Thai Guru's Gold und Silber ... (Informationen und Vermutungen)

Dennis Gartman this morning:

Regarding gold, much is being made of the rather sizeable sale of gold from the recently created gold ETF. We shall admit that even we were surprised by the decision to sell 15 tonnes of gold from the ETF's holdings, and the gentleman at GATA have taken it upon themselves to suggest that this is blatant manipulation of the market. GATA sees manipulation everywhere, so we take what they have had to say with a very, very large grain of salt. We suspect that rather than a central bank or gold bullion dealing organisation hoping to manipulate gold that this was a large hedge fund unwinding a position in a manner it found advantageous... and within the rules of the ETF itself. Further, in a world where hundreds of tonnes of gold are traded daily, 15 tonnes is really a rather small amount of gold. Indeed, we suspect that GATA's decision to publicise this gold sale did more to push gold down than did the sale itself. Indeed, we are certain that that is true. This sale makes for an interesting topic of "manipulation" conversation, but in the very great scheme of things it is nothing of consequence.... although we are certain that GATA shall take rather exceptional issue with our perspective. Further, we doubt that GATA shall make much of the fact that the ETF added 3 tonnes of gold back to its holdings at the close last evening.

Gold has sold off because gold had become egregiously over-owned by the public and the public will always be taken out of their positions in rather unseemly ways when they become as one-sided as they had become. There is really nothing more to say except that further dollar strength shall make life a bit more uncomfortable for owners of gold. We have said for the past several days that it is entirely possible that spot gold could trade back to the $397-402 level, without doing any real damage to the long term bullish trend other than to shift the psychology of the market from one of egregious enthusiasm to one of deep depression. We'll await that depression into which to buy:

-END-

A few key points to make here:

*Yes, gold was overbought and due for a correction. However, it should be correcting from $480, not $450 and change. What I mean by that is the obvious capping by The Gold Cartel restricted the rise it would have made in a free market.

We should be correcting to $450+, not from.

*Even as gold was kept in check price-wise in terms of foreign currencies on the way up, it fell apart even further on the way down. A couple of weeks ago gold was around $443 with the euro at 132. This morning with the euro still at 132, gold was trading $10 lower than a couple of weeks ago.

*The manipulation by The Gold Cartel sets up drops like this. They bide their time and sell all the way up until they are ready to attack the specs. With the dollar so weak they were unable to make their move until this orchestrated attack was formulated and the dollar corrected.

*The obvious tip-off how orchestrated the planned gold mugging was appears to revolve around the mysterious disappearance of 15+ tonnes of gold from GLD’s assets in a quiet market, BEFORE the price drop. Mr. Gartman comments this "is a small amount of gold." What he doesn’t say is the amount was probably only THE TIP OF THE ICEBERG and only what we could see. Somebody clearly got wind of what was coming, or wanted to use the fund to create a selling avalanche. How much gold was sold on the OTC market in conjunction with this 15 tonnes? The 15 tonnes probably was the tip of the iceberg.

*Anyway you look it at the sale of those 15 tonnes stinks to high heaven for a myriad of reasons, as expressed in this column the past couple of days. For this WGC product to maintain any kind of credibility it has some explaining to do. Without being able to audit what is going on here, it will be subject to skepticism for a long time. They must answer why their fund is structured so secretly compared to the Aussie and Canadian physical gold funds.

For more on the GLD flap:

Duplicate Numbers On Gold Bars Normal - Johnson Matthey

Friday December 10, 6:00 AM EST

LONDON -(Dow Jones)- Gold bars held by the StreetTRACKS gold-backed exchange- traded fund may be stamped with the same number but such a move is standard practice, Johnson Matthey PLC (JMAT.LN) said Wednesday.

In a letter to the World Gold Council, which is behind the launch of the fund, Johnson Matthey said that prior to 2002 all bars it produced were stamped with a two letter code, representing the year, followed by a number. After 2002 the company said it stamped the bars with a year, such as 2003, followed by a number.

"Therefore, some bars will have the same number but with different prefixes," David Grimwood, Johnson Matthey customer services manager, said. "Both the letter and the number combination need to be taken into account to identify the bar."

The letter follows suggestions by James Turk, editor of the Freemarket Gold and Money Report and founder of the GoldMoney gold depository and gold payment system, that 2.2% of the inventories held by StreetTRACKS were "called into question."

He said on Dec. 5 that out of the 6,981 gold bars on the fund's list, 78 had duplicate bar numbers. Johnson Matthey's explanation for some of the bars having the same numbers didn't change his opinion.

"It would appear from their letter that the prefix to the bar was not recorded in the bar list reported on the StreetTRACKS Web site," Turk told Dow Jones Newswires.

"The problem is without having the ability to audit all of the assets of GLD (StreetTRACKS), there is no way of verifying whether this error was a simple bookkeeping error or whether other factors were at work."

Industry analysts said the sharp fall in the price of gold on Wednesday may have been linked in a small extent to the comments on StreetTRACKS' inventories.

"It's possible it (the fall in the gold price) may be related to an allegation that was put out questioning the inventories," said an analyst.

Spot gold in Europe fell nearly 4% Wednesday to a four-week low at $433.30 a troy ounce, primarily on a stronger dollar against the euro and heavy long position profit taking.

The total net asset value of gold in the trust dropped from 103.56 metric tons to 88.02 tons from Monday to Tuesday before climbing again to 91.13 tons Wednesday. The latest gold bar list, updated each Friday, shows 8,306 bars or 3, 326,797.97 ounces.

StreetTRACKS gold shares were launched Nov. 18 on the New York Stock Exchange to track the price of gold. Each share represents one-tenth an ounce of gold.

-By David Elliott; Dow Jones Newswires; (4420) 7842 9411; david.elliott@ dowjones.com

Response from James Turk:

Bill
Johnson Matthey did not say that having the same number on a bar is "standard practice". Here is what Johnson Matthey wrote:

http://www.thebulliondesk.com/…/press/JohnsonMatthey.jpg

Two bars with the same number is not normal -- it is an exception. So the JM report does not change my view regarding GLD.

Their letter makes it clear that only part of the bar number was recorded by GLD. The pre-fix to the bar was not recorded in the bar list reported on the StreetTracks website.

The problem is that without having the ability to audit all of the assets of GLD, there is no way of verifying whether this error by GLD was a simple bookkeeping error, or whether other (and perhaps sinister) factors were at work. Hence, this error demonstrates the need for auditing all of the gold in GLD, and not just the gold in the custodian.

GoldMoney, pioneered the online reporting of audited gold bars (all of the gold within GoldMoney is audited). Anyway, using GoldMoney's bar list as an example, here is how the JM-UK bars should have been reported (note the 1st two bars on the list).
http://goldmoney.com/en/bar-count.html

The important issue remains unanswered. Why isn't all of GLD's gold audited? If it was audited, simple bookkeeping errors (e.g., recording only part of the bar number) would be caught by the auditors, and corrected. And if it was anything but a simple bookkeeping error, that too would be caught by the auditors. So until and unless GLD is changed so that gold in the subcustodian and sub-subcustodian is audited, I cannot recommend GLD.

Regards
James

James Turk is one of the most thorough, responsible people I have ever met. No one out there with more integrity. What he queries about GLD is right on target. So are my aspersions that something stinks to high heaven with GLD’s 15 tonne gold dump in a quiet market. It is so ironic. For some time we have jumped up and down about the way this fund is structured, warning it could be used as a vehicle to manipulate the price. We pounded the table BEFORE this gold vehicle was launched. It’s only open 3 weeks when they experience a mysterious 15+ tonne drop in a quiet market. Then the next thing you know gold drops $20 per ounce and GATA critics blame us. That coincidence should not pass anyone’s smell test.

John Mackenzie agrees with our camp:

"Avoid the ETF’s. Please do boycott them, James Turk has exposed the WGC/GLD/SEC scramble for what I do believe it is… another hatchet tool for the criminal Cabal; one that adds another layer of sticky veneer to Uncle Buck. I doubt anyone with two stems cells attached is going to allow it dry. Paper is merely a trade, a levered play on speculation. When the great unwinding occurs, precious metals will weather the storm far better than anything else. Secure your savings today, our nations leaders appear to be hell bent on spending their way to the promise land."

http://news.goldseek.com/GoldSeek/1102696069.php

***

The way a Café member sees it:

Bill,
from your Midas today:

"It appears that GLD does not even attempt to "track the spot bullion market" as advertised. Rather, its managers are actively using their centralized control over a large bullion position to deliberately cause huge waves in the market, in a way that gives them (and probably favored friends) insider foreknowledge upon which they can illegally profit. If they are able to profit from these large market moves, the profits do not accrue to the GLD shareholders ... since the objective of GLD is to track the market."

With JP Morgan and Deutsche Bank holding the money for this fund, and knowing the history of the WGC, it looks like the GLD is just another weapon crafted by the cartel to continue their manipulation and control of the gold price. What an effective tool to scare away potential investors. A really sick bunch the cartel.

There is only one way to stop them. And you've been doing it. Tell the truth.

They have reached a new level in their strategy though, and that is now to attack GATA outright in their press. This too will backfire on them.

Keep up the great work.
Chuck

Here is a sound question to be answered:

In last night’s Midas you reiterated that the Cartel has to come up with 1500 tons per year to keep gold from rising rapidly. Yet for the last few years you have been quoting Frank Veneroso's famous 16,000 tons already out of the vaults. Isn't that inconsistent?. Shouldn't the number be 19,000 or more by now?
Sincerely,
Stan Seeb

Hello Stan,
Yes, the number should be higher. However, keep in mind gold producers have returned a couple of thousand of tonnes by reducing their hedges. This must be factored in.

We don’t know what the actual gold loan/swap number is, just that it is way up there. Could be 16,000 tonnes; maybe 18,000 tonnes. What is important to keep in mind is that this gold is gone and not acknowledged by anyone in the mainstream gold world. They are still going with a 3500 tonne gold loan number, or thereabouts. The difference is staggering and one day, when this news surfaces, will expose The World Gold Council and GFMS as a bunch of phonies, to put it kindly.

Smoke is beginning to surface indicating GATA has the right numbers. There is increased speculation the European central banks won’t fill their 500 tonne quota allotted in the new Washington Agreement. IF the central banks still had 28,000 tonnes in their vaults, their 500 tonne allotment would be a drop in the bucket. However, if they are hitting the wall, as the GATA camp suggests, and have less than 16,000 tonnes left, then 500 tonnes is beginning to be a significant deal.

The reason for this is The Gold Cartel went around years ago conning central banks to lend out their gold in support of their nefarious scheme. Now that gold has risen $150, the lenders are choking and nervous they will never get their gold back. Meanwhile, the available pools of lenders, or sellers, has to be relatively small these days. In addition, those central banks who still own their gold are much less inclined to follow the other sheep and dump gold as the price rise the past few years is reminding them why they own it in the first place.

****

The rehabilitation of gold
http://www.miningmx.com/gold_silver/398336.htm

Kelvin Williams insinuates European central banks might only sell 350 tonnes versus the 500 tonnes allocated under the renewed Washington Agreement.

***
Let us put something else in perspective here on KW and AngloGold. In late January 2001 Reg Howe and I attended the INDABA gold conference in Cape Town, SA. While GATA was disparaging the gold hedgers in our $50,000 full page add in Business Day, courtesy of "South Africans for a free gold market," Kelvin Williams announced that Anglogold had increased their hedges. Gold was around $255 at the time. A big hush went up in the audience. AngloGold sure got that wrong. GATA got it right, including predicting the staunch price move up the past three years. Perhaps Anglogold has been clued in since then, or finally realized The Gold Cartel scheme is ending?

This sort of commentary from the CFTC is sickening. Most likely the same drivel fed to those in the mid-90’s who complained the copper market was rigged, only to have it erupt into a full blown price manipulation scandal, in which JP Morgan was fined heavily as part of their role in the manipulation. Where was the CFTC then?

CFTC: No manipulation of silver market
By: Dorothy Kosich
Posted: '10-DEC-04 06:00' GMT © Mineweb 1997-2004

SPOKANE, Washington--(Mineweb.com) The U.S. Commodity Futures Trading Commission does not have much patience with analysts who espouse conspiracy theories involving silver metals market manipulation.

In fact, David Kass, Senior Commodities Economist with the CFTC told members of the Northwest Mining Association Thursday that the agency is in the business of detecting and deterring manipulation "before it happens" and has been doing so for a century. However, he added, the futures trading of precious metals constitutes only about 2 percent of overall trading volume by community….

-END-

More nonsense:

Head for the exits
Commentary: Gold has likely topped

In addition to gold's poor performance in relation to the CRB and the dollar, I want to point out that there is strong technical evidence suggesting that gold has made its final push into what will likely mark the top for the current nine-year cycle…..

For the full story:

http://cbs.marketwatch.com/new…69BF%7D&siteid=mktw&dist=

-END-

Horse manure Wood! What good is cycle work in a rigged market? The market is an illusion as is. The cycle of a free market has been thwarted for nearly a decade. Garbage in, garbage out.

A couple of tidbits and feedback on the Aussie gold shares and bullion itself:

Hi Bill
Just some feedback on this reaction.

As you may know from previous emails, my company, myself and our clients are large holders in Resolute Mining (ASX Code: RSG).

For whatever reason, RSG has for the last couple of years been a pretty accurate leading indicator of gold price movements.

RSG topped out at $1.65 on 18 November (for perspective it hit $1.91 in April ….. ) and by 3 December was at $1.45.

On yesterday’s circa $20 fall RSG fell to $1.35 within an hour of the opening however then reversed to close unchanged at $1.45.

Strong buying was displayed (and it wasn’t me !).

Just food for thought.
Regards,
David Guy

Hi Bill,
Just like in the US, the Oz gold shares were trashed BEFORE bullion was. In today's session, nearly all of them were up. If the market is correct, that may mean this bashing of gold is over - then again let's not hold our breath.
Cheers,
Malcolm

The flap goes on between Harmony and Gold Fields:

06:39 GFI says "expresses concern" over HMY's statement delay of a month (12.95)
HMY says it will release an updated report on gold reserves by 1/15/05, which is a month later than initially promised. GFI on 11/9 alleged HMY had "material discrepancies" in its statement of reserves.
* * * * *

The gold shares seem to not want to go much lower, but all rallies are met by stale liquidation, dissillusioned bulls dumping, and margin/tax loss selling. Gold is only $20 off a 16-year high. The way the shares have traded for some time you would think gold took out $400 and was streaking for $375. Those exiting here will regret it in the weeks and months ahead.

Anyone who has not taken the time to read Reg Howe’s latest masterpiece is doing themselves an injustice. To get a handle on what the gold market is really all about, this is a MUST read, especially for those of you new to this site and to what GATA has uncovered over the years.

At the New Orleans Investment Conference, GATA’s Andrew Hepburn made a point that the intellectual capital of the gold world was in the room (that coming from the GATA camp in attendance or not) and most of the rest of the gold market commentary was "drivel." When you read Reg Howe’s brilliant essay, you will have some idea why Andrew audaciously made such a comment. It is a well founded one.

When our critics take potshots at our camp, like they have recently at James Turk and GATA, it seems few of them have read our extensive work in depth. And, if some have, they either aren’t smart enough to understand it, or fail to deal with the specific findings. None are willing to debate us and go over our discoveries point by point. This includes the World Gold Council, GFMS, Dennis Gartman and the rest of the establishment. Instead, they rant and rave about the conspiracy people.

I challenge any one of them, and all of them, to take apart what Reg has published. Fat chance! These wimps "can’t handle the truth," nor are they willing to stray from their simplistic, naïve approach to analyzing the gold market.

I have taken the liberty of publishing some excerpts from Reg’s extraordinary dissertation:

Déjà Vu: Central Banks at the Abyss

http://www.goldensextant.com/S…emselves.html#anchor57474

Blindman's Buff. The immediate impetus for WAG I is easy to understand. The British gold auctions had caused a severe decline in gold prices just after the new European Central Bank and its member central banks had adopted the practice of regularly marking their gold reserves to market. However, as a rational strategy on the part of its signatories, WAG I is difficult to explain except on the hypothesis that the central banks themselves did not have adequate information about, or a sufficient understanding of, the gold lending and gold derivatives markets.

While these markets had grown up largely as the result of more active management by the central banks of the gold reserves under their control, as a practical matter much of the actual management took place on the advice and under the direction of the bullion banks. In Gold Wars (FAME, 2001), pp. 119-176, retired Swiss banker Ferdinand Lips reviewed the emergence of these markets in the 1990's, concluding that the more sophisticated bullion banks had taken advantage of their positions as advisors to the relatively naive central banks (at 144):

Their [the bullion bankers'] only motive was to make money. They made legendary amounts of money with the 'Gold Carry Trade'. By borrowing gold from the central banks at a 1% lease rate, then selling the gold (thereby flooding the physical gold market with an artificial supply) and investing the proceeds in Treasury securities at 5%, they were making fortunes. Who can blame them?
It was the Chairman of the Fed, Alan Greenspan, himself who invited them to do so by declaring before the House Banking Committee on July 24, 1998, and again on July 30, 1998 before a Senate Agricultural Committee, that "[...] central banks stand ready to lease gold in increasing quantities should the price rise." By allowing an unprecedented manipulation of the gold price, the central banks laid the foundation for the biggest money game in history.
Nobody cared that the manipulating (a strong, but truthful assessment) governments, central banks and bullion banks, were completely ignoring the free market process. Greedy bullion banks were permitted to eat away the profits that should have gone to the gold mining companies, their shareholders, workers and last, but not least, the poor gold producing countries.
In fact, a year before his 1998 congressional testimony about gold leasing, Mr. Greenspan's Federal Reserve handed the bullion bankers a powerful document with which to sell the practice of gold lending to central bankers. It released a staff paper arguing that government gold should be made available for private uses sooner rather than later, either by selling it all immediately or lending as much as possible at once and selling it gradually later. D.W. Henderson et als., Can Government Gold Be Put to Better Use? Qualitative and Quantitative Effects of Alternative Policies (Federal Reserve Board, International Finance Discussion Paper 582, 1997). With respect to the latter alternative, the paper suggested a future that may now have arrived (at p. 5):

The quantities of gold available for private uses are the same under the alternative policy as with an immediate sale. However, there is an important difference: under the alternative policy, governments relinquish title to their gold in the future and then only gradually. Therefore, to the extent that government uses can be satisfied by owning gold but not physically possessing it, most if not all of the gains associated with maximizing welfare from private uses can be obtained with little or no reduction in welfare from government uses until sometime in the future. [Emphasis supplied.]
Almost as soon as it was published, Goldman Sachs referred to the paper in 116-page report on gold stocks, calling it a significant negative for gold prices. See J. Tompkins, Portfolio Gold: Now You See It. Now You Don't, Investor Features Syndicate (September 15, 1997). Used in this context by Goldman's stock analysts, the Fed's staff paper was actually relatively benign. But in the hands of its aggressive bullion bankers at J. Aron & Co. as they made their business development calls on the central banks, the paper carried considerable potential to inflict real damage on gold prices. Acquired by Goldman in 1981, J. Aron was transformed into an active and highly profitable trader in gold futures under the direction of Robert E. Rubin, then a new member of Goldman's top management committee, but in 1997 Secretary of the U.S. Treasury. See R.E. Rubin et al., In an Uncertain World (Random House, paperback ed., 2004), pp. 91-92.

By 1999, with major gold mining companies acting -- if they were not in fact -- clueless as to what was really happening, the profit-driven bullion banks and manipulative central banks had turned the always secretive gold market into a sort of gigantic, rolling game of blindman's buff. WAG I knocked the blinders off, but not before the major players had unwittingly trapped themselves in what one prominent gold analyst later described as "the prison of the shorts." See Frank Veneroso et al., Gold Derivatives, Gold Lending, Official Management of the Gold Price and the Current State of the Gold Market (Presentation to Fifth International Gold Symposium, Lima, Peru, May 17, 2002)…..

-END-

The very short-term is so hard to forecast in all markets. With the 500-pound gorilla Gold Cartel on the case, predicting gold movements is that much harder. GATA did accurately predict years ago what was going to happen to the price of gold. No one out there has been righter for so long, forecasting what would occur and why. PERIOD. On that score, it is my firm belief this recent gold move up is only "jacks for openers." The price of gold is going to rise many hundreds of dollars per ounce in the years to come as the corrupt and sinister Gold Cartel runs out of ammunition to continue their scam.

GATA BE IN IT TO WIN IT!

MIDAS

Nachdem uns massenweise englische Texte serviert wurden, hier mal etwas in meiner Muttersprache. Ich kopiere das an dieser Stelle, um eine möglichst große Leserschar zu erreichen. Dieser Vorgang, ist auch unter folgendem Link nachzuvollziehen: http://www.goldseiten-forum.de…d=&postid=34529#post34529

@ alle

Also zur Währungsreform wäre noch soviel festzustellen, daß wir scheinbar auf den nächsten Krieg zulaufen. Die Amis versuchen alles, den Iran und alle
seine Kontakte, ob in die Finanz oder Börsenwelt, oder Industrie zu isolieren, bzw. alle unter Druck zu setzen die darin involviert sind. Das sieht man an den Aktien von Thyssen/ Krupp ( Iran hat große Bestände von denen sie sich lösen sollen ) oder an der Autoindustrie, sowie Fahrzeuge von Daimler Benz.
In meinem Börsenbrief von ( G& M ) wird ausdrücklich als Titelstory auf die kommende Gefahr hingewiesen, und fundierte Zusammenhänge sehr gut begründet. Wort wörtlich wird hier klar dargestellt, das der Iran im Besitz von
Cruise Missiles ist, ( SS.N- Sunborn )die von den Russen geliefert wurde. Diese sind eine ernsthafte Bedrohung für jedes Kriegsschiff, mit den Folgen das bei einem Krieg, versenkte Schiffe in der Strasse von Hormus auf dem
die Ölpreise entsprechend reagieren werden. Auserdem hat scheinbar der Ami auch damit gedroht, den europäischen Galileo- Satelitten wenn er für Kriegszwecke genutzt werden sollte, abzuschießen. Die Chinesen haben hier eine verbale Zurückweisung vollzogen, zumal sie finanziell auch dabei beteiligt sind. Es sind auch entsprechende Schlußfolgerungen da, das unter entsprechenden Zusammenhänge, ein Atomarer Schlag im bereich des möglichen ist. Jetzt ist auch zu verstehen, warum die europäischen Staaten, fieberhaft an Beruhigung der Iran Debatte interresiert sind, die Russen sind hier ebenfalls massiv im Boot. Wenn es also eine Währungskriese geben sollte, dann aus dieser Ecke. Gründe dies zu tun, gibt es massenweise, um den Stecker aus dem Dollar herauszuziehen, zumal die Finanzierung und die weitere Verschuldung dieses Krieges eine Bedrohung für das Finanzsystem ist. Der Terrorismus wäre dann auch selbstverständlich an der Weltwährungskriese schuld. Scheinbar sind die aktivitäten der Amis den Iran zu überfallen, viel massiver als bisher bekannt. Es gilt jetzt aufmerksam die Medien zu verfolgen, und jede Infos in diesem Zusammenhang ernstzunehmen. Die Amis wollen sich den letzten freien Ölstaat einverleiben, mit all den entsprechenden Folgen, für die restliche Welt. Das kommende Jahr könnte so ähnlich verlaufen, wie das Jahr 2003. Die Börsen haben diese Bedrohung noch garnicht wahrgenommen, deshalb rechtzeitig diese Info hier an Ort. Das die Israelis mit 5000 bunkerbrechenden Raketen, von USA ausgerüstet wurden, ist hinlänglich bekannt. Wer also der Auffassung ist, das bei einem Krieg Aktien zu tiefstpreisen kaufen kann, hatte bisher immer recht, er sollte aber auch wissen, das bei einer Währungskriese, selbst Gold und Silberaktien schlagartig selbst zu tiefstpreisen nichts mehr Wert sind, denn Kursaussetzungen auf unbestimmte Zeit, machen keinen Spass mehr.
Ein schönenen Sonntag noch allen.

Gruß Jürgen

ein paar sehr mutige Kursprognosen von Gold und Silber von Mackenzie (in ein paar Jahren):

http://www.gold-eagle.com/edit…_04/jmackenzie121204.html

Falls schon vorher gepostet, sorry... aber sehr interessanter Bericht, darum stelle ich ihn hier (nochmal ein:

The Risk To Gold Equities Grows

To: New Orleans Conference

From: Frank Veneroso

December 6, 2004

The following presentation is a write up of the notes I used in making the concluding speech at the November New Orleans conference. As I have been writing these notes up into a full blown text, much that is relevant has transpired, so I have taken the liberty of including some of this to strengthen the presentation I gave that Sunday in New Orleans.

The Big Picture

Last year at this conference I discussed the subject – inflation or deflation ahead. I argued that the current global economic recovery was driven by two locomotives: U.S. consumption and Chinese capital spending. The rest of the world was carried forward by these two locomotives.

I argued that there was something untenable about this recovery. Both locomotives were driven by unsustainable increases in debt relative to income. As long as debt is expanding rapidly, income will grow. But the rising level of indebtedness becomes a huge deflationary weight on economic activity once debt growth seriously slows.

Over the last year we have seen outsized increases in the indebtedness of households in the U.S. and the indebtedness of businesses and households in China. China is moving to slow its debt growth and its economy. The U.S. is not. But debt growth and economic activity have slowed somewhat anyway.

Europe, Japan, Korea, and some other economies recovered only because of the booms in U.S. consumption and Chinese capex. Now that these locomotives have slowed these economies in their train have slowed sharply.

The odds favor that the dynamics of over indebtedness will lead to further slowing in the global economy. The threat of inflation will give way to the threat of serious disinflation and perhaps even deflation.

Somewhere in the midst of all this policy makers around the world will panic. There is too much debt in the U.S., Japan, Korea, China, U.K., and even core Europe for serious disinflation or deflation. Then policy makers will move to unconventional measures, to helicopter money, to deliberate debt confiscation.

The coming shift to disinflation is the background for a serious correction in commodities and gold within the context of a very long bull market. The move to unconventional measures will mark the beginning of the second leg up which will be led by gold.

Introduction

I have been a speaker at this conference for almost a decade now. When gold was moving toward the bottom of its bear market and everyone was wicked bearish on gold, Jim Blanchard and I hatched the idea of the Gold Book which Jim and Brien published. In those days, amid all the gloom at $280 gold, I used to give rousing bullish speeches on the coming bull market in gold.

I am still a long run gold bull. But I now manage a European gold certificate that focuses on investing in small cap undervalued junior golds. We recognize the extreme risks of such an endeavor as junior gold stocks are not exactly seasoned equities. We try to avoid those issues which Doug Casey refers to as “burning matches” – exploration companies with no delineated asset who are burning cash in an effort to find one. But even those juniors with clearly delineated assets are volatile and even can be perishable during periodic downswings that can punctuate an overall gold bull market. For this reason, we have the ability to hedge our risk extensively in order to manage the periodic large price risks that are created by such wide oscillations characteristic of a gold bull market.

Almost everyone at this conference is bullish on gold – a far cry from the environment of years ago. I must say, as a manager of a certificate program focusing on small cap gold equities, I am not a happy camper. The junior golds act horribly. I could never have imagined such poor price action and lack of liquidity this far along in a gold bull market. This, plus all the other things I will talk about to you, will be marked by caution and concern. I am the final speaker at this conference. I hope my transformation from uncompromising bull to concerned long term bull is not too much of a disappointment.

Warning Signs Everywhere

We are long term gold bulls. But gold bull markets experience severe corrections. In the great 1970’s bull market in gold the price of gold corrected by more than 50% from the end of 1974 to 1976. Noted gold analyst, John Doody, has looked at the length of major bull moves in gold since 1971. Based on his analysis the current bull run in gold is slightly longer than any of the prior ones. There is nothing conclusive about this; it does not necessitate an end to the bull run now. But, it stands as a warning that the bull run in gold in recent years is much extended in terms of time.

Over the past several decades oscillations in the price of gold have been correlated with a host of indicators of sentiment and investor positioning. All these indicators are now at great extremes- extremes which have coincided with market tops in the past. Many of the other analysts at this conference like Ian McIvity have documented this better than I can.

Most disturbing is the behavior of the gold equities. A serious divergence between these equities and the dollar price of gold began in October when the price of gold reached the 420 level and the HUI gold stock index reached the 240 level. Since then gold has worked itself higher in dollars. At the same time gold equities failed to make and hold a major new high. More recently, over the last two weeks, the price of gold has worked significantly higher while the gold stock indices have broken down in a rather ominous fashion.

Gold

HUI Amex Gold Bugs Index

It has often been remarked that the gold shares lead the price of gold. We have not been able to statistically document the validity of this claim over long periods of time. But, a cursory examination of the charts over the last decade would suggest that there is some validity to it. To this degree the ominous looking top in the gold stock indices stands as a warning.

What Is Wrong With The Gold Stocks?

We publish a letter to the holders of our gold certificate. We discussed this issue in our last letter to investors. We believe that there has been record hedge fund herding into short dollar future and forward trades. These same speculators have taken on record long positions in gold futures and forwards as another variant of their short dollar trades. The CFTC data shows that the net spec long position in Comex gold futures is slightly below the record peak at the beginning of April just before the break in the gold price. However, we hear from the major dealers that most fund positions today are classified as commercial and not speculative positions. On this bull run in gold the Comex open interest has moved to an all time high, well above April’s peak. We believe this indicates that spec positions on both Comex and the much larger global OTC forward market are also now at record peaks.

We have warned that funds and prop desks that trade in gold futures and forwards are pure momentum players who follow short term trends. They have no investment commitments to any of their markets. When these trends falter they often all try to exit at once and together. This is illustrated in crashes that occurred in silver in April and copper in October. We see something similar but less dramatic in the break in oil that occurred after the peak in October.

Silver

Copper

Oil

For such momentum traders, all poised to exit their market before “the other guy”, liquidity is of the essence. That is why their preferred habitat is the gold futures and forward markets which are among the most liquid in the world and which trade around the clock, allowing instant exit at virtually any point in time.

Gold shares are far less liquid than gold futures and forwards. They also trade only during appointed hours when their respective stock exchanges are open. Large cap gold equities are reasonably liquid. Intermediate cap issues are less so and small cap issues are not liquid at all. Momentum traders cannot afford to touch the latter. There ownership is dominated by true gold investors with a long term time horizon and with a commitment to gold as an asset class.

In our last letter to certificate holders we noted that the smaller the market cap the poorer the performance of gold equities. Most distressing in recent months has been the depressed trading volumes of the small cap shares. This is virtually unprecedented. New highs in the price of gold after an extended bull run have always brought the public into the gold shares. Typically the small cap issues lagged at the beginning of a bull move but became star performers with huge trading volumes once the move became extended. Just the opposite has happened this time. Although some junior gold issues have achieved popularity with investors and have performed well, most of them have been surprising laggards. We have found that new companies with new developments but no real established asset values have tended to be among the better performing issues, while companies that have been around a long time and have established but now familiar assets of real value have been generally neglected. I remember Doug Casey
saying this market only likes “fresh meat”. The fallen angels of yesteryear, even if they now have good assets, often tend to languish. In any case, on average the small companies have underperformed, and, most importantly, trading volumes are well below the levels of late 2003.

Here at the New Orleans conference we probably have the largest number of noted gold analysts. I know many of these analysts well from having attended these conferences for many years. All have been struck by the lack of interest in the junior gold equities. One noted analyst has told me that he posed the question to a large assembly of you attendees: How many of you have bought a gold stock in the last month? Only two raised their hands.

I have found something of a consensus as to why the junior gold equities are doing so poorly. First, the gold companies issued a flood of equity paper in 2003 and 2004. Second, the gold sector is not attracting new followers. Several analysts have stressed, the constituency for gold investing is graying. The attendance today is still the older cohort. Those investors are already fully invested. What buying power they had has been met by the flood of paper issued by the gold companies. Now they are long, under water on their investments, and trapped in issues with poor liquidity.

Others noted that there have been very few exciting new exploration discoveries to ignite new investor interest. I have heard frequent complaints that the new post Bri Ex regulations (43101 etc,) are sapping the money and effort of the juniors and impeding new exploration and mine development.

Many like Billy Murphy find this caution on the part of investors bullish. It would be if these retail investors had cash to put to work, but most appear to be fully committed. This overall situation shares in many respects the characteristics of many equity markets that had an extended bull run that ended in speculative excess. There are technical studies that show that it takes about three years for an equity sub-sector to go from being one of the worse performers to one of the best performers and then another three years to reverse this cycle. Typically, the speculative excess takes the form of a parabolic blow off in prices which surely happened in late 2003 in the minor gold stock sector. During such a parabolic blow off in any equity market there is large new issuance that eventually sates demand, which occurred in the gold sector as well in 2003.

HUI Index

In such speculative blow offs enthusiastic market participants buy, not because of underlying fundamental values and a long term investment objective, but simply because rapid price acceleration creates the allure of instant riches. Many investors get caught holding paper, the fundamentals of which they do not understand. When the correction comes they hope for the inevitable rally to new highs. But enough are chastened that there is very considerable liquidation when the rally comes. This process of distribution is often apparent only in the charts, which show flagging stock price performance even though the original theme associated with the speculative blow off appears intact. Markets like this frequently trace out double tops. When the second rally fails all those who were hoping find their hopes dashed and a serious bear slide often sets in.

The current charts of the gold stocks suggest such a possibility. Of course, everything will depend on the price of gold. We fully understand the bull case. It claims: the U.S. has an unsustainable current account deficit; the dollar will continue to fall; and gold, which has been closely correlated with the euro recently, will continue to rally. Then investors will see in the lagging gold shares value and opportunity and rush in to buy. The gold shares will then catch up to the metal.

This is the reigning consensus among gold investors. It’s what is keeping those investors that are now fully committed, under water and hoping, in the game. Maybe a further rally in gold will bring fresh money to the market and make their hopes become reality. But, under the technical and psychological conditions we have outlined above, the gold shares could be extremely vulnerable if the metal has a significant correction, which is long overdue by many measures.

Gold As A Commodity

What drives the price of gold? First, it has certain commodity dynamics. Investors recognize this. What happens to the price of commodities at large influences the behavior of investors towards gold the metal. From 2001 to 2004 we had a bull run in almost all commodities. Commodities are inherently cyclical – these bull runs do not last forever. In fact, over the very long run, the real prices of commodities tend to oscillate around a declining trend (I want to stress that gold is an important exception to this which is very bullish for the long run).

Grains made decade highs early this year. They have done a roundtrip and are now on five year lows. They remind us that, even though China has a voracious appetite for all commodities, including grains, commodities are inherently cyclical.

Corn

The most important commodity of all is oil. It had a great bull run from after the Iraq War to the end of October. When oil was at its peak gold bulls sighted the long run correlation between the price of oil and the price of gold. The price of gold would rise, they said, because it has been lagging the price of oil. Since its peak oil has fallen and recently it has fallen precipitously. This should be construed as a short run negative for gold.

The global economy is clearly slowing. In the third quarter the economies of Japan, Germany and France slowed to almost zero growth. The U.S. economy has now decelerated to its trend rate. Chinese net imports of many commodities are down. Meanwhile, the supply of many commodities is rising in response to high prices. Though copper has recovered half of its precipitous October decline, an industrial metal like nickel has only stabilized. The history of commodity cycles tells us that, amidst slowing global demand, commodity prices should fall further. This will not be positive for the price of gold. Institutions and individuals allocating funds to commodity baskets will back away. Speculators pushing trends associated with the commodity theme will liquidate their longs. All these commodity trades tend to be somewhat correlated. If this occurs, gold should not go unscathed.

Gold As A Currency

We have noted that there has been a close correlation between gold and the euro recently. Clearly, with oil in decline, the price of gold has been driven largely by the depreciation of the dollar against the major G7 countries currencies. It is very likely that over the short run the price of gold will continue to be influenced by the movements in the dollar. (Someday this will end and gold will rise in all currencies, but probably not now.)

I set out earlier the consensus position: the U.S. has an unsustainable current account deficit, therefore, the dollar must fall. In our last investment letter to certificate holders I discussed this issue in some detail. The economics are complex. But I will address it again.

The key question is, does the U.S. have a large current account deficit because its prices are out of line with its trading partners? If they are – that is, if goods are too expensive to produce in the U.S. relative to the cost of the production of goods abroad – the U.S. will experience a loss of competitiveness, deterioration in its trade, and a large current account deficit.

We can measure this relative competitiveness in terms of purchasing power parity (PPP). Such measures suggest that the U.S. is quite competitive with Europe and Japan. Competitiveness in tradable goods markets with these countries is not the source of its overall current account deficit. And, by the way, account for only about 30% of the U.S. current account deficit.

Based on PPP the U.S. is not competitive with China and many other low wage emerging countries. But neither is Europe and Japan. If there is a competitiveness problem for the U.S., there is also such a problem for Europe and Japan. In the long run the dollar will have to depreciate in real terms against the Chinese yuan and the other emerging market currencies, but it certainty need not against the euro and yen. And it is dollar depreciation against the latter that is now driving the price of gold.

PPP, competitiveness, and the relative prices of tradables are not the only things that cause trade and current account deficits or surpluses. There are differences in economic growth rates. If one country is growing much faster than another it will suck in imports and its trade and current account balance will deteriorate. Studies show that over the short run differences in the growth rates of domestic demand have a far greater impact on trade and current account balances than considerations of competitiveness and relative prices.

The U.S. is growing at almost 4%, which is probably above trend. In the third quarter Germany, France, and Japan had almost no growth. This contributes in a large way to the U.S. current account deficit with these economic blocks. Adjustment is not achieved through changes in exchange rates in such circumstances; it is achieved through a return to trend rates of growth by all parties.

There is another way of looking at this. Current account imbalances simply reflect different savings propensities. The U.S is growing rapidly because its government and consumers have been spending more and more relative to their incomes. Other countries have been growing more slowly because their governments are fiscally constrained and their consumers are cautious and are trying to save more. Viewed from this perspective the U.S. current account imbalance exists because it is the profligate in the world, with virtually no net national savings, whereas Europe and Japan have significant net national savings.

The U.S. is growing at or above trend. It does not want to stop. It allegedly is talking the dollar down in order to reduce its trade deficit which helps its economy at the expense of its trading partners. In effect, it is beggaring its weaker neighbors.

In our last letter to certificate holders I made an error in thinking that U.S. policy makers would stick to decades of multilateral cooperation in this regard and respect the weaker economic situations of its neighbors. Apparently, they are not. The struggling economies of Europe and Japan have been lifted only through improved exports. They see in a weaker dollar a threat to their exports which are already beginning to deteriorate. Further deterioration could put their economic growth rates in the red.

The trend downward in the dollar coupled with an alleged U.S. preference for a weak dollar has created giant bearish bandwagon speculation against the dollar. This speculative selling has displaced the dollar from some economic equilibrium, which by implication is presumably higher. The governments of Europe and Japan keep insisting that the dollar’s decline is out of line with the fundamentals. They keep insisting that the problem is not one of exchange rates and relative prices but rather the huge disparity in savings behavior between the U.S. and themselves. The problem is not solved by dollar devaluation; it is solved by the U.S. restraining its profligacy and returning to a net national savings rate that is both its national and the global historic norm.

It is hard for people to understand that, when savings propensities are so disparate, a large current account deficit can be the reigning market equilibrium even if it is unsustainable in the long run. Let me try to illustrate.

Is the dollar overvalued? Against what? Europe and Japan? The depreciation in the dollar against the euro and yen has had little impact on the U.S. current account so far (though some impact is due, given the lags in trade). Most models suggest something like 70 yen/dollar and 1.80 dollar euro are needed to shave perhaps 1% or 2% off the U.S. current account deficit. Does that make sense? Will a cup of coffee in Milan have to go to $16 for the U.S. to correct its external imbalance?

Now think about this from the point of disparities in savings propensities. Assume a U.S. with a historically normal saving rate. Poof. The current account deficit shrinks, and by a lot. Let the ECB ease and stimulate domestic demand. Poof. The current account deficit shrinks further. Then we don’t need an exchange rate equilibrium with $16 cups of coffee in Milan.

Let me illustrate further.

I had two assistants. One was a total spendthrift. Spent every penny she could borrow, with no concern about how she could service the debt, let alone pay it back. I had another that saved 50% of her after tax income regardless of the yield on her savings. The thrifty assistant in effect lent to the profligate one via the banking system. The short and medium run equilibrium was an unsustainable current deficit between the two. Of course, in the end the game would end. But how? The profligate would stop her deficit spending, that’s how. And then the deficit would have to go away.

Well, that is basically the problem with the U.S. current account deficit. Except Miss Profligacy – the U.S. - won’t accept the cold turkey adjustment of recession.

The U.S. has a recession sized fiscal deficit and zero household savings. That never happened before. In the early 1980’s the household saving rate was 9% when the fiscal deficit was this size. The financial surpluses/deficits of the four economic sectors – households, governments, corporations and rest of the world (current account) – must sum to zero. It’s a waterbed world – push down one sector balance and another will have to go up. How are you going to create a new low U. S. current account deficit if you don’t increase the savings of households and government? Reduce the current account deficit via exchange rate depreciation and thereby add to the rate of corporate free cash flow? It’s already at record levels. The labor share of income is already record low. The current account deficit is not an imbalance that requires $16 cups of coffee in Milan to correct – it requires changes in savings propensities in the U.S. and abroad.

Of course, U.S. dissaving is only one side of the problem. The other is that Asia saves and invests too much. These are simply same coin, two sides. Once investment ratios are so high and the capital stock is export oriented, you can’t adjust costlessly. This is China’s problem. Europe and Japan’s currencies are all right. Given their weak demand patterns they might be overvalued against the dollar. Yes, China and the emerging world must eventually revalue. In the past emerging Asia did it by inflating higher than the U.S. But not now. Because the Chinese investment ratio is crazy high even relative to emerging Asia, she cannot take a large revaluation. The crazy high investment ratio would then no longer be validated and growth would have to go negative.

The U.S. current account deficit is not the global imbalance. It is the outcome of deeper global imbalances – dissaving in the U.S. and overinvestment and over saving in China and elsewhere. Correct those and the U.S. current account deficit falls to a level that is consistent with a non explosive external U.S. debt path. Without $16 cups of coffee in Milan.

When one looks at it this way one can see that as long as the U.S. is Miss Profligacy and Europe and Japan and the emerging world are Miss Thrifty the dollar market equilibrium is higher than the current dollar level and it is only huge speculative shorting that has pushed the dollar down.

This is all economic argumentation about a hugely complex subject. I recognize this and do not want to be dogmatic. But, to look at this more simply, the dollar has declined now for eleven weeks in a row. Measures of sentiment and positioning show an extraordinary oversold. On the long term chart the dollar is at a multi decade low with multiple touch points. Even a rabid dollar bear like Richard Russell has looked at this chart and made the following comment:

“How far can the dollar drop? The dollar, like a stock, can do "anything," but note the strong support in the 80 area. My guess, and it's only a guess, is that the worst we will see ahead, at least for a while, will be a dollar drop to the 80 level. And knocking the dollar down that last 4 points to 80, assuming it gets there, will be difficult. Why? The negative facts about the dollar are too well known, and too many people are now on the negative side of the dollar.”

Dow Theory Letters –Richard’s Remarks, Richard Russell, November 9, 2004

I have never seen a two way market in which virtually every participant thought it was one way. The dollar can only go down. For most markets, when psychology reaches this extreme, everyone is on one side of the boat and the boat is ready to tip. I am not alone in this view. Mark Farber, another rabid dollar bear, has recently put out a letter entitled

Sell US Stocks and Buy the Dollar

-Dr. Marc Faber, December 3, 2004

I want to note that there are exceptions to this in currency markets. When a country, like the U.K. or Thailand, whose relative prices are out of line and therefore has a current account deficit, tries to defend a fixed exchange rate with limited reserves, everyone can be bearish on that currency and be proven correct. But when currencies are floating like dollar/euro and dollar/yen this is much less likely to occur.

But even if the dollar is overdue for a bounce, what would precipitate it?

The European and Japanese policy makers, fearful that dollar weakness will throw their weak economies back into recession, have been pushing the U.S. to engage in coordinated intervention to reverse the speculative positions of the dollar bears. The U.S. has refused. As a consequence anger is rising among these policy makers and it is spreading to encompass the likes of China and other emerging economies. We are hearing strong and angry language on this issue from the U.S.’s trading partners like we have not heard for many many years. Efforts are now being made by these countries toward a very broad coordinated intervention that may exclude the U.S. but may encompass China and many others.

Will such intervention work? The speculators who are short the dollar say no. But the historical record says otherwise. When speculation and the dollar are at extremes intervention works. It turned the dollar down on March 1st, 1985 – the day of the dollar high. It turned the yen down against the dollar on the yen high in 1995. It set in motion the big dollar rally in 1996.

Why does intervention sometimes work? Because speculative bandwagons displace currencies from their short run economically determined equilibria. Speculators are trend followers. If their positions are extreme, intervention, by changing the price trend, can cause speculators to unwind positions en masse.

Speculators in today’s markets are more short term momentum oriented than in the past. Hedge funds are judged by monthly returns. That is why we see so many charts in which prices follow a trend in a very narrow channel. But, once that trend is broken a crash ensues. Look back at those charts of silver, copper, and oil.

If intervention in the currency markets comes and it is successful, even for a while, the odds are that gold, which is itself in such a narrow channel, will break hard. This should not be hard to imagine, as it happened a mere eight months ago.

Conclusion

There is a growing body of evidence – both technical and fundamental – that the gold equities are rolling over and that gold the metal may correct. The latter will, of course, pull down the former.

The key is the disappearing dollar. Years ago when gold was making its multi year bottom and I wrote the Gold Book everyone to a man was positive on the U.S. tech miracle and the dollar. Gold as an asset was universally consigned to the dust bin of history. Today there is a similar universal consensus that is bearish the dollar and bullish gold.

But careful analysis suggests that, whatever the long run outcome for the dollar, it could have a significant rally off multi decade chart support. Even famous dollar bears concede this. Given the ominous technical pattern of gold equities a perfectly typical correction in a gold bull market could create very large price declines in illiquid gold shares.

What would I recommend to you? In our gold certificate program we have reviewed the evidence and are very cautious. We have kept a large Euro cash position. Recently it has outperformed gold shares in euros and is far safer and liquid. We are poised to hedge our certificate index against any significant downside break in gold’s relentless but very narrow uptrending channel.

We are not dogmatic on this point, however. We understand the potential for a greater dollar decline and a catch up move by the gold shares. If the dollar index breaks long term chart support at 80, that could occur. If we judge that will be the case we will increase our gold equity exposure. But markets are all about probabilities, and the probability of a significant perfectly typical correction in the long term bull market that we envision is also significant, so we must exercise some caution and be willing to hedge in order to keep our index intact for a better day.

Is there anything else that would change our position? Yes. In our view the large cap gold shares are fully valued to overvalued on a net asset value basis. More importantly, we regard many of them as wasting assets. Production is depleting their reserves and many of them cannot find new deposits to replace their production. The junior golds have deposits and they are valued cheaply by the marketplace. Because the juniors are cash constrained their deposits tend to have large growth potential. At some point the majors will move to acquire the juniors. That is what we are hoping for. But so far the majors have been restrained. When they eventually do move the juniors will be revalued upward en masse. We are ever watchful for this eventual positive development.

For you the audience I can only recommend what we ourselves do as investors in our certificate program we have deeply undervalued small cap gold shares. That is where the value is in the gold sector. One can buy today huge numbers of ounces cheap. But the junior gold sector has always been an inefficient and volatile market, and it is even more so today. One cannot prudently manage this risky sector without an eye to risk of serious loss and there is clearly a threat of that at the present time.

Gold’s Long Consolidation Ending

And how is gold doing?

Gold is taking a bounce this week, but gold is still robust & doing well. Gold continues to remain solidly & comfortably over 400 an ounce, but still no one cares. Very little enthusiasm period except among maybe one or two persistent gold bugs. Why? Because since this last spring everyone has turned bearish.

The reasoning for this bear call is that most investors believe that gold has peaked & it is only a matter of time before gold begins its loooong slide back down hill. Isn’t that what has always happened these past 20 years?

Anyway, where do we believe gold is at now & what do we think is the next move for gold? We said over a year ago that 2004 would be a year of consolidation for gold. Actually, this consolidation period really has applied to the masses as the masses slowly have observed gold’s behavior to be more positive than in years past. Still, most folks are not yet convinced that this pattern is for real. Isn’t the economy strong & hasn’t Greenspan & George Bush promised & assured all of us that the US Government can always continue to successfully manipulate & control favorably our economy?

While the rest of the world witnesses the deterioration of the dollar Americans just rush to their banks & refinance their homes for more cash to pay their bills. I read recently that over 25% of consumer spending these past few years has come from refinancing homes. I suppose this is OK if housing prices keep going up. But what happens if they don’t?