Bloomberg
News has been cheered in recent
months for several 'movements' in quasi-honest reporting, most notably a
recent article on the $1.2 Trillion (at a bare minimum) that went to the
global aristocracy from the US fed at the height of the 2008 financial
crisis. The very fact that this slice of men without a country profited so
insanely from the crisis should give most people a pretty good idea of how
contrived the crisis was to begin with.
Bloomberg was also credited with filing various FOIA
requests in an effort to force the US fed to disclose recipients of various
emergency loans. These minor victories for the truth may have gone a long way
towards giving this news outlet a clean bill of health in people's minds and
an A+ on the objectivity stress test. Nothing could be further from the
truth.
On a day when gold has dropped over $100 or almost
5.5%, investors went looking for the reasons why the correction has been so
severe. Certainly the market was due for a correction; it had come a long way
in a very short time for some very good fundamental reasons. However, even
the strongest bull market is not without pullbacks and this one was due. That
is not, however, what caused the panic selling that
has taken place. The overreaction was caused by another series of margin
hikes, this time in the Chinese gold markets. Margins were raised to 12% starting this Friday. Rewind a few months and remember what CME did to silver with a series of margin hikes. The obvious fear is
that margin hike fever will again spread back to US markets and CME will get
back into the act - which they did - effective at close of business on
8/25/11.
However, what investors found on Bloomberg was an
assortment of invectives against gold, how 'stability' in the global
financial system – aka we haven't had a crisis yet this week –
and a strong US manufacturing report all contributed to the rout. Let's take
a look at some quotes from today's 'wall of shame' article, which can be
found by clicking the link.
Bloomberg has a habit of updating and revising articles and as such I have
saved the original version in PDF format for later reference if necessary.
"This is liquidation from a crowded
trade," (name redacted), a senior market strategist at MF Global
Holdings Ltd. in Chicago, said in a telephone interview. "In the short
run, there's more optimism and that doesn't bode well for gold. Investors
have been using gold more as a fear barometer than a proxy for
inflation."
Obviously senior market strategists aren't required
to know even the most basic workings of the market that they claim to have
expert knowledge of. Certainly the latter half of this statement has some
truth to it, but why no mention of the margin hikes? If this guy did mention
it and it wasn't printed, he's got a good reason to be hopping mad about it,
because the omission makes him look incredibly incompetent.
"This is just pure panic selling" (name
redacted), the head dealer at Integrated Brokerage Services in Chicago, said
in a telephone interview. Before today, gold's 14-day relative strength had
been above 70 since Aug. 8, a signal to technical traders that prices are
poised to fall.
Again, there is a nugget of truth here; there has
been near panic selling, but again, no mention of the margin hikes. The
comments allude to the fact that the decline is based on technical factors
alone.
"Gold got pushed up on the idea that Bernanke
will announce further quantitative easing," (name redacted), a commodity
market specialist at Scotia Capital, said in a telephone interview. "Now
people are not so sure whether that will happen and that is creating
disappointment in the gold market."
Funny, Big Ben slammed the door several times on the
idea of further overt QE, albeit leaving it open on other occasions, yet gold
has rallied anyway despite the general inconsistency of his comments and an
unclear picture of how much more the central bank is willing to bury the
dollar in the short term. The Jackson Hole meeting this week might provide
some clarity in that regard, but odds are probably even that we'll know about
as much then about monetization plans moving forward as we know now.
To Bloomberg's minor credit, there was one
'contrarian' viewpoint printed at the very end of the article, but long after
the central point of the piece had been well established:
The decline may be a buying opportunity to some
investors, said (name redacted), who manages $200 million at TEAM Financial
Management in Harrisburg, Pennsylvania. "A lot of traders and investors
who are long-term bullish on gold sold out hoping for a correction because of
how much it went up," said (name redacted). "The drivers remain
intact. The toughest thing to do is stay invested during the various
parabolas and sit through the corrections."
Again, through the entire piece, there was not a
single mention of the Shanghai Gold Market's margin hikes, which will take
effect this Friday. I guess it is possible that Bloomberg journalists might
not know about this supposed subtlety in the gold market, but they talked to
a minimum of 4 market 'experts' and I simply refuse to believe that none of
these folks knew about this. It would appear that this is nothing more than
another thinly veiled attempt to shuck and jive the public into thinking that
gold is not a viable alternative to eroding paper currencies and a safe haven
from foolish monetary and fiscal policies that span the globe.
Getting away from the media bias for a second, there
are some obvious reasons why the paper establishment would like to knock down
gold prices. First, the establishment has been playing a losing game for a
decade now, putting up battles at critical junctures until market pressures
forced prices higher. This has been going on for more than ten years now. The
argument regarding speculators is really getting tired and worn out. It is
very likely that another round of public easing is about to take place (the
covert easing never stopped by the way) and the central banks of the world
would certainly prefer that gold launch from $1,750 as opposed to $1,950, for
example. And finally, central banks, hedge funds, and all those people who
bash gold love the actual metal and bought more of it in the first half of this year than they bought
during all of 2010.
They'd like more and if they can use paper charades to knock down the price
of physical so they can accumulate, then that is exactly what they will do.
The Chinese would certainly like more ounces for their flagging dollar
reserves that they desperately want no part of.
So we have folks with means, motive, and
opportunity. You might think the news is all bad. It isn't. I talk to many
people who complain that gold has gotten too expensive, which has hampered
their ability to accumulate. Guess what? It just went on sale. What we don't
know is what the final discount will be or how long the sale will last. You
again have an opportunity to trade in the ultimate wasting asset – the
US dollar – for real money and get more ounces for your paper. Not a
single fundamental has changed. So there hasn't been a crisis in Europe this
week. So what? Nothing has been fixed there – or here. So, Bloomberg
and its shenanigans notwithstanding, today's action is positive for buyers of
physical precious metals and adds another chapter what I dubbed back in 2008
as the opportunity of a lifetime.
Until Next Time,
Andrew W. Sutton, MBA
Chief Market Strategist
Sutton &
Associates, LLC
Interested in what is going on in the markets and
the economy? Read Andy Sutton's weekly market and economic commentary 'My Two
Cents' - go to www.my2centsonline.com
