Gold Revisited

Gold has broken to below its multi-year trend after hitting a peak around $1,800 in August of last year. Its a good time to re-evaluate gold investment and ask what, if anything, has changed.

I have noted on several occasions how both the gold and silver markets are manipulated but the Federal Reserve, and likely, by other Western central banks around the world. In those previous posts I pointed out that the Fed seeks to stimulate growth by promoting higher stock prices, low interest rates and relatively weak precious metals prices. As pointed out previously, this is because consumer confidence is linked to higher stock prices which has a "wealth effect", that is, we feel more confident in spending money when our 401k's are going up. Low interest rates make it easier to buy new cars and homes. A gradual (rather than quick) rise in precious metals does not raise the alarm of coming inflation.

Gold now seems to have broken its gradual rise that it has exhibited for about 12 years. Over that time gold gave its investors a huge gift of both low volatility and stock market beating returns. For those of us that held gold, you could not have asked for a better (and pardon the pun) "goldilocks" environment.

This period of easy returns is, at least for now, over. The Fed has realized that the cost of gold and silver rising has lead to alarm bells ringing for those of us who are rightly concerned with profligate spending and zero rate interest, easy money policies (ZIRP).

For those not familiar with commodities and futures markets, its worth taking a moment to explain the difference in commodity markets. After all, certainly you are wondering, "If central banks can manipulate commodity prices, why are food and gas going up? Why not manipulate those prices down too"? Its a fair question that deserves some explanation.

Commodity futures markets are made up both of speculators and end users who need those commodities as inputs for the products they make. Each future contract trades with an expiration date. At expiry, the final holder of the contract can settle in cash or take delivery of the commodity. With oil, wheat & rice, the commodity will likely be consumed by those producers who need the product as an inputs for their product. After all, refineries need the oil to make gasoline and companies such as General Mills, need wheat and rice to make breakfast cereal. Now contrast this with precious metals. Though some companies use gold, silver & palladium for electronic devices, most precious metals are kept in their pure form and held in vaults. These contracts are rarely held for "physical delivery" the way oil or wheat are. Thus, the global supply does not change in any significant amount with any month's futures contract expiration.

Because of this, banks have realized they can create "paper contracts" in large amounts without any great fear of having to stand for delivery. the ratio of "paper gold" to real gold is not known for sure but is estimated to be about 100 to 1. That is, there are contracts worth 100oz for every actual physical ounce of the actual precious metal. The banks only have to keep a small fraction of the physical metal to back the massive amounts of "paper gold" they have sold. If you think about it, its a fractional reserve system exactly like banks regularly do with money. When you deposit $100 with your bank, they must, by law, hold 10% in reserve. That means they can loan $1,000 for every $100 deposit they hold. Gold however is not regulated this way. Banks can write as many derivative contracts (their value is derived by the value of the metal) as they feel is prudent. This is exactly what they did with mortgages but instead of being leveraged 30:1 they are leveraged 100:1!!!!!

Bank Runs
In the 1930's many banks closed when there was a "run on the banks". That is, depositors demanded their money back but the banks had loaned all the money out and did not have the cash on hand to give back to their depositors. In a similar way, a gold run could happen as people and institutions realize that there is not enough gold to back all those derivative contracts they sold. This is why I advocate that investors hold physical gold rather than through an ETF which may or may not be backed by the real thing. Just imagine a game of musical chairs with 100 people. when the music stops, there is only one chair, one winner.

If the concept of holding physical gold became public wisdom the way internet stock investing was in the 1990's or buying real estate was in the 2000's then you would see the price of gold skyrocket as the banks had to deleverage their 100:1 positions.

To prevent this, the Fed is doing what it failed to do in the 1990's with stocks or with real estate in the 2000's, its smashing the price to prevent too much "irrational exuberance". This is what we saw one year ago when silver had accelerated from $11 per ounce to nearly $50 per ounce. Lately we've seen it happen again and again where huge volumes of contracts were dumped into the market in a way no sane seller would do, in order to take the price down. There is no rational reason any trader would dump such a huge volume of contracts unless the only objective was to take the price down.

This has been very effective over the last year. As I have stated in previous posts, it has also enabled China to buy huge amounts at a discount. I believe countries like China have placed a strong floor under the price, as they are buyers on every take down.

On Monday another take down was attempted.....but failed! Just how big was the trade? The Wall Street Journal reports:

The CME Group Inc.’s Comex division recorded an unusually large transaction of 7,500 gold futures during one minute of trading at 8:31 a.m. EDT. The sale took out blocks of bids as large as 84 contracts in one fell swoop and cut prices down to $1,648.80 a troy ounce. The overall transaction was worth more than $1.24 billion

Yup, one trade worth over a billion dollars. It also followed an additional pattern of "interventions" timed in thinly traded markets.

 At 750,000 troy ounces, such large trades are rarely conducted amid very thin trading volumes. Monday trading was expected to be quiet as market participants in China and Japan are out on holiday and many European traders are preparing for a holidays there.

This was the MO as the silver take down one year ago that occurred during thinly traded Asian trading hours on low volume. When large trades are made on low volume they have a disproportional impact on the price in the market. If you were a normal trader seeking the best price, this would be exactly the wrong time to place a trade so obviously the intent to take the price down is quite clear.

But on Monday, the reaction was not typical in gold. The price immediately bounced back!

 

 Trader Dan has more here

My suspicion is that the Fed is losing its ability to keep PM prices artificially low. They will not give up though. They implement their policies through primary dealers like JP Morgan who despite the Frank-Dodd bill, are still being allowed by the CFTC to hold larger than legal limits in metals contracts.

Conclusion
In the short term we are no longer benefiting from a gradual increase in the price of gold and silver as the Fed has been successful in depressing the prices. These actions have likely been taken to prepare the groundwork of more quantitative easing should we begin going back into a recession. Going forward they may be losing the ability to keep the price down or may allow the price to rise once a new round of quantitative easing begins.


Either way, the fundamentals for investing in gold and silver have become stronger in 2012 rather than weakening.
 

Ron Paul Vs. Paul Krugman

It was interesting to see both Ron Paul an Paul Krugman on Bloomberg TV last week. Truly these two are polar opposites on money, the Federal Reserve's role and the level of involvement a government should play in the economy. Ron Paul supports "sound money" while Paul Krugman supports printing new money until the depression ends (His words not mine as you will see)Though I'm quite familiar with Ron Paul, I am much less familiar with Paul Krugman beyond him being an uber-Keynesian who has stated that Obama's $787 billion stimulus failed only because it was not "big enough". The two didn't really break any new ground in the "debate" but it was fairly interesting. For those interested in watching, it is below:

What was much more interesting was the interview with Krugman before Ron Paul came on. I was truly stunned by what he had to say. Here are the highlights:

1. We are in an economic depression.
2. We need higher inflation. 3-4%
3. Higher inflation is good for consumers.
4. Higher inflation is associated with job growth and higher markets.
5. High inflation during WWII wiped out consumer debt.
6. Governments never pay debt. They merely devalue currencies.
7. Britain is an advanced country with high debt and no problems during the 20th century.
8. "I actually was a deficit hawk during the Bush years".
9. Food and gas inflation is not driven by Fed policy. 
10. We have not had a depreciation of the dollar.
11. On QE: We need enough until we solve the problem.
12. Would be happy with national debt at 130% of GDP (Its at 100% of GDP now) or another $5Trillion in national debt.

You can watch some of the Bloomberg TV segments here:

 http://www.bloomberg.com/video/91690691/

http://www.bloomberg.com/video/91687961/

Now let me first just state that I am not a Nobel Prize economist nor did I go to Princeton. I have twenty years of experience in finance with about twelve of that in capital markets. Economists are often criticized for "living in an ivory tower" and not being connected to the real world. This seems to be the case with Krugman.

What I was most stunned by was Krugman's views seem to be entirely academic without any grounding in the real world. If the President is consulting with academics like Krugman on the economy then its entirely understandable why he's made so many poor decisions and why we are still in a depression.

I strongly take issue with some of his assertions. I do agree that we are in an economic depression. A depression is a period of both positive and negative economic growth, but growth that is anemic as we have now. I also agree that governments never pay debt. They simply roll it over and issue more debt.

But I was shocked to hear him use Great Britain as an advanced country with high debt and no problems during the 20th century. Has he ever read a history book? Britain was once the world's super power with a global navy and an empire that spanned the globe. It was once said, "The sun never sets on the British empire". It was literally true 100 years ago. And their currency of the time, the pound sterling, was the global reserve currency. But their profligate spending devalued their currency and made their empire unsustainable. Is this really the policy he suggests for the US, today's global superpower with the world's reserve currency? Perhaps the "conscience of a liberal (The title of his NYT blog)" has a different idea of America's role in the world. If so, let's have an open discussion about it rather than trying to reduce our role through economic decline.

I was additionally flabbergasted by his statements:

Food and gas inflation is not driven by Fed policy.
We have not had a depreciation of the dollar.

  Does Krugman not buy gas or food for himself? As I noted in a previous post the increase in aggregate supply of dollars is leading to more dollars needed for gas and food. General Mills reports 10-11% increase year over year! Did demand for gas increase during this economic downturn? No, Americans are driving less.  The demand for commodities hasn't changed. But the number of dollars in our economy has changed. He does qualify his statement on the dollar the way only an academic can: by comparing it to the Euro and other currencies that have also been defiled by their own massive currency printing. So if they're all dropping together through, in his book, they have not depreciated. He does not even try to explain why it is that twelve years ago you could buy an ounce of gold for about $200 but today, the same exact ounce of gold costs $1,600!

Finally, previously when he was asked about the effects of higher inflation and zero interest rates on savers and retired people, he responded that this, "just affected a small number of people". I guess the "conscience of a liberal" doesn't extend to retired Americans on fixed income.


From Jim Quinn of The Burning Platform via ZeroHedge

Despite the assertion by the good doctor Krugman that there are very few Americans living on a fixed income being impacted by Bernanke’s zero interest rate policy, there are actually 40 million people over the age of 65 in this country that might disagree. There are another 60 million people between the ages of 50 and 64 years old rapidly approaching retirement age. We know 36 million people are receiving SS retirement benefits today. We know that 49 million people are already living below the poverty line, with 16% of those over 65 years old living in poverty. Do 0% interest rates benefit these people? Those over 50 years old are most risk averse, and they should be. Despite the propaganda touted by Wall Street shills and their CNBC mouthpieces, the fact is that the S&P 500 on an inflation adjusted basis is at the same level it was in 1996. Stock investors have gotten a 0% return for the last 16 years. The market is currently priced to deliver inflation adjusted returns of 2% over the next ten years, with the high likelihood of a large drop within the next year.

 

A fixed income senior citizen living off their meager $15,000 per year of Social Security and the $100,000 they’ve saved over their lifetimes was able to earn a risk free 5% in a money market fund in 2007, generating $5,000 or 25% of their annual living income. Today Ben is allowing them to earn $150 per year. From the BEA info in the chart above you can see that Ben’s ZIRP has stolen $400 billion of interest income from senior citizens and prudent savers and dropped it from helicopters on Wall Street. This might explain why old geezers are pouring back into the workforce at a record pace. Maybe Dr. Krugman has an alternative theory.

Amen!

I don't believe that Krugman is a stupid man that doesn't understand basic economics. I do believe, however, that Krugman is speaking more from the perspective of politics than economics. And this troubles me. We have enough politicians squabbling amongst themselves. We need real answers to get this economy moving again.

We need real honest debate on economic policies not political grandstanding. When he says:

"I actually was a deficit hawk during the Bush years".

He seems just a little disingenuous.

Chris Martenson Explains Gold Manipulation

 

In my previous post I mentioned a little about the bias and manipulation of gold prices. If you haven't read it yet please take a moment to read it then come back to this post. 

For people not familiar with central banks and the gold markets I may sound a little like a black helicopter conspiracy theorist. Fair enough. Chris Martenson explains below, far better than I ever could how central banks have "intervened" in many markets in the past and how this ties in with loose money and the massive printing we now see.

Gold Is Manipulated (But That's Okay)

The price of gold is being actively managed by central planners and their proxies. The main culprit here appears to be the US authorities, as the manipulation is most apparent in the US open gold market. For the most part, this 'management' has resulted in letting the price of gold rise, but not too much, or too quickly.

The price of gold has always been an object of interest for governments and central bankers. The reason is simple enough to understand: Gold is an objective measure of the degree to which fiat money is being managed well or managed poorly.

As such, whenever paper money is being governed poorly, the price of gold becomes an important barometer. And this is why the actual price of gold is a strong candidate to be 'managed.' Or 'influenced'. Or 'manipulated'. Whichever word you prefer, they all convey the same intent.

Some who are reading this are likely having an eye-rolling moment because they hold a belief that there is no conspiracy to manage the price of gold.

This is an interesting belief to hold because it runs heavily against the odds. It's similar to holding the belief that the house in Vegas does not have a statistical advantage.

We could spend a lot of time discussing how a belief such as 'gold is not being manipulated' gets promoted and inserted into the popular consciousness, but we won't. Instead, we'll simply note that the people who hold this belief -- and you may be among them -- react to the concept at a visceral level, often with strong emotions such as anger or contempt, and even anxiety.

When a strong emotional response surfaces during a conversation of ideas, it usually means that beliefs are in play -- neither facts nor logic. Experience has taught me that when someone becomes dismissive or angry or hostile when the idea of price manipulation is discussed, it's best to simply drop the conversation and move on. No combination of logic or facts is effective against a deeply-held belief. It's better to wait until some new evidence calls that belief into question, opening the door for revisiting the topic.

But for those with an open mind, there is a very interesting trail of dots to connect.

The Logic of Gold Price Management

Unlike beliefs, opinions can be discussed and even modified without first running through an emotional thicket. They rest on data and ideas that can be consciously accessed and are therefore easier to change.

It is my opinion that the price of gold is being actively managed and/or overseen by official parties. On a strictly qualitative level, I hold this opinion because if I ever found myself in charge of a system of money rooted in confidences, as is our current fiat regime, I would consider the active management of the price of gold one of my fiduciary responsibilities.

Gold is an important signaling mechanism, and our entire money system is faith-based. Of course anything and everything that could cast doubt on that system would be controlled if it could be controlled.

To emphasize the point: If gold were suddenly to spike up to $5,000 an ounce, all sorts of troubling questions would emerge for people. Such as, is there something wrong with the dollar? Is the world falling apart? A rapid spike in the price of gold would certainly cause people to question the current state of the world of fiat money, and that is an unpardonable sin when your money is, at root, faith-based.

Instead of asking why do you think the price of gold is controlled? I ask, why do you think the price of gold is NOT controlled?

Managed Prices and Signals

Aside from my opinion that our faith-based fiat money system mandates the management of the price of gold as a matter of fiduciary responsibility for those in power, here are some other facts that we have in our possession:

• The quantity of money is managed
• The price of money is managed (via interest rates)
• Because interest rates are being managed (mangled?) to near zero, it means risk tolerances and preferences are being managed towards taking on higher risk
• The price of oil is openly managed, with strategic releases from time to time
• The price of food and energy are managed via subsidies, both direct and hidden
• Official statistics (e.g., GDP. inflation, employment) are heavily biased, massaged, and managed to tell a rosy story vs. a more realistic version, which means that perceptions are managed

Out of all these efforts, certainly the one with the most dramatic impact is the management of the price of money. That sets the stage for nearly every ill that follows, especially including the encouragement of taking on additional risk and the inevitable malinvestments that result.

Bernanke on the Fed’s Interest in Stocks

In a Wall Street Journal op-ed, Bernanke openly revealed something that was already obvious to many: The Fed has been very carefully following the equity markets because of the importance of rising stock prices in fostering consumer spending. That is, the stock market is a signaling device, and the Fed is, naturally, quite interested that it signal the correct things.

More bluntly, the Fed is interested in seeing the stock market go up instead of down.

Here’s Bernanke in an op-ed placed in the Washington Post back in 2010 discussing the effects of QE2:#f6f6f6;">

This approach eased financial conditions in the past and, so far, looks to be effective again. Stock prices rose and long-term interest rates fell when investors began to anticipate the most recent action. Easier financial conditions will promote economic growth.

For example, lower mortgage rates will make housing more affordable and allow more homeowners to refinance. Lower corporate bond rates will encourage investment. And higher stock prices will boost consumer wealth and help increase confidence, which can also spur spending. Increased spending will lead to higher incomes and profits that, in a virtuous circle, will further support economic expansion.
(Source)

Yes, Virginia, the Fed does watch stock prices closely. And it targets their efforts to assure that the ‘virtuous circle’ is in play. No real surprise there.

Given that big list of managed prices and signals, with literally nothing left untouched because of the price-of-money effect, we are again left to wonder how likely it is that anything has escaped the attention and efforts of our well-meaning (but certainly misguided) central planners.

To my view, gold is simply far too important to be left to its own devices. The evidence strongly suggests that it indeed has not been.

Evidence for Price Manipulation

Critics of the idea of price manipulation might scoff and ask, if gold is manipulated, as you say, then how do you account for the 590% price increase over the past 11 years?

The idea here is that if gold were manipulated or controlled, there's no way it would have 'been allowed" to increase by that much.

In the above chart, we can see that gold has been in a remarkably steady run for the past three years. It is almost as if a ruler has been drawn under the price of gold, which has rarely deviated by much from that trajectory.

Certainly some might argue that this is an extremely poor piece of data in support of the idea that the price of gold has been manipulated, unless we want to argue that it has been manipulated upwards to rise nice and steadily (like air being slowly pumped into a balloon).

A fair point, perhaps, yet it is one that not only completely falls apart, but bolsters the case for price suppression when we examine the price action of gold in the daily vs. the overnight markets.
Note in this next chart that if one simply bought gold and held it only during the open and close of the US daily fix, one would have lost 70% of one’s money during the same period of time that gold rose in price by more than 500%.

As the chart above shows, the performance is dismal. For example, take a hypothetical gold investment fund starting with $100m in 2001, use it to buy gold only at the US AM fix and sell at the US PM fix until the present, and it would now be left with just $31 million, almost a 70% loss in just under ten years. Over the same time period, gold prices have risen over 590%.

Here we might ask a simple question: How is it possible that an asset that rose across all world markets by more than 500% fell during active trading in the most important market of them all (by volume) by 70%?

Trading is a zero-sum game, and for every winner there is a loser. Who was it that lost so much money in the daily markets fighting a tide that lifted the golden boat by more than 500%? How can there be such an uninterrupted series of losses for gold during this period?

There's a trading maxim that goes like this: Once a trend is established, other traders will identify that trend and either ride it or step out of the way. That is, sooner or later the trend stops, because too many people have caught onto it and its profitability gets traded down to zero. Yet selling gold into the daily market has been a sure-fire winner for over an entire decade.

For gold to have fallen so much during the daily market, yet be up overall, simply means that gold must be up strongly in the overnight markets. Indeed, this is the case.

We can easily see the startling difference in the chart below. It compares the results of a simple 'buy and hold' investment in gold over the past ten years vs. a more active (and clever) strategy that both shorts gold during the daily hours and then buys gold long for the overnight session:

(Source) 

This strategy captures both the daily losses and nightly gains into a single, combined monster gain that has returned over 5,000% over the past decade with very few drawdowns, handily beating the price of gold itself by a factor of ten.

Again, how is it possible for a single strategy to be such a reliable winner without being competed away to zero? A very simple explanation is that an entity that does not care about potential losses simply and reliably sells gold into the daily markets.

After a while, the self-reinforcing aspect of this behavior might entice other market participants to join along and sell into the daily markets. However, even if that were the case, in order to be neutral (as all trading eventually has to be) these positions would eventually have to be bought back. And given the fact that gold has risen by more than 500% over this time frame, there would be no safe time to do this outside of the daily session.

So the question persists: Who has been selling into this market, and how large are their positions? Put more bluntly, how much gold is actually left in Fort Knox? Alternatively, just what exactly is contained within the $180 billion “other assets” line on the Fed balance sheet? Deeply underwater gold futures positions, perhaps?

Prior Known Efforts at Manipulation

One other daunting challenge to the idea that gold is not being manipulated is that such a thought requires us to presume that all the past known and proven efforts at gold manipulation are just that: in the past.

One thing I know is that when a tool has proven to be effective -- whether it is secretive liquidity injections by the Fed, or MBS purchases -- that tool tends to get used again and again, and in increasing amounts if called for. That is, what works is never dropped; it is merely set aside when not needed.

The best we could argue here is that gold truly has no legitimate signaling mechanism at present, and therefore controlling its price has been set aside. For now…

Or, if we believe that gold indeed has an important signaling function, it becomes all the more difficult to argue that its price is simply left to ‘the market’ to set.

One example:

#ffffff;">On June 3, 1975, Fed Chairman Arthur Burns, sent a "Memorandum For The President" to Gerald Ford, which among others CC:ed Secretary of State Henry Kissinger and future Fed Chairman Alan Greenspan, discussing gold, and specifically its fair value, a topic whose prominence, despite former president Nixon's actions, had only managed to grow in the four short years since the abandonment of the gold standard in 1971.
In a nutshell Burns' entire argument revolves around the equivalency of gold and money, and furthermore points out that if the Fed does not control this core relationship, it would "easily frustrate our efforts to control world liquidity" but also "dangerously prejudge the shape of the future monetary system."

Furthermore, the memo goes on to highlight the extensive level of gold price manipulation by central banks even after the gold standard has been formally abolished. The problem with accounting for gold at fair market value: the risk of massive liquidity creation, which in those long-gone days of 1975 "could result in the addition of up to $150 billion to the nominal value of countries' reserves."

One only wonders what would happen today if gold was allowed to attain its fair price status. And the threat, according to Burns: "liquidity creation of such extraordinary magnitude would seriously endanger, perhaps even frustrate, our efforts and those of other prudent nations to get inflation under reasonable control."

Aside from the gratuitous observation that even 34 years ago it was painfully obvious how "massive" liquidity could and would result in runaway inflation and the Fed actually cared about this potential danger, what highlights the hypocrisy of the Fed is that when it comes to drowning the world in excess pieces of paper, only the United States should have the right to do so.
(Source)

If the price of gold was not ‘controlled,’ monetary policy outcomes would have been somewhat removed from the direct control of monetary bureaucrats. Gold was a threat to an institution dedicated to increasing its effectiveness and power. To give up the battle to control the price of gold, we have to presume something that has never happened in history: the willing abandonment of bureaucratic power to an outside force.

There is also the London Gold Pool of 1969 and the strong dollar policy of the 1980s, which reveal that in the past, the price of gold has been officially monitored and controlled in order to help direct either a desired interest rate or dollar strength outcome.
From Wikipedia:

#ffffff;">The London Gold Pool was the pooling of gold reserves by a group of eight central banks in the United States and seven European countries that agreed on 1 November 1961 to cooperate in maintaining the Bretton Woods System of fixed-rate convertible currencies and defending a gold price of US$35 per troy ounce by interventions in the London gold market.

The central banks coordinated concerted methods of gold sales to balance spikes in the market price of gold as determined by the London morning gold fixing while buying gold on price weaknesses. The United States provided 50% of the required gold supply for sale. The price controls were successful for six years when the system became no longer workable because the pegged price of gold was too low, runs on gold, the British pound, and the US dollar occurred, and France decided to withdraw from the pool. The pool collapsed in March 1968.

The London Gold Pool controls were followed with an effort to suppress the gold price with a two-tier system of official exchange and open market transactions, but this gold window collapsed in 1971 with the Nixon Shock, and resulted in the onset of the gold bull market which saw the price of gold appreciate rapidly to US$850 in 1980.
(Source)

The point here is that gold price suppression is a clear matter of history at this point and has been well studied. Somehow I think some people have forgotten that history and, quite oddly, consider it less likely that gold suppression is happening today than in the past. I say oddly because the number of overt market interventions has been increasingly enormously over the past few years, and one might think this would soften opposition to the idea that gold, too, is being actively targeted.

Supply and Demand

So, if the price of gold is subject to manipulation -- or influence or control, if you prefer those terms instead -- in a way that reliably holds the price in check, then why should we buy it? In a few important ways, it's because of the very fact that gold remains the subject of so much official concern and secrecy.

The laws of supply and demand tell us that anything with a cheaper-than-market price will experience stronger-than-usual demand. In the case of gold, we might suspect that purchases of gold have been bolstered by a weaker-than-otherwise price.

Among those benefiting from buying cheaper-than-otherwise gold would be anyone and everyone who has bought gold lately. Private and official purchasers alike have been getting a very good price, indeed. Where you and I can be thankful for less expensive gold as we add to our holdings, so, too, can India and China be pleased at the national level.

If a future gold standard is in the works, then whoever has the gold at that point in time wins. To any given nation, official gold stocks held by the central banks represent just one stock of gold, with that held by private parties representing another. India has always had a robust domestic gold market and is among the strongest of the strong hands. Gold goes into India and just never seems to come back out.

China legalized and then modernized the gold market for its citizens, and gold sales there have been increasingly robust over time. Germany recently faced a 'call from within' to repatriate the gold that is currently held in its name in reserve by the New York Fed, perhaps channeling the concern that said gold would be safer within its own borders than in the US.

Given the confidence-shaking rehypothecation fraud perpetrated by MF Global, a bit of caution on the part of foreign concerns regarding the US's trustworthiness is warranted.
All told, we are seeing a very interesting game play out around gold, and my suspicion is that it is the possibility of eventual re-monetization that motivates some of the moves. If this comes to pass, the gold price suppression will prove to be a most unfortunate mistake, providing short-term political and market cover for excessive money printing while sacrificing long-term advantage to those taking the other side of the suppression trade.



Yup, as I said, he explains it better than I ever could. After reading this post in addition to the previous CNBC/gold post, you should be connecting some dots. The Fed needs to get growth going. Rising stock prices creates a wealth effect that gets consumers spending. Combine this with historically low interest rates and lots of printing and you have the greatest monetary stimulus that's ever been enacted. The problem that comes with all that stimulus, however, is a devalued dollar and inflation. That makes stock prices higher, but it also makes oil and gold prices higher. If people buy gold rather than stocks then Bernanke has a problem. He doesn't want a competing currency. He needs you to be a good sheep and buy stocks and spend your cash. Competing returns from gold cannot be allowed

So is it working? Recall my recent post of Biderman from TrimTabs. Retail investors have been pulling their money out of stocks in droves for the last four years. The Institutional investors are driving up the market all on their own on low volume trading. Oil is driving up gas prices and slowing the recovery. Shadow Stats reports the real inflation rate is 11% (General Mills also reports 11% increase in costs)and yet we have seen no meaningful recovery.

One thing is certain: somebody is expending huge resources in order to keep the price of gold low in order to allow China to buy it on the cheap. It was true then and its true now.