The action of the xau is not saying as much about the quality of the rally as it is about the quality of the companies that make up the index. The dismal performance of the xau this week and since the beginning of the year hallmarks the sentiment of investors who have little or no confidence in the producers management. As the saga unfolds, it is becoming clear to what extend the producers were manipulated by the bankers in the derivative markets. While hedging is an accepted practice in any commodity based business, the programs utilized by the gold producers exceeded anything previously seen. The derivatives utilized under the aegis of insuring a fair price for their product in fact undermined the price of the commodity. The bankers profited handsomely, the central banks who supplied the bullion were able to meet political and economic agendas, and the mining industry was turned upside down. At first, barrick and the companies who introduced the hedging vehicles to the industry took on the mantel of economic gurus. As the practice sread, the market became flooded with gold thru overproduction and forward selling. Last fall when the shorts ran for cover and the overall health of many producers were questioned, the mystique was gone. A closer examination has led to the present set of circumstances, investors no longer view the producers as a hedge against economic dislocation, in fact, investors believe that any safe heaven move into gold will either be aborted thru new forward selling when gold achieves a certain level or the balance sheets of the companies may implode if the price of gold rises without allowing the producers to cover their short positions.
Voilla, safe havens are found in currencies, bonds, or cash. Gold is a damaged market shot in the foot by the people most dependent on the price of gold, the producers.
Ken |
