I’m starting to change my opinion on gold. Because of rising US oil production, I don’t think there’s a bullish case to be made for gold because of USA economic weakness or dollar weakness. USA annual oil production increases of 1 million barrels a day—shift capital flows around the world and fundamentally shift world wide perceptions about the future of the USA. This change is as big as the change brought by the Saudis when their giant CHEAP! (as in $.25-.50 @ barrel)production leaps of the late 60’s and 70’s killed US production (which had been rising steadily since wwII.)
Something else is going on in gold. There are three things that have happened recently.
the chinese have moved their port of entry for gold from hong kong to bejing. The result of this move will be that no one will know how much gold they have been purchasing. last year they purchased record amounts. Only a tiny fraction of chinese central bank reserves are currently in gold. US central bank gold reserves represent something like 60 percent of the central banks reserves. for china the last posted reserve was 1 percent. They’ll want to raise that number considerably—especially as they want to get out of their dollar reserves. (rising US oil production tends to force the dollar up—so a rising dollar discourages central bankers from ditching their dollars for gold.)
deutche bank pulled out their gold program. News is that their seat wasn’t worth much. this suggests that a seat that was once lucrative but is no longer—means that a trade is going to be ending.
another biggie. there is talk of some of the biggest gold miners merging. why now?
well the gold price is thought to be manipulated by several players including both the central banks and the gold miners.
If the shorting of gold were to end because of a rising dollar—then gold would respond more directly to supply and demand pressures — and gold would rise —especially because of the large demand from china. The chinese have been relying on western banks to hold down prices —something they won’t be able to do if western banks stop shorting gold.
I bought gold mining stocks for the first time in my life this year. Never thought I would be invested in gold. The nice thing about the mining stocks is that they pay a divvy while you wait as opposed to gold, and also the fact that they are high beta, assuming one has the stomach for it. Once they take off, they can really move.