Anyway, seeking to educate myself some more on the subject of gold, which I have been widely derided for saying was a bubble (in September 2008, just before the big spike up), I came across this article by a certain Mr. Jim Willie of the Hat-Trick-Letter.
I never thought the gold market was so complicated, I had to read it twice and even then I probably only understood half of it.
Big picture, if I understand correctly, some naughty boys have been selling notes promising to deliver gold (like the real thing), some time in the future, without actually owning any. Well quite a lot of naughty boys actually, according to Mr. Willie, and apparently they have been doing that whilst sitting around “naked”. I’m trying to picture that in my mind.
Although I’m told that’s sort of legal because various central banks (who shall remain nameless) have allegedly been manipulating the gold market for years.
Allegedly they did that to try and prove that they were doing a good job about controlling inflation. That’s a bit like hacking into the school computer and changing your grades, and well central bankers can pick and choose which actual laws they want to follow as Karl Denninger explained so well recently.
Anyway it’s all very exciting stuff. Mr. Willie says at some point:
The true gold price might very soon become unknown, an extremely positive development.
As the collapse approaches, the paper gold price (from futures contracts) will decline while the physical gold price (from bullion purchases) will rise sharply.
Gold faces competing forces to both lift its price and harm its price.
Well I don’t really understand the details, although if I got it right Mr. Willie appears to be saying that the best strategy right now would be to buy some actual physical gold and store it under your bed alongside your Uzi.
I must say that as far as conspiracy theories go, the whole COMEX manipulation story has always sounded quite credible to me. Credible enough for me to stay well away from gold.
One thought that occurred to me is that now an important part of the market is the ETF business, which apparently actually owns the physical stuff that it issues paper for. That was a recent and perhaps significant development in the market.
Logically, if the market is full of naked short sellers, the price should skyrocket once they get found out. Of course if they start to default, that could perhaps send it the other way, like what happened to toxic assets, except apparently the clientele for gold are a different demographic.
For example, at one point Mr. Willie writes:
My comments (on a previous article) were general in the article, offered figuratively. In no way were they intended in literal fashion, like men with uzis and machine guns in a hail of bullets directed at exchange officials, laying waste to the corrupt halls leaving pools of blood.
Disclosure: No Positions