"Gold has worked down from Alexander's time.
When something holds good for two thousand years I do not believe it can be
so because of prejudice or mistaken theory."
Bernard M. Baruch
Who would have thought it?
So why haven't the precious metals been 'working' since they spiked higher in
2011?
"We hypothesize that, having learned from the
misadventures of the 1960s, the policy elites, well-versed in the practice of
financial engineering and market manipulation, would have seen no need to
dump stocks of government gold reserves onto the market, 1960s style, to keep
the price in check.
Instead, synthetic gold, sourced in pyramids of credit extended to bullion
bankers by central banks with little or no claim on physical substance, have
provided a more efficient, better-camouflaged form of intervention. COMEX
synthetic gold and related over-the-counter derivatives are traded in macro
strategies implemented by hedge funds, high-frequency trades, and commodity
funds in pair trades with interest-rate, currencies, equity futures, or even
more exotic offsets. The volumes traded are huge, and bear little resemblance
to actual flows of physical metal.
We suspect that shorting gold has come to seem like a riskless proposition as
long as there is confidence in the Fed. Synthetic gold is the perfect
substance for a carry trade: an easy borrow with very low carrying cost and
little upside basis risk. Such a hypothesis, in our opinion, does much to explain
the incongruity of a declining gold price while fundamentals for paper
currency, and the U.S. dollar in particular, obviously deteriorate; while
demand for physical gold has exceeded new mine supply for several years
running; and while above-ground 400-ounce .995-gold bars located in London,
New York, and other financial capitals (in cohabitation with speculative
trading activity in paper markets) have steadily dwindled and disappeared
into Asian financial centers reformulated as .9999 kilo bars."
Tocqueville
Gold Newsletter 2Q 2015
The physical market at some point is going to come bearing consequence for
the schemes of the financiers.
I suspect that when the 'riskless proposition' of shorting gold starts to
more visibly unwind, most likely under some significant duress, we are going
to see what kind of rot has been concealed, and the bottom feeders that have
thrived on it, as when the tide goes out.
This unwinding started in the spike in the metals after the financial crisis
of 2008, but was held off by massive interventions to 'save' the Western
financial system in 2011. Gold rose in 2009 from about +150% to +775%
at the end of 2010.
The real longer term consequences of reckless monetary policy and
irresponsible financial deregulation and a tolerance for massive frauds are
still ahead of us.
Perhaps I am incorrect in this. But nothing I have seen in the data
makes me believe so.
Gold is still flowing in large numbers from West to East, and the central
banks are still net buyers.
And once the bull market in metals resumes, which I believe that it will, the
upside will be similar to the increase which was seen in the years from 2009
to 2011.
Change is coming. That is the only certainty.