Why the Gold Cartel Will Fail to Prevent a Primary Gold Bull Market

Financial Sense Online ^ | September 3, 2002 | James Sinclair & Harry Schultz

[SteamshipTime]

Is there a website or article that explains derivatives, how they work, and why they are used? Is the thrust of the article that JP Morgan et al. have piled up more sell obligations in gold than there is physical gold available at the current price of around $310/oz?

(I'm afraid this one's too much for my feeble little liberal arts brain.)

[imawit]

Well, it looks like they had a tough time knocking it back down today. I was instinctively looking for another $309-$310 range to buy more. I don't see that so much as a possibility but I'll wait until tomorrow to see how much muscle they have or don't have left.

[imawit]

Ya know, I liken this to shorting a stock. If the stock goes up and never turns south again, sooner or later you're going to have to take your lumps and cover.

Given this, there isn't enough gold to buy to cover your short in gold. And, on top of that there are some derivitive deals that have been made that further lien the short position in gold making the requirement to cover a short position even larger.

Some one tell me if I'm wrong.

My question is, how could these braniacs in finance ever figure that gold was going down below $310 if that's there pain point or down below $250 which I would guess is where they started their shorting and deriviting. What sign from heaven did they misread to come up with this scenario of gold lower than $250.

[LS]

Unbelievable how people will deny the fact that gold has, for thirty years (!) been a LOSER. Someone must be desperate to crank the price of gold up. It won't happen dude. We are in deflation. REPEAT AFTER ME, DEFLATION.

Oil prices low (about $.70 cents, after taxes, or pre-1969 levels).

Interest rates at all time post-Depression lows.

All OTHER precious metal prices down.

Productivity rising, but not prices. In any econ textbook, outside this goofy website, that is DEFLATION.

[BigFisherman]

So why have I made a fortune this last year in gold and shares? Check out the prices of HGMCY and DROOY, which I purchased after 9/11. Have taken profits and building my retirement home in Northern Idaho.

Gold performs well in run-away deflation because of currency turmoil.

Do your homework.

[Lee_Atwater]

I have been having fun - for the lack of a better word - trading junior miners. You have done very well buying Durban and Harmony in late 2001, and taking profit around May. That gold run up in the first half of 2002 was a result of central bank reflation.

[Lee_Atwater]

I believe the worst of the deflation may be over. The commodity indices are moving higher.

[snopercod]

Maybe I'm just jaded because I bought those Maple Leaves for $520/oz. in the 80's; Still waiting to break even.

[babble-on]

my dad gave me a maple leaf on my 18th birthday and told me to hang on to it in case I ever need it to get on that last flight to Lisbon. I didn't understand what the hell that meant until I saw Casablanca. I've still got it, plus a few krugerrands and US gold and platinum. I mean the bid/offer spread is brutal, there's no yield, the price performance is hideous, BUT if things ever really go wrong in the world somebody out there is going to accept gold as payment. Its like an insurance policy for a time when all the insurance companies have gone bankrupt. a last resort investment

[headsonpikes]

So I gather from your post that JPM is laughing all the way to the bank at the unlettered yokels who think that you have to OWN something before you can SELL it, or at least be prepared to make good your deficiency.

That's old-fashioned thinking at its worst! Money is worth whatever our glorious leaders decide it needs to be worth to make the world a better place.

As the great Democratic prophet Lenin said," After the Revolution, gold will be used for public toilets."

It's good to see his vision has not perished.

[Servant of the Nine]

I for one am convinced.

I shall replace my Tin Foil Hat with a Gold Foil Hat at once

So9

[templar]

BUT if things ever really go wrong in the world somebody out there is going to accept gold as payment.

Probably the only really valid argument for owning physical gold. Gold (silver too, I guess) is something you can carry with you and it will have value anywhere in the world. No need to try to convert an out of favor currency (or bank account) from an out of favor country you may be fleeing to a valid local currency (or bank account) in whatever country accepts you.

You know, for large amounts of money, diamonds might be even better. Easier to conceal (you could sew them into the linings of your coat), harder to detect, take up a lot less space. Wonder why no ones' ever thought of that?

[LS]

Always look for a goldbug to quote Lenin. After all, they are the only people looking to communism anymore, because the MARKET has rejected gold in favor of money that is portable, divisible, and which has instantly evaluated market prices.

One thing's for sure: I would not be laughing on the way to anything except the poorhouse if I invested in gold in the last 30 years. I sold when it got to $450 an ounce in 1974, and laughed until it reached $930, but took solace in the fact that it then dropped to $300, where it pretty much has stayed ever since.

[LS]

Hope so. But the key indicator is investment capital, specifically VENTURE CAPITAL in the tech markets. I see little evidence of that. Some, but only very little.

[babble-on]

I think they have, but "IS IT SAFE?" (marathon man bump)

[LS]

You are speculating in gold. Good for you. That is a big difference than what the goldbugs advocate, which is HOLDING gold as a "protection" against the Federal Reserve.

You also rightly cite that we are in deflation---another anathema to the goldbugs, who harangue about "debt bombs" and inflation. What you show me is that smart investors can always make money. I envy you. For most of us, we rely on general trends and merely hope to catch the back of the wave :)

[Texas_Jarhead]

What about the recent (last 6-12 monthhs) upward trend in commodities (corn, wheat, etc)?

[headsonpikes]

'...the MARKET has rejected gold..."

Just as the great Soviet People rejected capitalist decadence all those years. ;^)

[LS]

Clueless one: the Soviets didn't have a market. Gold has been tested and has no takers. Course, that's all a conspiracy, right?