IF GOLD WERE JUST ANOTHER COMMODITY: ( Good Reading )
Through its severe bear market phase, commentary about gold has been pretty negative in the financial press, which is typical of bear markets. Quite often we hear that gold has no monetary value as currency, it has lost its luster, a fad of the past, gold is dead, gold is now just another commodity.
These people either do not have clue what they are talking about or have sold gold short.
If these pundits were correct and gold is just another commodity, we would only have to look at supply and demand to determine its price direction, it would be so much easier. We would just have to watch for fundamentals that either increase or decreased inventories with the resulting price movement. Not so easy with this 'just commodity' gold, we have to consider many other things not present in your everyday commodity such as central bank policy/leasing, politics, FED and government policy, hedge funds activity and the carry trade.
If these pundits are correct, why is gold the only commodity Central banks hold as a reserve?
If gold was just a commodity, why is its price among the data that Alan Greenspan watches according to a past Rueters article "Among the data he looks at, Greenspan said, are money supply, gold prices and the Treasury's new index-linked debt?"
If these pundits are correct, why do the Swiss have to hold a referendum before they can sell their gold?
If gold was just a commodity, why to we baste ourselves in its beauty as jewelry or a coin to hold in ones hand? Why don't we just have a brass or copper wedding band?
If these pundits are correct, why has so much gold been sold short in the paper market than there is available in the physical market and when the fundamentals are so bullish? Any other commodity would never have this kind of short position with over whelming positive fundamentals of supply and demand unless it was being manipulated.
If gold was just a commodity, why did Korea, ask its people to turn in their gold in time of crisis?
If gold was just a commodity, why the fascination, why am I writing about it and countless others. You can find new articles on the web about gold on a daily basis?
If these pundits are correct, why has it become so difficult to locate and buy a gold coin?
If gold was just a commodity, why in times of war does the enemy walk right past your banks vaults full of paper money and steal your gold. No this isn't a thing of the past, it happened in the 1990s with Iraq and Kuwait?
No, gold is a lot more than a commodity, it is in a field of its own, it is an Institution, it is money, beauty, wealth and power, it is durable and long lasting, it is sought after around the world and at the same time it is feared by many bankers and politicians, it has a much longer history as money than any paper currency. No other commodity has a monetary value that can be used as world currency, other than perhaps, silver, poor man's gold. At the same time, no currency has the same unique qualities of gold.
When I hold a gold coin in my hand, I can feel its weight and beauty, I think of the long history of gold, the Spaniards and Incas. I know people toiled to find the gold and mine it. I know it was weighed carefully and the coin was minted with care and precision. Hand a gold coin to anyone, they are in awe, they hold it, feel it and examine it carefully.
Give them a $5, $10 or $20 dollar bill and they barely glance at it before it is stuffed in a wallet or pocket and passed on to someone else. When I think of paper money, I think of a press going Chunk, Kachunk, Kachunk turning out millions of duplicates at a push of a button. I see its value continue to erode. I know that no paper currency, in the history of earth has ever retained its purchasing power over time, because it is just to easy to make and exploit.
There is no doubt, gold is different and unique, it is not just another commodity and it is no where near dead.
Inflation, Deflation and Gold
Unlike paper currency, gold has survived the test of time and is well known and talked about as a good hedge against inflation. This is true, but the problem with the price of gold lately is that there is no inflation. In fact gold is a good leading indicator of inflation and is one of the reasons the FED watches its price. What the drop in gold has been telling us in the past two years is inflation is heading down which is a documented fact now. What many fail to recognize is with golds drop down to $300 and less it has been screaming deflation. The central bankers or generals are still worried about the last war called inflation. They have been way too slow and have not acted enough to easy monetary conditions, particularly the U.S., I have been critical of this in the past and still remain so and is one of the main reasons that I am bearish on the economy and markets. While the U.S. economy has been doing well, the rest of the world is crying for more dollar liquidity then the FED is supplying. This is very evident with the plunge in commodity prices that you seen up until a month ago.
Other Pertinent Observations
Gold remains the only objective money in the world Greenspan himself believes gold is a currency and watches it closely. Last May his comments were "Gold still represents the ultimate form of payment in the world and is always accepted. Gold is perceived to be an element of stability in the currency and the ultimate value of a currency".
The demand for gold is setting records. According to the world Gold Council this past week, gold demand climbed 16% in the 2nd Quarter, a record for any three month Quarter ever.
The numbers are not on whether or not central banks have been net sellers of gold in 1999 - the press is mainly feeding us the sell side of the story only.
Whether or not the BOE sales were used to hold gold prices down, it has now become very clear the BOE sales took place because the market is running out of physical gold and these sales were a necessity to provide liquidity. If the market understood this it would be a huge plus and a bullish factor for gold, but instead the huge short players and the gullible taking heads of the media put a negative spin on it as CBs unloading unwanted gold when in fact they sold in a desperate act to provide gold to a market that is in such huge demand there is little gold left. The CB sales have been receiving huge negative press this past year when in fact CB sales last year were lower than as recently as 1996 when we seen the peak in the gold price at $420. The press is only emphasizing the sell side of the story and there is little news on CB buying that has been obvious from public statements in China and Japan and perhaps others that received no press at all.
Gold import statistics released for June show that South Korea's imports of gold skyrocketed to 72 tons from 44 tons a year ago (that is one month only, June). The January-to-June total for this year for Korea gold imports is 264 tons, up 38% over the same period last year.
In Taiwan, June imports were 94 tons, twice that seen in May of this year, and more than twice the previous year. Year-to-date, Taiwan's gold imports are 368 tons, up from 155 tons at this time last year. Imports are also up in India.
Gold may just be a commodity to many in the U.S. who have experienced a strong $ in the last decade, but that is not the view in many other parts of the world, especially in the 1997 currency crisis when those with mighty US$, had those accounts frozen or their banks closed in time of need.
Struthers Future Tech Report
sentex.net
7 September 1999
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