Is Gold Just Another Test Run?

Sunday, September 20, 2009 , , 1 Comments

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.

Jr Deputy Accountant

Some say he’s half man half fish, others say he’s more of a seventy/thirty split. Either way he’s a fishy bastard.


Gold is money. So it has been for 5,000 years; 4,800 years longer than the republic has existed. So it will be money for another 5,000 years. Ignore trash like the FT article. I still remember in 1966 when Henry Reuss said if the Treasury stops supporting the price of gold it will fall to $6 an ounce. What nonsense. Gold terrifies the elites. Why? Gold money ends the possibility of central bank manipulation of the economy.
Griswell predicts: at $1,000 an ounce, gold is cheap. Why? Is the dollar worth .001 of an ounce of gold? Not in my opinion.
The elites say "Gold is volatile". I say "paper money is always being devalued". At $1,000 an ounce, the dollar is worth .0207 of its 1932 gold value. And I add, "you ain't seen nothing yet".
In 1980 gold hit $875, or say $3,500 or so in 2009 $ using John Williams CPI figures. Was gold dear in 1980? I don't think so. Why? Uncle Sam didn't sell in 1980 any more than he does now.
Ignore the elites.