Will We See a Big Upward Move in Gold? 19 comments
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Did you know that the Federal Reserve Bank owns gold certificates? Mounting evidence suggests the Fed intervenes in and participates in the gold and silver markets on a regular basis.
Interviewed Monday last week on the "Trading Day" program of Business News Network in Canada, former Federal Reserve Governor Lyle Gramley hinted that a big upward revaluation of gold may figure heavily in the Fed's attempt to rescue the U.S. economy.
The program's guest host, Niall Ferguson, an author and history professor at Harvard, asked Gramley, now senior adviser at Stanford Group in Houston, about the seemingly grotesque expansion of the Fed's balance sheet in recent months.
Ferguson asked: "I've heard it said that the Fed has turned into a government-owned hedge fund, leveraged at 50 to 1. Do you feel nervous about what this might actually do to the Fed's reputation?"
Gramley replied: "I think you have to reckon with the fact that one of the Fed's assets is gold certificates, which are priced, as I remember, at $42 an ounce, and if we were to price them at market prices, the Fed's leverage would look a lot less than it is now."
While valuing the U.S. government's claimed gold reserves at today's Comex closing price of around $822 per ounce instead of the government antique bookkeeping entry of $42.22 per ounce would indeed vastly expand the government's monetary assets, it might not be enough to offset the liabilities and guarantees the government lately has taken on.
But the job might be done by revaluing the gold to $5,000 or $10,000 per ounce, as the British economist Peter Millar speculated two years ago might be necessary to prevent debt deflation: yet this is admittedly speculation.
What did Gramley mean by "...the Fed's leverage"? That would suggest that the Fed not only owns "gold certificates" but also future contracts and options on futures. They might be big benefactors in a gold squeeze.
Speaking of a gold squeeze, I read another report from the Gold Anti-Trust Action committee (GATA) saying that the Comex is warning brokers of a December gold squeeze.
Yes, the Comex is alerting various futures firms about the potential of a squeeze on the December contract and is advising the $840 December shorts to exit their positions. That is the remaining open position.
There have been 12,636 notices of delivery. The shorts have until December 31 to make delivery. Normally they deliver early to take in cash and earn the interest. They must be delaying.
As I understand the situation, that represents about 40 percent of the gold available at the Comex, and of course someone could enter the scene late, buy February gold, and then spread into December, which would stun the shorts.
My broker friend said his back office said this sort of alert is highly unusual and that the concern is real, not only for gold, but for other commodities too, like copper and palladium, as there is a good deal of talk of taking deliveries there too. But gold is the one for which the advice to cover went out.
This is an extremely productive development and could spur the price of gold up quickly as word spreads. As we all know, buying Comex gold and silver (the cheapest way to buy precious metals) makes all the sense in the world in this financial environment.
This might just be reason enough to begin "stocking up" on some of the ETFs that would be beneficiaries like GLD, SLV and The PowerShares DB Commodity Index Tracking Fund (DBC). The 1-year chart below is instructive.Some interesting names in the copper business to keep an eye on and begin accumulating on any meaningful pullbacks are Freeport McMoran (FCX), Southern Copper Corp (PCU) which as of this writing still pays a dividend, unlike FCX, and Sterlite Industries (SLT) which is India's biggest copper producer and is poised to benefit from any resurgence of copper demand in Asia.
It might be one of those "ready, get set, not yet" approaches to what an investor should do. The economic news and the relapsing into the next and possible worse phase of this credit crisis, great-recession, and deflationary mess might delay the upside potential on commodities.
But if you're a trader (a.k.a. "gambler") there might be a short-term pop in at least gold over the next couple of weeks...maybe spilling into January 2009 where quick profits could be made....as well as some quick and disappointing losses.
Are you an investor, a short-term gambler, or both? No matter what the answer, if you know yourself well then you know how you might respond to all this news and the rumor mill. Best of luck!
When FCX dipped back down near $16 after the suspension of their dividend I decided to pick up a few shares for a quick trade. I'm fortunate that it worked out.
I firmly believe that there will be a trading range for all the better commodity stocks and ETFs that will give us several chances to buy low and sell high over the months directly ahead. Your comments on that will be appreciated. Happy holidays to you all.
Disclosure: Long GLD, SLV, FCX, SLT.
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This article has 19 comments:
Bubble "order" - Equity - Realestate - Commodity - Precious Metals
Give consumers credit and convince them something they hold is rapidly increasing in price and they will start to spend. A jumpstart so to say.
Inflation - USD falling - Deflation debates will become irrelevant once the FED decides that cheapest reflation is through gold.
But one of conspiracy lines goes like this : there is no physical gold left at the FED, China holds it somewhere as collateral against US Treasuries... :)
There should be a clear distinction between what should be done and what will be done. ECB and EU almost never do what they are supposed to do due to their organisational inneficencies. USA should lead the way.
And this time they will do it. Nothing worse for politicians then a bunch of workers staying at home (after a few days of family life a night out with union guys, after a few beers you can spark a riot easily...) Look at the Greece example.
Something should be done fast to alter perceptions and the most effective way ( - cheapest) is to push gold sharply higher.
Disclaimer: will buy brake of 835 on a daily closing basis for XAUUSD.
like your statement: Bubble "order" - Equity - Realestate - Commodity - Precious Metals
this came to my mind yesterday although i thought that a precious metals bubble will come first, then commodities. as always, the time to get out of each is when housewife's start to have meetings to discuss their various 'strategies' and 20/20 runs a show on how college dropouts are getting rich with something
:-)
"A public-opinion poll is no substitute for thought."
- Warren Buffett
Please look back in history and show me a good fiat currency. Why was gold at one time $42?
I don't consider gold an investment, but a store of wealth. Is it the best store of wealth? I don't know, but it works a lot better than stuffing fiat dollars under the mattress or in a bank account.
"I firmly believe that there will be a trading range for all the better commodity stocks and ETFs that will give us several chances to buy low and sell high over the months directly ahead. Your comments on that will be appreciated. Happy holidays to you all."
I don't see the price of gold crashing anytime soon if that's what your asking, so if you are a trader looking to get in and out, perhaps after December 31 I would expect the dollar to get weaker. I'm not 100% sure but I was under the impression that many companies that are based in the US but have international operations like to repatriate some of their foreign dollars into USD's for end of year accounting purposes? I could be way off and maybe they just use the exchange rate on last day of their corporate year end. Either way, I'm expecting some bad layoffs in January with most of that data about January to be coming out sometime in February. So Between Jan 1 and March 1, I think gold should get stronger? I'm only guessing and I'm not good at such short time frames. That's why I don't do short-term trading.
On Dec 14 08:22 PM FUNDRUNNER wrote:
> SLT will break out tomorrow with a gap up to the $6.50 range i suggest
> buying on any pullback that may occur!!
i hope the author could interpret the "fed's leverage" correctly. i think the fed's leverage is the same debt-to-equity ratio on the balance sheet of any corporation, not the futures/options play the fed might have.
although i'm also bullish on gold, i do wish all the gold bugs don't mis-interpret other people's remarks.
"As shown, analysts currently aren't expecting a big rally or a big decline in gold over the next few years. By mid-year 2009, analysts are expecting gold to be at $825/ounce, which is less than $10 from its current price of $816. At the end of 2011, analysts expect gold to be down to $790, and then down to $762 by the end of 2012."
Excert from a post by Bespoke Investment Group
www.keystonefinancialg...
On Dec 14 06:03 PM Robert Nabloid wrote:
> I take a longer term view and prefer not to use leverage (though
> I have done so a few times).
>
> Please look back in history and show me a good fiat currency. Why
> was gold at one time $42?
>
> I don't consider gold an investment, but a store of wealth. Is it
> the best store of wealth? I don't know, but it works a lot better
> than stuffing fiat dollars under the mattress or in a bank account.
>
>
> "I firmly believe that there will be a trading range for all the
> better commodity stocks and ETFs that will give us several chances
> to buy low and sell high over the months directly ahead. Your comments
> on that will be appreciated. Happy holidays to you all."
>
> I don't see the price of gold crashing anytime soon if that's what
> your asking, so if you are a trader looking to get in and out, perhaps
> after December 31 I would expect the dollar to get weaker. I'm not
> 100% sure but I was under the impression that many companies that
> are based in the US but have international operations like to repatriate
> some of their foreign dollars into USD's for end of year accounting
> purposes? I could be way off and maybe they just use the exchange
> rate on last day of their corporate year end. Either way, I'm expecting
> some bad layoffs in January with most of that data about January
> to be coming out sometime in February. So Between Jan 1 and March
> 1, I think gold should get stronger? I'm only guessing and I'm not
> good at such short time frames. That's why I don't do short-term
> trading.
On Dec 15 06:17 AM Simmons wrote:
> "I own some gold and if gold goes down I'll buy some more and if
> gold goes up I'll buy some more," ... "Gold during the course of
> the bull market, which has several more years to go, will go much
> higher" Jim Rogers
>
> Jim is very bullish on gold, he is prediction huge inflation down
> the road.
>
> jimrogers-investments..../
>
On Dec 14 11:12 PM JudeJin wrote:
> "What did Gramley mean by "...the Fed's leverage"? That would suggest
> that the Fed not only owns "gold certificates" but also future contracts
> and options on futures. "
>
> i hope the author could interpret the "fed's leverage" correctly.
> i think the fed's leverage is the same debt-to-equity ratio on the
> balance sheet of any corporation, not the futures/options play the
> fed might have.
>
> although i'm also bullish on gold, i do wish all the gold bugs don't
> mis-interpret other people's remarks.
>
On Dec 14 08:26 PM FUNDRUNNER wrote:
> USU DNN looking ready as well!!
On Dec 15 04:08 PM bricki wrote:
> Here is a nice article on Jim Roger's site advising investors buy
> and hold.
>
> www.keystonefinancialg...
>
>
On Dec 15 02:14 PM Jake2 wrote:
> "Last Thursday we highlighted consensus analyst estimates for the
> price of crude oil. Below we provide the consensus price target for
> gold through 2012. These target prices are based on the median of
> 21 gold analysts surveyed by Bloomberg.
>
> "As shown, analysts currently aren't expecting a big rally or a big
> decline in gold over the next few years. By mid-year 2009, analysts
> are expecting gold to be at $825/ounce, which is less than $10 from
> its current price of $816. At the end of 2011, analysts expect gold
> to be down to $790, and then down to $762 by the end of 2012."
>
> Excert from a post by Bespoke Investment Group
>
> are expecting gold to be at $825/ounce, which is less than $10 from
> its current price of $816. At the end of 2011, analysts expect gold
> to be down to $790, and then down to $762 by the end of 2012."
WOW! Freakin fortune tellers aren't they. Those silly 'analysts'.
By March, 2009, I expect every last one of them there 'analysts' to be wrong.
Consensus opinions by Analysts are not reached simultaneously. The Best are usually followed by the less able. When most get on the Bandwagon, it will be time to start looking in the opposite direction.
On Dec 14 08:42 AM hedgeman wrote:
> Pushing gold prices up is the cheapest way to postpone the inevitable.
> Without a thorough system reform the growth will not be reignited.
> In the mean time to slow the pace of declines in employment FED should
> create another "bubble" which would increase the "perceived wealth"
> effect. If you force banks to start lending again and revaluate a
> widely held asset (gold!) you jumpstart the system (it solves nothing
> but postpones reform and gives some breathing space...) Consumption
> would rise globally and also other asset classes would stabilise
> - correct higher...
>
> Bubble "order" - Equity - Realestate - Commodity - Precious Metals
>
>
> Give consumers credit and convince them something they hold is rapidly
> increasing in price and they will start to spend. A jumpstart so
> to say.
>
> Inflation - USD falling - Deflation debates will become irrelevant
> once the FED decides that cheapest reflation is through gold. <br/>
>
> But one of conspiracy lines goes like this : there is no physical
> gold left at the FED, China holds it somewhere as collateral against
> US Treasuries... :)
>
> There should be a clear distinction between what should be done and
> what will be done. ECB and EU almost never do what they are supposed
> to do due to their organisational inneficencies. USA should lead
> the way.
>
> And this time they will do it. Nothing worse for politicians then
> a bunch of workers staying at home (after a few days of family life
> a night out with union guys, after a few beers you can spark a riot
> easily...) Look at the Greece example.
>
> Something should be done fast to alter perceptions and the most effective
> way ( - cheapest) is to push gold sharply higher.
>
> Disclaimer: will buy brake of 835 on a daily closing basis for XAUUSD.