Philman

Gold - Not the Safe Haven People Think it Is

You should not write further on this topic until you have done enough research to become an expert on precious metals. That will require hundreds of hours of work that you have not yet done.

In short, your most fundamental historical facts are incorrect. The U.S. government was absolutely NOT propping up gold during the panics of 1807, 1819, 1826, 1837, 1842, 1861, 1865. Gold was an entirely free agent that occasionally filled a commemorative coin, but that was about it. The United States of America was, at the time, a relatively minor economic force in the world, dwarfed by the power of England, France, Germany etc. It still followed the silver standard, NOT the gold standard.

In the 18th century, China, like today, was draining the world of its money, which, at that time, was mainly backed by silver. China, like other nations, was on the silver standard. The U.K. was also on the silver standard. A currency that was literally named for what it was the "pound sterling" (one imperial pound of sterling silver) reigned supreme in the world of currencies. But, silver from Europe and America was being fast drained away by the voracious appetite of the Chinese for the white metal.

In 1818, the silver standard was abandoned by Holland and replaced with the gold standard. This was followed, shortly thereafter by most continental European nations. In 1844, the silver standard was finally abandoned by its creator, Great Britain, in favor of gold. In 1873, the United States of America abandoned silver and adopted the gold standard.

In short, you are wrong. Gold did not perform well, historically, simply because the U.S. government was "propping" it up. Gold and the human psych has such a long and intimate association with one another, that it is unlikely that any action by the government against the price will suffice for long in suppressing it.

If you look further back in history, gold served as a safe haven during the time of Abraham when grain sought in Egypt, in the midst of a widespread crop failure in the Middle East was paid for with gold, during the buildup of the Athenian Empire after the Persian Invasion, during the later Peloponnese wars between Athens and Sparta, during the course of the Roman Republic, and, especially, at the fall of the Roman Empire, particularly in Palestine during the times of the Hebrew revolts against Rome, and at all times in history before and after all of these events.

The fact that people turned to gold during the fall of the Roman Empire is still evident in Britain, when people sometimes dig in their backyards and find a pot of Roman gold buried, long ago, by frightened Romans, and, later, forgotten about.

The Disconnect Between Supply and Demand in Gold & Silver Markets

I have no doubt that the manipulators will manage to resupply the Mint, for the sake of appearance, given the controversy it caused. But, unless they tap Fort Knox, they won't be able to keep it up. I just read that the Bundesbank has now refused to sell any more gold, releasing a statement, today, saying that their gold is essential to public confidence in the euro! The tide is turning!

The Disconnect Between Supply and Demand in Gold & Silver Markets

You can nitpick, and claim that the London Metals Exchanges are really known by two separate names not stated in the article, or say that Kitco's gold/silver loan rate numbers might be wrong, or claim that the U.S. Mint should be smarter, or that the Mint should have authority to buy futures contracts, or a million other nitpicky things that have nothing to do with the basic argument. The bottom line is that demand exceeded supply, at the higher price levels of a few weeks ago. How, then could the price of gold & silver crash? It is impossible -- without manipulation. That, I think, is the basic proposition. The rest is all fluff.

The Disconnect Between Supply and Demand in Gold & Silver Markets

"The U.S. Mint are not composed of dummies who cannot see ahead that they are running short of gold bullion for the coins..." Duhhhh...isn't that exactly what they did?

But, seriously, whether the result of a gold shortage, or some other reason, the numbers speak for themselves. We're talking 63,000 ounces of gold, just for use in ONE TYPE OF GOLD COIN, in the first 2 weeks of August! Because people also buy a lot of bar bullion, gold maple leafs, kruggerands, etc. Gold eagle coin sales running at a rate of 37 tons per year...incredible! If that doesn't tell rational people that demand is very strong, what does? So, why did the price collapse in those same two weeks? That's the question that this article may answer.

The Disconnect Between Supply and Demand in Gold & Silver Markets

I just learned that the numbers of gold eagle coins cited in this article are way outdated. According to the Wall Street Journal, in the first two weeks of August, before the suspension, 63,000 ounces worth of gold eagles were sold! That is far higher than stated above.

Extrapolated out, that is a total of 37 tons of gold in a 12 month period. Maybe, I am wrong about this, but I remember reading, somewhere, that gold eagle bullion coins represent 8% of total U.S. investment demand for gold. If that's true, and you run the numbers, and assuming that other gold demand has risen along with demand for the eagle, it means that investor demand in the USA, in fiscal year 2008/2009, August to August, is going to be an incredible 462.5 tons!!! Combine it with jewelry demand of about 295 tons, and 50 dental tons, plus another 50 tons of misc., including computers, electronics, etc., it adds up to an incredible U.S. demand of 857.5 tons of physical gold! That's bigger than Indian demand of about 750 tons in 2007!

Let's use some logic here. Assuming recession hits Europe, as they say it will, European demand should grow by several times this U.S. demand, maybe 1,500 tons. The European psyche is imbued with basic fears, arising out of multiple wars, and they are more gold oriented than Americans.

Where will all that gold come from? Even if the U.S. sold its entire gold hoard, a few years worth of this level of gold demand would empty the IMF and the vault at Fort Knox. They only thing that could stem the demand is allowing the price to rise to its natural level, or, at least, a much higher level than it is at now.

If anyone has more accurate numbers on this -- please comment. But, based upon this calculation, gold prices should soar into the stratosphere this fiscal year.

Assuming the theory of manipulation is true, it will be close to impossible for the manipulators to supply this kind of demand. Keep in mind that all this gold eagle demand was happening when the prices were much higher! And, from what I understand, the U.S. Mint never lowered the price! They were selling these coins far above spot!

Since they started rationing silver eagles two months ago, the demand situation with silver must be even tighter.

The Disconnect Between Supply and Demand in Gold & Silver Markets

Oh, yes, one more reason I buy gold...the U.S. dollar. What else am I going to do to preserve the value of my money? Every nation in the world is printing money now like it was going out of style, including the EU, with its temporarily "mighty" euro. They just haven't reduced interest rates as much as the US has. But, all the paper money is going to buy less and less, because there is simply too much of it. The powers that be, at the world's central banks, are not going to allow deflation, so they will reflate by printing. The more something is printed, the less valuable it becomes. You might say...go invest in the stock market, but stocks go down in an hyperinflationary or stagflationary environment. So, what am I going to do? I am going to invest in gold. What else can I do? Earn 5% on a CD in a bank where I'll be locked for 5 years, as the inflation rate goes to 10-15-30%? No thanks. I'll stick with gold, and suffer through the emotional stress that these motherfu---rs give me when they manipulate the price downward, knowing that, eventually, even if it takes a year or two, the price will be up again, and the dollar will be down...along with the euro, yuan, yen, loonie, etc. etc. etc.

The Disconnect Between Supply and Demand in Gold & Silver Markets

Oh, yes, your questions to "gold bugs." 1) I hold gold though I know various players are always trying to manipulate the market because they cannot succeed in long term manipulation, over a period of years. Only sharp sudden takedowns, like now, can be accomplished through manipulation. 2) You are apparently not aware of the fact that the supply of gold is shrinking, not expanding, regardless of the price, because there just isn't much left to get out of the ground, with current technology; 3) there is no prospect that a lot of unemployed Indians will stop buying gold, because Indian growth is going to be down this year a lot -- but that just means the Indian economy will grow by 7.4%, not by 9.5% like last year! Your other questions do not merit any response.

The Disconnect Between Supply and Demand in Gold & Silver Markets

Chris B., you raise an excellent point. The same thing CAN be done with all the commodities markets. How else can we explain the fact that oil was rising out of control, regardless of the fundamentals, when there was no shortage? In spite of all the talk of America lowering its oil use, the world consumption is still going to rise by the same 0.9% that was previously predicted. So, why are oil prices now falling off a cliff? And, explain how oil suddenly falls even though the Russians have cut off 1.4% of the world's oil by forcing BP to close the Georgia pipelines. We now, for the first time, have a very real shortage of oil, in the world, and the price is still falling! The only way to this strange market behavior is manipulation.

This article gives a blueprint on how it is done with gold, but the same principles apply to any commodities market. The ideas here are powerful stuff!

I don't see why you would need thousands of bank employees. Probably, 99.99% of all employees, of any banks doing the manipulation, wouldn't have a clue as to what was going on. The vast majority of folks who work in the banks are honest folks. Only the upper level mucky mucks, and less than a handfull of unscrupulous traders need to know.

It would only take only one or two traders, at a financial institution, who have access to a computer terminal. They'd do most of their work every three months or so, to unload losing short positions. If I had a couple million dollars, I could do it myself. It isn't rocket science. Just trading on false pretenses, and having the backdrop of an old venerable bank to cover you.

There are structural defects in the current futures trading system that need to be cured. The matter needs to be investigated. Gold is probably the easiest to investigate. CFTC just needs to start auditing the vaults to make sure that 90% of the derivatives that are issued are actually covered. Then, if they find that they are not, they'll need to prosecute, but, also, immediately look into all the other commodities.

The Disconnect Between Supply and Demand in Gold & Silver Markets

Seems to me that GLD isn't a problem. They are supposed to be audited, and bars numbered. The nature of the COMEX futures market is what the author says is allowing the manipulations. Neither ETF is a part of the futures market.

The Disconnect Between Supply and Demand in Gold & Silver Markets

Here is how I interpret the COMEX data. Unlike the stock market, "shorts" are not short "sellers" of borrowed stock. Commodity "shorts" are usually entities who have issued, and taken the opposite side of a contract. We can assume they are big banks, although we don't know who.

The overall number of contracts fell, dramatically. They didn't simply change hands at a lower price. This implies that entities who issued the long positions are actively buying them back. That is interesting, and strongly supports the possibility that the manipulation hypothesis proposed, in this article, is right on the money.

The Disconnect Between Supply and Demand in Gold & Silver Markets

Just found something interesting on Reuters, which, though interpreted differently by the "official" commentator, tends to support the arguments presented in the article:

"The CHART OF THE DAY shows open interest, or the total number of contracts yet to be closed, liquidated or delivered. This reached 365,611 on Aug. 12, down 26 percent from a four- month high on July 18 and the lowest since Sept. 10. Open interest on the Comex division of the New York Mercantile Exchange reached 593,953 on Jan. 15 -- the highest since at least 1994 -- before gold rallied another 15 percent to a record on March 17."

From: www.bloomberg.com/apps...

The Disconnect Between Supply and Demand in Gold & Silver Markets

I think the article is an excellent "how-to" guide that proves that manipulation of gold and silver prices is not only possible, and probable. But, whether the recent crash of paper-based precious metal is based upon fraud upon the market, or simply stupidity on the part of overleveraged paper pushers, may not really matter, in the long run. One thing we do know. The real physical market is severely short on both metals.

The article ought to prompt some intelligent U.S. attorney's office to start investigating. Certainly, they ought to do audits of vaulted gold/silver that allgedly is backing the paper promises that, in turn, back the derivatives that have been issued. If the metal isn't in the vaults, then a lot of folks need to go to jail.

However, for smart investors, the real bottom line is that now is an excellent time to buy. It is especially excellent if you can achieve a purchase at the so-called "official" prices. But, even if you must pay a small premium, to secure your metals, it is probably worth doing.

The Disconnect Between Supply and Demand in Gold & Silver Markets

And, now, of course, it has moved beyond silver bullion coins. They have now suspended gold bullion coin production. Methinks, something big is afoot!

The Disconnect Between Supply and Demand in Gold & Silver Markets

Actually, the U.S. Mint has not just "run out of blanks" as Bron suggests.

Bron says that Perth Mint is not having trouble getting adequate supply. But, remember, the U.S. Mint is several orders of magnitude bigger than the Perth Mint. Its coin production many times larger than any other mint in the world. It needs a level of supply that the Perth Mint couldn't even dream of. And, it doesn't have any "unallocated storage" schemes with which it might have metal, it now is using, stored up from long ago, when availability of physical metal was higher.

The U.S. Mint's daily needs, in light of the doubling and quadrupling of its bullion coin production is, apparently, too much silver and gold for the real market to supply. If there is market manipulation going on, I am sure that the manipulators would have wanted to supply the U.S. Mint. Certainly, the public relations fiasco, and the possibility that this type of overt proof of supply/demand manipulation, might cause some state to intensely investigate, and seek jail time for some of them, should have been enough to make sure the Mint was supplied. But, apparently, there isn't enough available gold and silver, in the world, right now, to supply both the U.S. Mint and the Indian weddings demand that is about to happen. This implies a very severe shortage of gold and silver, probably also inside national gold hoards, whose physical supplies of gold, some say, has been largely replaced by IOUs. Could the real level of gold swaps and IOUs been seriously underestimated by guys like James Turk and the boys at GATA?

Anyway, the U.S. Mint wrote back to the Silver Institute, when questioned about their rationing of silver coins, admitting that they cannot source enough silver. They claimed that the reason is that they are forced, by law, to source silver from American mines, only. Numerous commentators have researched the law, and found that the American sourcing rule applies only to gold, not silver. It is an ancient piece of pork for U.S. gold producers, from back when gold prices were in the doghouse. So, the Mint was not telling the complete truth, for its own reasons.

The June letter, from the Mint, stated:

"...By law, the United States Mint's American Eagle silver bullion coins must meet exacting specifications and must be composed of newly mined silver acquired from domestic sources. The United States Mint will continue to make every effort to increase its acquisition of silver bullion blanks that meet these specifications and requirements to address continuing high demand in the silver bullion coin market..."