for price discovery, not price determination. Yet this very mechanism, first deployed as a way for bankers to capitalize on farmers in the spring with a relative degree of certainty as to what the farmer would reap in the fall, has become a tool for the manipulation of the gold market. In creating such huge short positions in the futures market, and driving the price down, the spot price suffers as a result of the physical short created to hedge against a paper long.
It is an elementary simplification to state that a thing is worth what somebody is willing to pay for it.
The fact that bullion dealers are paying and charging premiums to the spot price for gold is clear evidence that the spot price published each day is no longer an accurate representation of the price of gold, and its continuing publication as such must soon be identified as fraudulent, and corrected.
The likelihood of that happening, however, is contingent upon the admission by various U.S. government entities that they have participated in the suppression of the gold price, and that is simply not likely to happen in this lifetime. Just as front line MPs and soldiers were court-martialed for the excesses of violence perpetrated on detainees from Iraq and Afghanistan, heads will likely roll in theatrical fashion to satisfy a media-moderated demand for blood.
The danger here is that we have several new bubbles building, and the massive inflation of currencies worldwide now underway, while acting temporarily to stave off the inevitable explosive correction, is steadily adding pressure to the chamber in which this monetary ordinance is being compressed. When the price of gold does finally erupt as the massive currency devaluation going on outside of the United States Dollar causes panic selling, the damage will again be amplified exponentially because of disingenuous misinformation distribution.
Interestingly, the campaign to undermine the global perception of gold is achieving a certain success. Even hard core gold bugs are capitulating and abandoning their heretofore staunchly defended arguments that, in essence, said, “when the crash comes gold will take off”, which at this point hasn’t happened. So now even gold bugs, to some degree, are abandoning their posts.
It is at this point in a war of attrition that men are separated from boys, those who fight with the courage of their convictions from those who follow the (albeit) contrarian herd, and battles are historically won against great odds.
In pursuing the development of a feature length documentary film that seeks to expose the pattern of fraud and deceit that has emerged in the fiscal and monetary policy of the last hundred years, many, including some who have traditionally written in support of such a position, have suggested that this is a David and Goliath match-up of biblical proportions that has a feint hope of success.
Obviously, all the goldbugs and GATA supporters and writers and analysts and traders and bloggers combined could not finance any sort of information campaign comparable to the mighty mainstream media division of the G7 perception management machine.
But to capitulate at this point, to accede defeat and abandon the barricades as it were, is either short-sighted or revealing of an absence of deep conviction in the first place.
This is the desired outcome of the global banking cartel’s campaign. In a brilliant emulation of Orwellian logic, the availability of gold has been increased from “as much as you’d care to buy” to “you can’t buy any”! And in the absence of such supply, the price has increased from $1,000 per ounce plus, to under $750.
Tokyo Rose would be hysterical with glee at such a coup of propaganda! Whole legions of otherwise sensible people are accepting the logic as distributed from the ivory towers, and hoarding US Dollars of all things, and abandoning the idea of gold as the historical store and measure of value. This is simply astounding!
People think the United States government is rushing to their defense with all these bailouts and stimulus packages. They refuse to see what is clearly the repetition of a pattern perfected during financial crises of the last century. The cherry-picking of the top assets in banking in tandem with the elimination of the competition for pennies on the dollar should be enshrined in a national festival, its so predictable. We could call it “Fleece the Sheep” week, or something.
Unfortunately, the period of asset re-allocation and concentration lasts more than a week…typically it’s a few years until the booty is divvied up and the system re-saturated with cheap money for another round of global asset piñata-bashing.
You can hold onto your U.S. dollars if you want to, though it is unlikely that those who can see the truth behind what is unfolding in front of our very eyes will change their tune just because it is increasingly fashionable to do so. Gold will emerge as the asset class and currency of the patient and visionary.
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This article has 28 comments:
What are we supposed to be stupid, here?
Oh, and manic selling of *what*?
There are two items traded for each other in every trade, not one. There is no manic selling of anything without manic buying of something else. And none of it clears unless someone has the opposite opinion.
The reason gold isn't soaring is obvious - there is a money panic and deflation due to an infinitely expanded demand for money as a form of safe short term investment - not for spending. All the quantity theories assume demand is a constant, it isn't, it is a variable. Variables vary. Welcome to reality.
Because all the commodity bubbles based on overcrowded bets that everything real would appreciate in terms of currencies, are going smash and will continue to go smash, and because gold is just another such bubble, no different from the one in houses or oil or potash or anything else you please, it is perfectly understandable that the bubble in gold is going smash just like all the rest.
And no, everyone isn't scrambling to get out of everything else on the planet into gold. There is no reason why they should. And no way they could succeed if they tried.
Standing around waiting for the manic stampede into your favorite asset class is irrational. Are there manic stampedes into an out of asset classes? Sure. Do they benefit anyone? No, other than a few charlatans acting on them early and fading what everyone else does. But why on earth would everyone else on earth pick exactly the same item you have?
If I want to be in real items instead of financial claims, what is better in any way about a bar of pretty metal, compared to a nice house in the southwest? Both can and do have manias. One I can live in in the meantime. Or thnt oil? Both can and do have manias. One is in constant industrial demand and gets burned up continually, the other accumulates from every mine on earth indefinitely.
Or than tulip bulbs, kumquats, widgits, gimcracks, old masters, office buildings, classic cars, stamp collections, etc, etc.
"Gold is money". Oh, where does it function as a medium of exchange? What evidence is there that it is the most liquid possible asset to hold, because men everywhere are ready to accept it as immediate payment for anything and non-existence bid-ask spreads or markups? It isn't money. It is merely another collectible that once was. So are seashells and cigarettes and printed ration cards and Czarist bonds.
Forgive me for trying to reason with conspiracy theory nonsense, occasionally the first duty of a rational man is to state the obvious.
Gold is a commodity bet bubble like all the others that just went smash, and with a bit of a delay for the diehards, it goes smash just like all the rest.
Not to worry, doesn't matter. Socialism will be the new mantra. Wealth redistribution. Remember to vote.
Here's to the new JFK, ooops, make that B.O. or will he ever use his full name in the Future: Barak Hussein Obama, BHO.
The great Satan will be gone: George W.
The great Saviour will be elected: Barak H.
You won't have to worry Barak Hussein Obama will make everything right.
Long Gold implies having the right to own gold. Socialism implies you won't have that right very long.
From the few to the many. Sounds great. I will definitely benefit.
401ks, only the wealthy have those, lets eliminate the tax break. I don't care, I'm retired thank goodness.
Hurrah, Hurrah, Hurrah. Vote for Barak Hussein Obama.
Of course gold will rocket. But just like the ban on issuance of Gold and Silver Certificates, won't ownership of it mean that you are better off than others?
Socialism starts off slowly, almost innocuously.
You get what you pay for. Life is hard and then you die.
Back in the day, there used to be an "odd lot indicator" which was do the opposite of the small investor or "odd-lotter" who could not afford 100 shares of stock. They were always supposed to be wrong. Perhaps the buyer of a couple ounces of gold is today's odd lotter and we should be selling rather than buying.
Or, perhaps they are right on the money as they were in 1981, selling the family silver at $20 per ounce and over which has certainly never been seen again in nominal or certainly not in inflation adjusted terms.
Even gold bought via futures contract eventually costs more than the contract price because you have to arrange for insuring and shipping the delivered gold to you from the delivery location specified in the futures contract.
This is nothing new. What is different at this time is that the demand for bullion coins is so much higher than usual that the premium is increasing. This fact is totally unrelated to the futures price as the futures contract doesn't "trade" bullion coins.
If the spread is wide enough, you can profit via arbitrage by purchasing and taking delivery of a futures contract, paying a smelter to cast bullion coins, and selling those coins on the public market at a large markup.
If this arbitrage were very profitable someone would be doing it by now. I'm not aware of anyone engaging in this, so I'm guessing that it's not very profitable and thus the premium for bullion coin is not overly large.
If you made it to the next class, they explained to you that the demand for money is not a constant. If you paid attention even in Econ 101, you noticed that all assets have 2 curves determining their price, not one.
"in the end will result in high, if not hyper, inflation"
Um, where do you think the real estate crisis came from? It consisted in everyone making that bet together until the prices were ridiculous. Being short a nominal mortgage and long a real house was the inflation bet everyone was making. And it crashed.
Right now if you believe in future inflation and don't want to take risks, you can buy a 20 year TIP for a 3% real return. If you believe in future inflation and are willing to take risks, you can buy property REITs yielding I kid you not 33% (some hit 67% yields at last week's lows) and PEs of 3 or 4. Their prices have fallen 95% from the highs and no one will look at them, because they carry real estate (aaaaggghh not real estate! ) with debt (aggggh, not debt), sometimes as significant levels of leverage (aggggh, not leverage).
If your inflation thesis is true, one none of those would have crashed in the first place, and two at current smashed to heck prices all of those would return 10-50 times what bullion can ever promise to return.
It is a deflation. Look it up.
I expect that by the end of 2009 most people will think that they were successful in "unclogging" or "defreezing" the system and away we go. But it will be too late by then to stop the pumping before we get massive inflation. The Son of Bubble Monster will be bigger and badder than the little hiccup that so many just panicked over.
Finally, gold is insurance, not an investment. If you don't have any you will likely be very sorry at some time over the next five years. If it is your only investment then you could also be disappointed in the near future.
The NYMEX is a joke, and anyone who suggests that anybody can buy a futures contract, get delivery, smelt it and re-sell it hasn't done the homework to see what is involved.
The easiest way to end the precious metals price manipulation is to force the US Mint to sell coins at market price directly to the public (not dealers) at market price. Not because gold bugs want them to, BECAUSE IT'S THE FREAKIN' LAW!
www.law.cornell.edu/us...
Go to treasurydirect.gov - they sell all the bubblicious treasury products there, directly to the public. The Mint is part of the treasury, so why can't I buy coins there? Because, Paulson, while crooked as the day is long, is no fool and is unwilling to sell me gold at an artificially low price. The "we can't get coin blanks made" cover story has to be the lamest lie I've ever heard (yet, people like Jason C actually buy it).
The constitution states clearly that only gold and silver are money. So, unless there's an amendment I don't know about, we've let the CEO of Goldman take the real money out of the hands of citizens.
Sell the gold and silver, Hank, no more excuses.
AS far as the recent pullback in Gold it has been very minor relative to all the other commodities. It held it's value more than any other as far as I've seen . . . take a look. Everything has suffered though as a world of margin calls has had millions of investors raising cash to pay off their Margin/debt and of course you need dollars to do that in most transactions around the world . . . especially in Oil, Precious Metals, US treasuries etc Thus the dollar has risen but that flood is ending as is the rise in the dollar!
www.fdrs.org/executive...
My house maintains its value regardless of what money authorities do, as well. It is more useful than a bar of pretty metal. It remains just as useful to me whether someone quotes a price four times as high for it or four times as low.
And no, the Fed wasn't inflating all along, that was pure slander and reckless betting by precisely you-lot of inflationary brainstormers. Then the Fed *tightened*. Did everyone forget? Raised rates to around 6%? The yield curve inverted? Anyone remotely remember the actual sequence of events?
M1 was utterly flat from the spring of 2005 to the spring of 2008. Here's the thing, you can't spend a CD. Banks don't have to have any reserves against one, so they can make loans against them all day --- but they do need to reserve against currency or checking accounts. Which the Fed wouldn't let move an inch, for 3 straight years.
That is *why* all the bubble prices didn't stick. The Fed didn't allow *spendable* forms of money to grow, and as a result, nominal spending didn't double or quadruple like all the insane bets you-lot were making, did. Without 2-4 times the spendable money chasing all your gossamer bubbles, the high prices just destroyed demand. And went smash. And continue to go smash, because all the debts issues against them now (1) own the assets and (2) are worth only 50 cents apiece on the dollar, themselves.
Everything the Fed has done since has merely kept the entire price level from falling the same 50-95% that all the bubbles are falling. It will still fall, just not much or for very long. If they left the money supply unchanged right now, prices starting with wages would fall half or more, just like the great depression. But they aren't going to. They will simply let people who want to hold money balances instead of everything else you can think of, do so.
In an actual inflation, people don't want to hold money balances, they are trying to get out of money. In a deflation, everyone is trying to get out of everything else and into money. We are in the second - transparently, beyond dispute, beyond spin.
The world bet on a hyperinflation but someone forgot to tell the Fed and it did not allow it. As a result, dollars remain entirely valuable, and all your ridiculous slander-driven schemes are dead as doornails.
Vote for BO or Hurrah for Hussein, he will socialize everything, Univeral Health Care, everyone gets a chicken in every pot.
The next chicken might be yours.
Clearly he knows far more than the author or the other commentors and should be writing articles, not commenting on them...
You mean the State's property that you lease through taxes.
There is so much manipulation in this market that no one can predict the future with certainty. Only time will tell. Hedge your trades.
I wonder if in 2 years you will admit how wrong you were with the same pomposity as you laid out your current theory.
$60 Trillion in unfunded obligations, annual $1-2 Trillion fiscal deficits, and and rolling waves of multi-billion "bailouts" in our future (of states, of banks, of homeowners with mortgages, etc) tell anyone who can do basic math that massive inflation will result.
Where'd you take economics 101? University of Zimbabwe?
Underlying all our comments (here and elsewhere) are philosophies. Jason and his pals believe in central banking and government control of the economy, and the goldbugs don't. We can all try to make our points by stating our beliefs. Time will tell.
For my part I can't really imagine any man or group of men that are clever enough to manage an economy, either by managing its money supply or using any other means. Centrally planned economies don't work. History is not kind to those who believe that such management is possible in the long term. Add to that the fact that there are tons of data available that show the historic nature of the crisis we're experiencing. Many examples are available on various Fed web sites (money supply, nonborrowed reserves, etc.) that show just how unprecedented our situation is. It is not a far leap for goldbugs to say that this is the inevitable fiat crisis.
This does have all the hallmarks of a currency crisis / reserve currency shift, and the national power shift that goes along with such an event. What in effect we're really arguing about is: "Is this the big one?"
I'm not certain, but it sure looks like it. And if it is, then all the things the Fed is doing right now to combat it will in fact make the final collapse much much worse, by destroying the value of existing investable capital through debasement of currency. This is why goldbugs want to call a halt to the heroic measures being used to keep the patient alive; your heroic measures are killing all of us.
I do like reading JasonC. He certainly does have a strangle hold on his paradigm. Very clever reasoning and logic.
Smarty_Pants is usually the most entertaining - Dig the limericks on the other posts.
JasonC may be correct about the spendable money figures from the fed but I am wondering about how they lost control of "Money Creation" with the derivatives market. The figures I am seeing on most of the reporting dwarf the so called spendable money. I tend to think that this ogre is the blow out that they could not compensate for because they had no control over it.
Empires always end the same. Sure looks similar to the ends of all the others now. Just seems to be larger in scale.
You never know what the Human Contingent will do. Still have that wild card to hope in.
One thing is for certain - 2009-2010 is going to be a Wild Ride.
Prepare for the worst; Pray for the best.
Come on Ben and Hank.LLC, there's too many of us who know what's going on, you'll really screw things up if you keep playing these games with such a weak hand. Get those coins minted and make them available.
Does this mean the Gold Bugs are an unconvinced lot and do not want to call the bluff of the bears. I don't beleive US bullion banks can get the cooperation of big players (govt.) of China or Russia to play ball. For every short there has to be a long and the longs are just not strong enough to stem the shorts.
There doesn't have to be a morning fax list for there to be a "conspiracy of interests". The really big money players are all fully invested in the current financial / currency regime and stand to lose the most from its demise; therefore, they can be counted on to support it, and certainly to not bet against it. Witness JasonC et al.
The "sound money" contingent has a difficult time fighting the bottomless pockets of government-backed players like JPM and GS. Where do you think some of that bailout money went? One possible answer: bailing out, and adding to, losing PM short positions on the "exchanges". Do you think underwater gold shorts qualify as "troubled assets"?
We could be at the beginning of a months-long period of accelerated "delivery request" on the metals exchanges. PM bugs fantasize about the end results.
How does a gold short who sold at $1000 wind up under anything, water or otherwise, when it is down at $750?