JS Counterpoint: re: Rothschild "exit" 4/16/04
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Friday, April 16, 2004, 1:18:00 PM EST
Extremely Good News For Gold
Author: Jim Sinclair
God bless the Financial Times of London. They have done it again. Every time they print a bullish article on gold when the price is rising, you can wager that the gold move for that phase is either finished or darn close. They are equally perfect on calling the bottom in the gold price.
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Recently, FT published a totally cock-eyed bearish article, "Going, going, gold" which called the absolute low of this gold reaction. This article deals with the withdrawal of NM Rothschild from the twice daily London gold setting.
It's amazing what undercurrents this clearly goldphobic article simply makes up, IMO. NMR said they withdrew because their commodity activities, which include the gold setting, made no money. The only truth they forgot to mention is that in all probability it cost NMR money. The rub in all this is that NMR was the Chairman of the gold fixing and it has taken place in their offices since 1919.
In the "old days" we used to hang fire on the gold setting which was broadcast around the world twice daily and was the most important event in the gold market. Now it is totally meaningless because the cash bullion market for gold is no longer at the fix the driver of the gold price. The driver price action is in paper gold all around the world 22 hours a day. There was simply nothing happening at the fixes and no one cared about them except the few old aristocrats that gathered daily in the cigar smoke filled room to do nothing at all.
So there were two real reasons why NMR quit the "FIX" business:
1. There was no business.
2. There is a recognition that the derivative market for gold is huge but the cash market for gold is tiny.
That means the over-the-counter derivatives for gold sits on the tiny cash market and the derivative market is the greatest danger to be involved in. This will in time result in making the cash gold market the most volatile market on the planet when the over-the-counter gold derivatives on gold fail. If any derivative fails, it will be the weakest and this is the over-the- counter gold derivative. So be warned my dear friends at Barrick. Not hedging any more is good but getting those hand grenades off your waist called an over-the-counter derivative book is even more necessary.
I will offer another reason but not attributable to anyone but myself. I believe the foundational pillar over-the-counter derivatives that created the OTC derivative market for gold are FRAUDULENT TRANSACTIONS. I believe that market was created in the same way that Enron sucked all the money they raised in public markets out their back door. This FRAUD is straw partnerships dealing in the gold OTC derivatives but all trades are made by one computer and distributed daily to the conspirator straw partnerships.
In this fraud there is no real risk at all when all the straw partnership are placed on one excel spreadsheet. Yet any one straw partnership will appear to have real risk when in truth there is none. This is how the OTC gold derivative took birth. This is how the electricity derivative market when Enron went bust simply could not be found anywhere. Did you notice how all the companies - both private and public- that got into that game simply closed their doors or merged as a way of sneaking away?
The bottom line is that FT can not figure out that NMR's withdrawal from not the Gold Fix but from making a market in cash gold is bullish for the price of gold by further reducing the liquidity of the cash gold market that is foundational to an out of control gold derivative market. However, never tell them because we want the FT to forever be the greatest predictor of the direction of the price of gold. When gold is under selling pressure, being off more than 5% from any level, you can guarantee FT will publish a bearish article. The FT again and with great accuracy today called the bottom price. When the price of gold is 5% off any low and FT prints 2 bullish articles, it is the top. Now you need not refer to Kenny and I as the FT will guide you faultlessly.
The final statement in this article will go down in journalistic history as the most foolish ever written. The FT says, "Whatever the speed, the direction is clear. Gold is on its way out as an investment and a reserve asset, three cheers for that." Well, I assume that will signal the start of a regeneration of interest in gold shares as an investment and gold itself as a major part of everyone's portfolio.
As I said when I listed the bear items in gold, one of which was "All things British," The FT shines bright in its aristocratic attitude that papers controls all. Here is a question. If no central bank owned any gold, what would the gold price be? This writer would say $1 and I would imagine $10,000 per ounce or higher. Who said the Dodo bird was extinct?
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