Investors and followers of gold and silver are variously excited or dismayed by the future prospects for precious metals prices. Small wonder, considering the avalanche of opinion supporting arguments for both higher and lower in the financial mainstream.
In the hardcore centre of the world’s gold protagonists, the true believers argue that precious metals prices are being artificially suppressed by the unregulated plethora of paper futures contracts representative of gold for future sale at higher or lower prices. This deficiency of regulation on the part of world futures regulators that allows the issuance of an unlimited number of contracts to sell gold in the future at a pre-determined price constitutes a gross distortion in real supply and demand. Especially since it is common that futures contracts that are underwater when they expire are routinely rolled over into new contracts, and no gold is actually delivered.
Furthermore, evidence provided by the Commodities and Futures Trading Commission (CFTC)’s own Commitment of Traders reports demonstrates that strong downward moves in the gold price are always correlated perfectly to a buildup in short interest – or the futures contracts betting on a lower gold price – in the timeframe immediately preceding such downward moves.
Gold’s antagonists portray the world’s oldest continuously viable currency as “finished”, and routinely use mainstream financial media to proclaim its obsolescence as a monetary format.
During a panel discussion at the Commodities Week conference in London today, Jeffrey Currie, head of commodities research at Goldman Sachs, called gold and other precious metals a “slam-dunk” sell once the current fiscal crisis in Washington is resolved.
“This is no way to diversify your portfolio,” said Terence Keeley, head of official institutions at $3.8 trillion asset management group Blackrock last week, introducing the debate on gold investment at the London Bullion Market Association’s conference in Rome.
Central Banks: Buy High and Sell Low?
Against all the negative sentiment toward gold from asset managers whose wares do not include gold products is the very compelling fact that central banks are accumulating gold.
According to the World Gold Council, central banks will purchase upwards of US$15 billion in gold this year, led by Russia.
Gold has Still Outperformed the Dollar as a Currency
According to a Bloomberg story in which Fed chairman Ben Bernanke confesses an inability to comprehend gold:
“While gold is trading below the 1980 high on an inflation-adjusted basis, it has still been better than the dollar in preserving its purchasing power. A dollar bought about three quarters of a gallon of milk in 1970, a year before the peg to gold ended, and an ounce of gold 28 gallons. By the end of 2011, a dollar got you about a quarter of a gallon and an ounce of bullion 420 gallons.”
U.S. Treasury Refuses to Sell Gold
Even the United States says it is loathe to part with a single ingot of gold from its alleged holdings at Fort Knox and other locales.
“Selling gold would undercut confidence in the U.S. both here and abroad,” said a U.S. Treasury spokesperson.
So gold is being pushed in opposite directions. Downward by people selling assets that are in competition with gold, and upward by the world’s leading governments who obviously regard it as safer than its own currency. The United States included.
