Is Gold Just Another Test Run?
FT! You make it sound so... pornographic.
Come on, not even a full headline?
Like a cure-all tonic prescribed by a travelling rural huckster, gold somehow seems to be good for nearly everything that ails us. Just consider the diverse economic backdrops that have caused its price to spike over the years: stagflation, financial panic, speculative mania and currency debasement.
Back in 1980, when the yellow metal hit $850 an ounce – still the record in real terms – western economies were being squeezed simultaneously by the second oil crisis and record post-war inflation.
Fast-forward to March 2008, when it broke through $1,000 for the first time on safe-haven buying as Bear Stearns teetered. It approached the same level a few months later when bank worries had eased temporarily but commodity-fever was peaking, and again in mid-September when Lehman’s collapse created so much demand that smelters worked overtime to churn out bullion.
The thread connecting these episodes was fear. But for those who rushed to buy near the top, peace of mind was costly. It would be tempting to dismiss the latest surge above $1,000 an ounce as more of the same were it not for concerns about the currency in which its price is denominated. The trade-weighted average of the US dollar against six world currencies has neared a multi-year low of about 77, down from 121 eight years ago, as foreign creditors fear an endless stream of red ink from Washington.
When you can't beat 'em, join 'em and gold is no different.
The latest Commitment of Traders report [for positions held at the close of trading on Tuesday, September 1st] showed that the silver short position by the bullion banks [principally JPMorgan] continues to grow. As of Tuesday, they went short another 5,338 contracts for the week that was... 26.7 million ounces. The entire bullion bank net short position [as of that date] is now up to 48,056 contracts... which is 240.3 million ounces. This represents 137 days of world silver mining production... or 37.6% of one entire year. This short position is held by '4 or less' bullion banks. The full colour COT graph for silver COT is linked here. You may require a bit of patience, as the page takes a while to load.
In gold, the bullion banks went short another 5,366 contracts, which isn't a lot... only 536,600 ounces. Their net short position is now 21.7 million ounces... well over 20% of 2009's expected world gold production. The full colour COT for gold is linked here... and it is u-g-l-y!!!
IMHO, oil was just a test run. Wait til they do it to wheat, corn, and soybeans. That's when you really have to worry.