New Central Bank Sales Agreement Is Very Bullish for Gold

 |  Includes: GLD, SLV
by: Jeff Nielson

Europe's central banks jointly announced a new sales agreement to govern the gold they annually dump onto the market. They announced a 20% lower quota – down to 400 tons per year – despite the price of gold sitting only a couple of rallies away from a new, nominal record.

The fact that these central banks are significantly reducing their gold sales despite the high price of gold can only be interpreted two ways. First, it could simply signify that these central banks have much less gold to sell, and thus will be steadily reducing their sales no matter how high the price of gold goes.

The alternative interpretation would be that despite the near-record price, Europe's central banks expect the price of gold to go much higher – and thus don't want to give away their gold (as was done by U.K. Prime Minister Gordon Brown).

In fact, both interpretations are correct. Even if we take the reported gold reserves of these central banks seriously (despite very good reasons to doubt those claims) Europe's central banks hold little more than 10,000 tons of gold, with about 40% of that amount held by Germany, alone. At the previous ceiling of 500 tons per year (or 5% of Europe's total gold holdings) Europe's central banks would have squandered all their gold reserves in 20 years.

However, with Germany adamant that it won't sell any of its gold, in reality the previous agreement would have exhausted all of Europe's available gold – forever – in only about ten years. Even reducing this quota to 400 tons per year only extends the 'life' of this game for a couple more years.

This was one of the reasons why the United States was so obsessed with getting the IMF to dump some of its gold. Ultimately, the suppression of the gold market is aimed at keeping the world's “reserve currency” stable (i.e. the U.S. dollar), and with it, all the other forms of worthless paper currency floating around in the world. In fact, the 400 tons of IMF gold that was finally approved for sale is being included within the sales quota of Europe's central banks (despite the fact this gold is owned by ALL of the world's nations).

When the central banks of Europe originally created this sales agreement (with gold trading at about 1/3 its current value), it was intended as a sales ceiling. In other words, supposedly without such an agreement, these central banks would have dumped even more gold onto the market. However, the reality of this deal is that it was always a sales quota – a target which the U.S. pressured Europe to try to meet, to help fight the losing battle of suppressing the price of gold.

For those new to the gold market, pushing down the price of gold has been an important element in Western economic policy for decades. Gold has always been the ultimate “barometer” of the global economy, because in a free market, changes in inflation would be almost instantly reflected in the gold price. Of course we don't have free markets – as evidenced by the Plunge Protection Team, whose full-time job is to manipulate U.S. markets on a daily basis.

The reason that gold-suppression is so important is because lying about inflation is so important. Trillions of dollars per year in government transfer payments (i.e. social programs) are supposedly indexed to inflation, to continue to provide a level of benefits in real dollars. In reality, by lying about inflation governments can reduce the real value of those benefits, while the general population remains oblivious to how they are being cheated by their own governments.

Gold (and silver) manipulation can be empirically demonstrated by simply looking at the huge (and grossly manipulative) “short” positions (in the U.S.'s Comex futures market) which are many times larger than the long or short positions of any other commodities, in the history of the global economy. Naturally, the blind/deaf/dumb U.S. regulator (the Commodities Futures Trading Commission) is incapable of seeing any signs of manipulation.

However, we don't need any confirmation by the CFTC to demonstrate gold manipulation since it has been openly admitted by the world's most prominent bankers. Officials at the Bank for International Settlements (the world's “bank” for central banks) have openly acknowledged that “stabilizing” the price of gold is an official policy of this institution. Since “stabilizing” the price of gold never means pushing the price of gold up, you don't have to be an expert in linguistics to understand what is really being said.

Sir Alan Greenspan was much less ambivalent. When asked how he would respond to a global monetary crisis, his famous reply was, “We stand ready to lease gold in ever-increasing amounts”. “Leasing” gold is a central bank synonym for dumping gold onto the market, since these bankers do not directly trade gold, but instead have private bankers do this for them.

The only possible way that “leasing gold” can be considered a response to a global monetary crisis is if the primary function of these central bankers is merely to create an illusion of stability in the global monetary system.

As I and many other gold-commentators have pointed out, the entire world is now operating with a “fiat currency” system (i.e. currencies backed by nothing) for the first time in human history. Every time that individual countries have experimented in fiat currencies, the results have been identical. Greedy bankers create too much money, and much too much debt, and these economic “houses of cards” financially implode in spectacular fashion.

Thus, the bankers themselves know that the current monetary system is doomed, and their primary function is to create an illusion of stability for as long as possible – before the inevitable implosion of this system. Proof of the pending collapse of this system is that aggregate debt levels have risen exponentially (exactly what happened with all other currency failures), to the point where some of the world's biggest dead-beats - notably the United States - are being forced to print money simply to pay the interest on trillions of dollars of debt. This is happening because the U.S. is no longer able to borrow enough from other counties to pay this interest.

If we were to think of the U.S. as an individual, it is totally obvious what happens to a person who is so heavily indebted that they never pay off a penny of debt, and keep borrowing more and more money just to pay their interest: they go bankrupt.

Thus, the losing battle to suppress the price of gold is precisely parallel to the losing efforts of this same group of corrupt bankers to keep their towering, teetering mountains of debt stable. These “mountains” will collapse into rubble, and their currencies will become worthless, as has been happening with fiat currencies for 2,000 years, and (as always) the solution to this collapse will be to re-institute a system of currencies backed by gold and silver.

The fact that central banks are running out of gold to use as “ammunition” to continue playing their game provides a finite maximum length of time this system could survive (roughly a decade). In reality, the game will be over long before those gold reserves reach zero.

Regardless of U.S. pressure, one by one, Europe's central banks will simply refuse to dump any more of their own gold (following Germany's example). Indeed, Switzerland (who is one of Europe's largest gold-holders behind Germany) announced today it has no plans to sell any more of its own gold.

Just as the manipulators could no longer meet the 500 tons per year quota of the old agreement (total sales this year will likely be below 400 tons), long before this new, five-year sales quota expires total gold sales will fall well below the target quota.

With demand for gold continuing to rise, and an important supply-source being reduced it becomes harder each day for the anti-gold cabal to hold the price of gold below its current equilibrium value (somewhere between $2000 and $5000 per ounce). Thus the failure of gold-manipulation – and the resultant explosion in the price of gold will be an important signal that collapse of the global monetary system is imminent.

It goes without saying that the time to buy gold and silver is now, while 99% of the world remains oblivious to the inevitable collapse of the current monetary system. Buying a “store of value” with a 5,000 year track-record behind it, using soon-to-be-worthless paper is a bargain at any price.