Ray
I recently read and appreciate your thought-provoking, insightful comments, the quality of them compel me to reply. I would appreciate your comments to the following:
I understand a major reason for your conviction that gold will not rise soon, if at all, is due to the supply of gold held by CBs. And their ability to control the market to protect paper currencies is why gold has fallen.
Do you have any credible evidence that CBs may conspire to cause a drop in gold and maintain it at a low level. Certainly, CBs have been known to attempt to prevent violent moves in a number of markets, but to attempt to control a relatively stable market such as
gold - and one, which by your own admission is a measure of their effectiveness - would appear highly unlikely, even if it could be done. Would not any such attempt, if known, substantially damage their reputation and even their ability to function and thus be a
compelling impediment to attempt any such conspiracy.
In addition, how would such a conspiracy take place. Do all CBs conspire, are there no dissenters. Certainly, CBs such as RSA would not have an incentive to manipulate gold, would they not only dissent to any such conspiracy, but would also have a strong interest to alert the press to any such attempt. Although this conspiracy theory is deeply imbedded in a gold bug's karma, and although admittingly it may be possible, I personally believe, without clear evidence to the contrary, it is much recycled rubbish.
In addition there is plenty of evidence to counter this theory including that traditionally, western CBs buy gold when gold is rising (while Asian banks buy when gold is falling) which is exactly the opposite of what would occur if your premise is correct. Certainly, banks did not attempt to stop the last major rally, and if they did attempt it, they failed. In addition, recent net CB gold sales have not been that much in excess of the historic trend and recent sales by Belgium had its roots in the EMU startup.
Is it not a fact is that gold is doing exactly what it should be expected of it under recent economic conditions. And that CBs have been selling and leasing gold as one would expect them to do for the same reasons private investors have - because it has been seen as a non-performing asset. And would all of this not stop when it is their interest to do so by a change in economic or political conditions, much to the same extent as a private investor would be induced to stop.
As far as the future of gold, will this not be dependent more on what future economic conditions have in store for it as a monetary asset rather than merely on a commodity supply/demand analysis. Certainly, projected reductions in gold production and what appears to be at least a coordinated ECB bank policy toward gold will be beneficial on the supply side. But IMO it will be investment demand which will make the difference. And that will depend on global economic and political events yet to be played out. Certainly the lower gold falls, and the longer it stays at this or lower levels, the greater is the probability that it will rise substantially when the pressure is relieved due not only to a change in fundamentals but also to latent technical demand.
Although you favor silver, and the reduction in supply and demand projections would seem to favor it "as a commodity", does not gold have an additional allure as money "being good as gold" which offers an opportunity for it to increase in value far more. As an aside, I
must state that I disagree with your position that gold is not money - for many valid reasons which I will not go into and of which a person of your competence is probably already aware.
Not long ago, preservation of capital was the main concern of investors. You may recall, when bonds had interest rates at 18% and stocks were at bargain prices , no one would buy them. Now there is no fear. Stocks are bought at any price for any reason, junk bonds are much sought after at much lower rates, and gold is shunned like a pariah. This lack of investment fear includes banks which, as you stated, speculate with derivatives - which the bank operating heads may know little of the risk presented, or worse, if they do, incur the risk.
If history is to repeat, one day, a sea change will take place, and preservation of capital will again be foremost in investors' minds. When this will take place, no one can say. But clearly, as you have implied, the present financial bubble and associated risks are
marching in quick time to the monetary drum upbeat of the US Dollar and its bonds and the longer it lasts and the more risks taken, the sooner and greater the chance of the march ending with dire consequences when the drummer's beat is no longer heard. Then,
there will be a recognition of not only the substantial risks engendered by the financial asset bubble, but also the long term economic and social problems this country particularly is confronted with. Preservation of capital will come to the forefront and
gold will be a likely beneficiary as there will be few alternatives, not because its alluring quality as a commodity, but more importantly, because of its value as a monetary asset.
And that steam roller you mentioned that is pushing silver may not compare in size to that which is gathering a head of steam to push gold and all who oppose it when the time is ripe. It may not yet be seen or heard, but credible stories are being told of its coming by
Veneroso, Armstrong, and many others with intellect, knowledge and awareness far superior than mine.
Vieserre |
