From Boom Busts and Recoveries thread
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>Blanchard & Co notable quotables
By: Tim Wood
Posted: 2003/01/10 Fri 17:17 EST | © Mineweb 1997-2003
NEW YORK – These are some of the most interesting quotes and highlights from a late 2001 report prepared by
Blanchard & Co. and which was used as the basis for urging investors to quit gold.
This particular one has to be the highlight given its present litigious mood: “Investors who believe that litigation will
liberate the price of gold should reconsider their investment.”
Another pearler: “To have a conspiracy, there must be a violation of laws that apply to the individuals or organizations
that are acting in concert. The activity of the central banks in leasing or selling their gold; the activity of the producers
in hedging their production; and the activity of speculators in taking advantage of the declining market predpitated by
those practices may very well serve to suspend the laws of supply and demand. However, it is not clear that any of
them, separately or together, constitute illegal activity.
*****************
“Gold had a chance at redemption in the Spring of 2000, when the Nasdaq fell 62% and the fall in U.S. stocks
vaporized over $5 trillion in wealth.”
“Gold has become a commodity with no safety net. As the price falls, investment demand decreases and supply
increases.”
“The new generation of central bankers, including those at the u.s. Federal Reserve Board, are now questioning the
wisdom of central banks owning any gold. If the central banks conclude that the liquidity of gold is no longer a given,
then we will see a market rout of epic proportions.”
“Gold's downside risk appears to be huge, and the liquidity that is essential to central banks is deteriorating along with
the disappearance of investment demand and the withdrawal of major market participants.”
“Many investors continue to buy or hold gold in the mistaken belief that gold's historical utility is unchanged.”
“We've had everything but the plague of locusts. The reaction of the price of gold? Gold fell from a high of $320 two
years ago to its present level of less than $290.”
“As more investors find that gold no longer does any of the things that are expected of it, they will continue to be net
sellers of gold and the market decline will accelerate.”
“As if the gold market were not already in bad enough shape, another apocalyptic possibility has emerged. Since 1987,
while foreign central banks have been substantial net sellers of gold, the U.S. has sold none of its gold reserves, which
are by far the largest held by any single nation. In fact, the U.S. has sold none of its official gold since 1979, although
some of those reserves have been used in coins and medallions. There is now a very real possibility that the Fed's
previously unalterable opposition to sales of gold reserves may be changing.”
“A recent Fed study explored the merits of disposing of national bullion reserves and concluded that, "The importance
of gold as a possible future reserve asset... has clearly diminished in recent years and will, in all likelihood, continue to
diminish." The study recommended the sale of all gold held by governments.”
“Perhaps equally bearish for investors in gold is our conclusion that the largest and most successful of the gold
producers have a bigger economic interest in falling gold prices than in rising gold prices. Those producers' short sales
are extremely profitable when the price of gold goes down, and they add physical supply to the market that could
ensure that the price does go down.”
“In reviewing the financial statements of gold mining companies whose short sales of gold significantly exceed their
annual production, we found that most of their profits resulted from decreases in the price of gold.”
“The efficient markets hypothesis obviously doesn't apply to gold, if a major player is able to make a profit in 55
straight quarters on "hedging" operations, the usual function of which is to insure against the risk of price fluctuations.”
“Our conversations with our clients have convinced us that an important reason for the disappearance of investment
demand is the perception that the gold market is subject to manipulation, not only by the addition or subtraction of
physical supply, but also through announcements made by major market participants.”
“Our objective is not to attempt to assess blame, but rather to identify cause and effect. The gold industry's own
publications are almost uniformly in agreement with our position that short sales of gold by gold mining companies
have a depressing effect on the spot price of gold.”
“What do you think will happen to gold when world events stop propping up the price?”
“We believe that there is little limit to the downside risk for gold. The continuing decline in the price of gold will
accelerate dishoarding by investors and central banks and will aggravate losses by producers, forcing them into
additional short sales to fund their operating losses, which will drive prices even lower. Sell your gold and take your
tax losses now, before they get even bigger. If, at some time in the future, you find that you miss your gold, you'll be
able to buy more of it for less.”
“We would like to provide advance notice to all of our gold bullion clients that, effective as of January I, 2002, we are
changing our business practices in order to limit our exposure to falling gold prices and recommend to our clients that
they do the same.”
“The negative correlations to financial assets that made gold such a good portfolio diversifier no longer apply. Until
recently, the accepted wisdom about gold as a portfolio diversifier was accurately summarized in a World Gold
Council brochure.”
“Even gold's positive correlations to other tangible assets no longer apply.”
“The most commonly traded rare coins have gone up over 60% in the last six months. There was a strong positive
correlation between gold and rare coins before the Greenspan era, and a negative correlation after Greenspan. Rare
coin prices have gone up even as gold prices went down.”
“The confluence of events that have occurred in the last three years -the Asian Crisis, a tripling in the price of oil, the
Nasdaq collapse, and the September 11 attack on America's military and financial centers -eliminated any excuses
that gold might have. If gold didn't react to crises of that magnitude, can gold be counted on as a hedge against
anything?”
“Net investment demand for gold was negative in 2000 and gross investment demand in the United States fell
91.9%!”
“Central bank gold sales can't be thought of as mere extenuating circumstances as long as they are dominant factors
in determining the value of gold and are part of the daily business practices within the industry.”
“What is unique is the fact that, over the past 20 years, the behavior of the central banks -selling when the price is low
and not selling when the price is high -has created a vicious cycle in which a falling price increases supply, turning
gold into the financial equivalent of a perpetual motion machine -going down. When the price of gold falls, investment
demand decreases and the supply of gold available to the market increases. Heads they win, tails you lose. Gold is a
commodity that has no safety net.”
“Short sales are now the financial engines that drive six of the top ten gold mining corporations. not their gold mining
operations, most of which operate at a loss; not their exploration and development projects, many of which have been
cancelled; and certainly not the prospect that an increase in the value of their mineral reserves is enhancing
shareholder value. The result is that the major gold producers, who have the most gold, the most information about
gold and the most ability to influence the price of gold, have a vested interest in seeing to it that the price of gold goes
down.”
“Volcker attacked existing inflation. Greenspan attacked incipient inflation, using increases in the price of gold as his
warning of future inflation and inflationary expectations.”
“During the Greenspan era, if the correlation between significant increases in the price of gold and the corresponding
tightening in the fed funds rate is not perfect, it certainly is very close.”
“The biggest problems for gold are caused by companies and institutions that are serving the best interests of their
stakeholders -within the law. Individuals act in what they perceive to be their own self- interest. Corporate executives
act in what they perceive to be the best interests of their shareholders. Individuals, corporations and institutions act in
concert when they believe that their interests are aligned. When individuals, corporations and institutions act in
concert, it constitutes an actionable conspiracy only if illegal activity is involved.”
“To Mr Greenspan, the price of gold is an indicator, not an objective. When the scale tells Mr Greenspan that he’s
overweight, he diets. He doesn’t tinker with the scale.”
“Investors who believe that litigation will liberate the price of gold should reconsider their investment.”
“Mr. Greenspan's legacy will be one of extraordinary accomplishment and public service. The continued strength of
the dollar has had much to do with the confidence that foreign central bankers have in Greenspan's management of
the dollar and in his own personal integrity and credibility. Foreign central bankers have trusted Greenspan, and that
trust has had significant benefits for the dollar and the economy.”
“At a practical level, Greenspan and the Fed have the demonstrated ability to push the price of gold up or down in a
manner consistent with gold price stabilization through the use of the Fed's basic policy instruments -non-borrowed
reserves and the federal funds rate.”
“Gold's embarrassments and disappointments have been played out in a very public arena and have been reported
with real satisfaction by much of the financial press. If gold were a more mundane commodity, like soybeans, those
memories would recede much more quickly. But investors have always had a strong interest and a surprising amount
of information - factual, theoretical, even ideological - about gold.”
“What will bring investors back into the market? The biggest financial crisis since World War II ( or The Great Depression) wasn't enough to do it. The bursting of the stock market bubble, which sent. almost $5 trillion to money heaven, wasn't enough to do it. The terrorist assault on America wasn't enough to do it.”
“One indication of the extent of investors' disillusionment with gold is the fact that even a rising gold price, which once could be counted on to bring buyers out of the woodwork, now produces the opposite result.”
“Those who expect too much of gold will inevitably be disappointed.”
C |
