Posted on 03/12/2009 10:20:49 PM PDT by Professional
This linked article kind of explains what I'm referring to.
Doing some research last night, I stumbled across something quite interesting. Something I never knew existed, Central Bank Gold Agreement came up as a discussion about gold prices.
Apparently, 15 mostly European nations signed a pact in 1999, then renewed the deal in 2004. This agreement limits the central banks of those countries ability to sell their gold reserves. Back in 1999 this was meant to stabilize the price of gold, which was unusually low.
I personally find this very interesting, as a finance professional, because it is an artificial element to the natural supply demand equation. Essentially, they are in a way, hoarding gold with the intent of keeping the price high, if not at least from being low.
Now, here is where it gets interesting. This agreement is set to expire in September. Considering how high gold prices are, and how much these central banks are spending, would it not be prudent to sell off gold? And since you suspect another nation might just do that, at your financial and political expense, what makes you think they are not all motivated to act?
After finding this, I've searched high and low for more information. Surprisingly, wikipedia has nada, zippo, zilch. And if you do a web search via google or yahoo the only mentions are in gold sales pushing related websites. The ONLY mentions are that the agreement will probably/hopefully be renewed, or some wild spin tale of the like that is gold BULLISH. Reality says, that if EVERYONE is bullish, the opposite must really be the outcome.
Following the gold charts, it appears that it is resting close to a support line, that if broken, could mean a very large fall in price.
The bubble of gold in my opinion is about to burst, much like the oil bubble burst in late last year. At 147 here last summer, i said it would crash, and would hit 20 very soon. I got lots of guff on that... 2 yrs ago, I compared the chinese stock bubble to the nasdaq of 1999, and sure enough, kaboom. Look it up, I assure you both are true. I'm not trying to brag, but my opinions should not be dismissed as unfounded or simple guesses. I'm willing to back my thoughts with rational facts.
Our stock market now, is more than likely on the verge of an up move not seen since early 80s, or 1975. I'd think that many gold investors might realize that they need to change assets as well, providing a real motive for leaving gold.
Our stock market, and the world for that matter, were manipulated primarily via the removal of the uptick rule and mark to market accounting laws. This week, both are essentially being dealt with, causing the market to rise nearly 700 points. IMHO, the bear market may very well have died today.
I welcome your thoughts, and debate. If anyone can provide more details, neutral please, on CBGA and CBGA II, I'd love to read more.
I agree. Your Time Magazine cover imagery is apt!
Maybe when shoe-shine boys and beauticians are chatting about whether its better to buy Krugerrands or Maple Leafs, we’ll be some where near a bubble (or not, if there is a reason for gold to keep climbing).
Gold crossing 2000 may be big news, and with inflation, it may just always go up (in inflated dollar amounts, of course, but not in real value, since an ounce is an ounce.)
The “bubble” in gold will be a panic driven one, as the attractiveness goes beyond it’s value in inflating dollars, and instead based on its perceived value as a future inflation hedge.
For fun, I’ll predict that by July, gold will have fallen sharply from these levels, busted down to +/- 100, let’s say 600.
Did we hear that during the dot-com boom.
I am pretty much an optimist, but I still look at reality and make my own judgments.
If the Federal Resereve is buying assets with money they just print to pay for it, then they’ve replaced assets with fake money.
And the markets will eventually recoginze that.
The result is inflation. It can’t be otherwise, unless other market forces are working in a deflationary fashion.
It is impossible to make trillions of bad assets just disappear and with no consequnces. Not possible.
Read this, you’ll see that the important thing is to not allow to much monetary supply, or too little. Most folks don’t understand taht the real risk was a deflation like the depression. In order to understand the depression, it is helpful to study the two decades leading up to it.
Fed’s Bernanke sees recession ending ‘this year’ (Why inflate, and what he’d do later)
http://www.marketwatch.com/news/story/Feds-Bernanke-sees-recession-ending/story.aspx?guid=%7BF2A569DE%2DDEE0%2D4943%2DB8DB%2DDCD72D3065F7%7D
(An illusion of forever bailouts started in 1907...)
Panic of 1907
http://en.wikipedia.org/wiki/Panic_of_1907
Herbert Hoover (Avoided Govt Intervention Into Markets, I suspect for the reasons many of us today feel that “enough is enough”. 1907 was a bailout like our current one, and led to more and more speculation and credit expansion. Eventually the bubble became so big, from such overconfidence...)
“Hoover’s stance on the economy was based largely on volunteerism. From before his entry to the presidency, he was a proponent of the concept that public-private cooperation was the way to achieve high long-term growth. Hoover feared that too much intervention or coercion by the government would destroy individuality and self-reliance, which he considered to be important American values. Those ideals, as well as the economy, were put to the test with the onset of The Great Depression. At the outset of the Depression, Hoover claims in his memoirs that he rejected Treasury Secretary Mellon’s suggested “leave-it-alone” approach.[23] Critics, such as liberal economist Paul Krugman,[24][25] on the other hand, accuse Hoover of sharing Mellon’s laissez-faire viewpoint. It is often inaccurately stated that Herbert Hoover did nothing while the world economy eroded. President Hoover made attempts to stop “the downward spiral” of the Great Depression.[26] His policies, however, had little or no effect. As the economy quickly deteriorated in the early years of the Great Depression, Hoover declined to pursue legislative relief, believing that it would make people dependent on the federal government. Instead, he organized a number of voluntary measures with businesses, encouraged state and local government responses, and accelerated federal building projects. Only toward the end of his term did he support a series of legislative solutions.”
http://en.wikipedia.org/wiki/Herbert_Hoover#Great_Depression
Take away a man's gold, and he can't have a PC. That's kind of important in the current economy.
1. TANK A lot of people are SAYING GOLD will tank, it is being bashed by CNBC and other possible arms of the Socialist Government; Cramer says buy on the way down????? and if you check the Elliot Wave Gurus, you will see they too are looking for a possible fall. Perhaps we should contrary opinion them?
2. UNCERTAIN SECURITY Will terrorists / AlQ hit us again? Totally unknown in spite of the contrary opinion fostered by the Government. "We have weakened them. They are not able to hit us" Etc. Yet a bunch of Somali's attempted to assassinate Obama* on Inauguration Day and 20 some odd went missing to Somalia, including one detonated "American" Somali. *Wonder if Obama will stop those "illegal" wire taps now?
3. CHINA 2/3 of Chinese government economists have advised their government to buy GOLD as opposed to dollar holdings / Treasuries. I bet the Chinese HEDGE and split the economic reality with practicality. The Chinese are smart even if totalitarian. They know they still have to export and thus take on more of our paper. So I am guessing, they will take a share of Treasuries, and allow other trading partners etc to take a share of Treasuries out of necessity.
I do not understand why INDIA cut GOLD imports (please post if known). However, I suspect a lot is used in jewelry and computers (sales of both down), but that would not explain an almost total drop of imports, especially with all the uncertainty in neighboring Pakiland.
Also, I am wary of other Country analysis where there are mixed bags, as in Russia's Diamond and Gold markets tanking. Apples and pears. Diamonds can be manufactured that are indistinguishable from the real item and are made at a fraction of cost. Laser markings of fiat diamonds can be defeated. However, I am sure Russia will have to sell gold or work out a deal with their Chinese ally... hmmm I guess back to the first statement.
4 SEPTEMBER SELL OFF Could that be what the futures and current drop reflect as opposed to waiting for September? If I am right, the selling will be minimal.
5. Right or wrong, I have to have a hedge, so I have GOLD. Perhaps silver or commodity / mining ETFs other than GLD might be a diversification and hedge on the all in one basket approach...
So my crystal ball is broken. Will gold go up or down? Regardless, I need a hedge. Will gold go against the stock market; but is that market a bear trap?
Some of these speculations will iron out and there will be a clear TREND or path for us to follow. A sudden severe crash in gold prices could hurt me and obliviate the path. Other than that, I will sit tight or panic first, as time dictates. All out of BS for now, will await the sure to follow critiques.
This is just a legal ponzi scheme. To actually benefit from this, you need to go to an actual exchange, and leave with the Gold after the day of market trading is over. Then, you have to find a safe place to store the Gold. And pay someone to do that for you.
In short, stay away form this scam. The only ones making any money here are the ones scamming you that you really own it in the first place.
MarketWatch.com 3/16 excerpt paraphrase etc etc
The April gold contract is now ... lower than its recent high atop $1,000... losses came despite another surge in demand from exchange-traded funds. ...
Some analysts remain optimistic that gold prices will rebound soon..."With ETF demand picking up we could see gold ... back toward $1,000 an ounce," wrote James Moore, analyst at TheBullionDesk.com
Take a sheet of paper out, and on one side, make a hash mark for positive comments, the other side negative comments. You’ll find that the negative view of things not just at FR, but everywhere are overwhelmingly bearish on the economy, especially equities. After a 50%+ sell off, reaching historical sell off peaks, only a 5-10% reduction in market earnings, I’d think that the few people, Very FEW people that are bullish, will be right like THEY ALWAYS ARE. The math frankly supports a massive rally, while the heart says the world falls apart. I can assure you what the smart and stupid people are doing, the smart are buying, and even they are scared to death. Every text book, historical account of markets, would suggest that we face the greatest buying opportunities of our lives. Oh, and 12 months from now, EVERYONE will say that they KNEW things would get better, that they would not sell, and somehow they made some smart decision. And for sure, the should would could crowd will be talking too. “I could have retired if I just had bought....”
But hey, what do I know...
With what I know abotu the market, here is what I suspect. GLD is heavily owned by traders, and speculators. These folks follow trading patterns and charts. All of them, know the support line, and have stops on the line. What many of them don’t know, have not prepared for, is a gap down. Their stop orders become market orders when the trigger hits, regardless of price. So, stop at 87, might very well mean execution at 74. I’ve seen this lots of times, wtih stocks that are trader favorites. And GLD is becomign larger than life. Just look at the YHOO message board. It is one of the most commonly discussed baords. Every kook is on it...
I’ve also been made aware of instances of stop removal. People that basically have spit risk management in the face, and that is generally a tip off of downside as greed has overcome reality.
Again, I’m basically making my statements on mathematical probabilities, acknowledge full well that I could very well be wrong. But, I see some very troubling signs, that have my radar flashing red, with loud sirens.
Gold as diversification, is actually something I’ve never held much stock in. I now think that notion, is misguided. Gold’s time will come, but not until next time. This time, was a precursor, and will be left behind the unwarranted laughing stock.
I’ll watch it fall, then take it seriously later, when everyone thinks things are OK, and Obama saved the world.
Obama has nothing to do with any of this, good or bad. FR is a contra indicator frankly, and good investment decisions are being overshadowed because of him. Again, wall street is 20% politics, politics is 80% wall street. Read about deep history, you can see for yourself.
Good politics, at the wrong time is bad. Bad politics at good markets, doesn’t get beaten up. See Argentina for a fickle voting public..
Thousands of years ago, no doubt, the crops were the issue. How much does Bush or Obama have to do with crop weather? Not much eh, but in the ancient times, I’m sure that is exactly how elections were decided.
Please keep me on your ping list. I agree with what you say. Obama has printed 1.2 Trillion, and has another Trillion scheme coming up. On the other hand even some of the Dummy Dems in Congress are slowly turning. I think there is a little upside on GLD as nothing goes straight up and nothing goes straight down.
I would be curious about your opinion on the US Government having been dumping gold to keep the price down and in some convoluted way to keep the value of the dollar up and thus sell some more of those yummy bonds they are pushing down our throats.
Once the big sale is over, I expect gold to rise again. Why? The US Mint has delayed gold and silver deliveries, at least on the coins I ordered. The delay was from January to mid March/ The delay indicates to me, at least, a shortage of gold and silver to sell via the mint; thus a diversion. JMO, but I think the gold price will rise once the fiat printing is over and then your scenario is very likely.
Thanks again.All JMO
“...too much intervention or coercion by the government would destroy individuality and self-reliance, which he considered to be important American values.”
Today most Americans want “entitlements” from the government and to retain their independence... think about it... their self reliance and thus freedom is disappearing rapidly.
I’ve heard the production delay story for a while now, it makes a good cover story. If the problem was gold supply, it would reflect in the price I’d think. The production delay could just be a staffing thing, or maybe they are being cute and created a float period? Some think that gold is being manipulated to keep the price down, and that I think is a possibility. Many folks, are convinced it should either be much higher, or at 700 or far lower. The price does indeed seem to be manipulated.
I wonder if Gold right now, is the Elliot Spitzer investments. I made that up today...
What if the idea, is to discredit it as a fools investment, only to allow people to scoop it up on the cheap for later, when it REALLY is needed? I suspect that the day is coming where US GOVT bonds start a multi decade decline, and yields just expand and expand like they did in the 70s. The only good alternative to stocks in that case, will indeed be gold, silver, or something like that. Any bond would do poorly in a rising rate market, and real estate would have a monthly cost issue that would drag on for at least 10 yrs.
Delays at the mint - Occam’s Razor - they don’t have an adequate supply.
Also: Numerous arguments contra gold declining at forum https://www.kitcomm.com/forumdisplay.php?f=7
And for real skeptics http://www.marketskeptics.com/search?q=&max-results=100
Now the Internet is loaded with sales pitches, opinions and erroneous info. Right now gold is holding well above where you predict it will go to be any where near the crash you indicate. Here are some “skeptics” thoughts http://www.marketskeptics.com/search?q=&max-results=100
Re: “I suspect that the day is coming where US GOVT bonds start a multi decade decline, and yields just expand and expand like they did in the 70s. The only good alternative to stocks in that case, will indeed be gold, silver, or something like that.”
I have read where Moody’s etc are afraid to drop the US AAA bond rating - heck Obama might even Socialize them. At any rate, I agree strongly with that point. But it must be noted that the investment services will not cause the increased Interest Rates or the drop from AAA. The change will be from the market place as the “people” are not as dumb as Obama, except those that voted for him and wonder where this is going.
There is another possibility worth consideration. For a blip on the economic history timeline, there has been an absence of the gold standard. For most of history, gold was the standard for transactions in world trade.
It would seem that conservative officials might maintain gold reserves in the vault, hoarded if you must, as a precaution against the day the gold standard must be restored.
It seems to me that in spite of a financial world that runs purely on the basis of electronic blips marking virtual ledgers, a return to the gold standard might be politically popular in Europe and Asia.
.......The math frankly supports a massive rally, while the heart says the world falls apart......
A good contrarian will take that statement to mean the time to buy is upon us. Those ruled by the heart do the wrong thing
Gee pro, in that post, as of today....you right on...
Horse, water, no drink....
I really appreciate your analysis of the gold situation. I remember when gold crashed either in the late 1970’s or early 1980’s. I didn’t have any money in those days, so I didn’t lose anything, but I do remember a lot of people lost a lot of money. I was under the impression that it crashed pretty fast, too, so it caught more people than maybe if the crash had been more gradual. Someone told me that some person or entity sold off a huge amount of gold all at once and that is what caused the crash. I also remember that the price of gold stayed low from then until fairly recently, so those people couldn’t exactly hold on and recoup in maybe 5 years or so. I had been wondering about the fundemental’s or rather how easily or quickly a large sell-off in gold could possibly happen. Your post was enlightening. Thanks.
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