The who has been well documented by GATA. We know who. It is Britain and the US (ESF) and, for some unknown reason, Deutsche Bank and the likes of Goldman Sachs, JP Morgan, etc. It is the countries using these civilian banks, who are in the know, that irks the likes of us. I suppose one could argue that the Central Bank's (CBs) can't intervene in the gold market directly, and must use the best tools at their disposal: the bbs or bullion banks. It is this dotted line from CBs to bullion banks that gives the bbs the advantage and insider knowledge. That Mr. Robert Rubin happened to have been chairperson of Goldman Sachs and then later Secretary of the US Treasury, and now head of Citibank and friend of Al Greenspan., shows clearly the dotted line relationship that GATA speaks of. Nothing official, just a bunch of conflict of interests in power, who also have an on/off switch to investigator bodies to expose all.
The why has been sufficiently documented. The US dollar has defaulted twice on its debt in gold. It is about to do it again. Nations have a right to protect their currency. No one can argue with that. It is the manner of intervention that has us all up in arms, because as commodity investors we have been duped by an underhanded attempt to show gold as only a commodity - but yet has the full force and power of nations' behind its manipulation in order to extend the life of the dollar. It is this relationship that has the press only focusing on gold as commodity. This completely ignores its role as a monetary asset that were it left on its own accord would show inflation to be extra-ordinarily high, that has us all up in arms.
It is NOW a no-brainer to see that various charts (among them Kondratieff and Dow vs. Gold) show that the backing of currency with gold but not allowing it to float at market price of gold has caused governments to conspire to hide the true relationship of currency to gold. These charts show that nations can only hold inflation and gold back for so long and than BOOM, something causes the clock to start over again, just as though a winding spring has broken loose. Because so much gold is stored in Central Bank vaults, they have the ability to extend the lifeline of currency. But when that gold is no longer held or controlled by CBs in sufficient quantities, they loose control of it (as now appears to be the case), then the clock is reset. We are witnessing such a colossal resetting of a clock that has three lives, with the third one seemingly on its last few days or months. Who can blame the Nations for colluding in gold? Can we as Americans (some of us) really blame our country for trying to extend the life of the dollar? I say go for it.
What irritates me, though, is that instead of doing it in the open, we have chosen to manipulate through hidden deals in a way that has directly cost me easily $100K, either in lost opportunity or reduced gold-share prices. It is this hidden tax that you and I bear directly through underhanded dealings with a few special banks in the know, because of their unique market position, that makes me support the efforts of GATA. I want the dollar to win, let there be no doubt. But I believe that goldbugs, mines and gold-mining countries are truly hurting because of these efforts.
If the financial powers believe that they are in a currency war, then they will take extraordinary measures to save the dollar. I believe that is what we are witnessing -- extraordinary measures of CBs to save the dollar. If that means stepping on a few goldbugs, so be it, eh? Is this right? No. Perhaps in their minds it is and that is what GATA is all about. It is a foul that has a maximum 20-yard penalty and forfeiture of the ball to the other team.
Yet, the Euro was born by some pundits to replace the dollar as the eventual world reserve currency. It is the oil-gold-Euro-Dollar relationship that would appear to be the trump card in this relationship. If the dollar were to fail, and let's hope it does not, then would it be better to have another currency that could step in without much harm to world economies or would it be better to move solely to a gold standard? We have thoroughly discussed this topic here and elsewhere on the web. I believe the conclusion was that it would be better for another currency to step in that had the potential to handle the volume, as it were.
In the meantime, we are forced to watch this all unfold, while we call "foul." And now we must wait while the referees determine whose ball it is and what to do about it. Negotiations will take a while, they are reviewing the tapes now. "Please, I'll take a bear and some peanuts." It is going to take a while they figure this out.
I forgot to mention that we watch this game behind an opaque screen and only occasionally get glimpses of players being carried off the field. We hear grunts and clashing pads, but see no direct action. What is most clear: gold is at the center of a tremendous world-wide game of dollars, gold, euros, and oil. The nation players don't talk about their game, they just do their thing and we watch what we can.
Finally, it is gold as the ultimate inflation indicator that keeps it suppressed. We have heard that Greenspan watches gold for signs of inflation. If he knows, and we know he knows, that gold is being held back, then he knows what true inflation there is out there. It is gold as the ultimate thermometer of inflation that throws it into center field. When gold resets the clock of values as has been shown in 1929-33 and in 1979-80, it bought time. Because the US didn't mark the dollar to gold's market value (a very unpopular move in 1971-73) the dollar only bought more time. Had it been allowed to float with the value of gold, and gold allowed to act as a thermometer of spending beyond US means, then all may have been good longer term for the dollar. But instead, one chose to eschew the role of gold has on currencies -- a disciplinary role that keeps excess spending in check beyond 2500 tons of mined gold per year.
So, the game appears to be about how Nations reassert the role of gold without shocking the world with that reality. Since the dollar has twice defaulted and appears close to doing so again on gold-debt (paper gold), it may have been decided by the refs that the other team (euro?) gets the ball now. We shall see.
WHEN is also the question. When will gold rise? When it is time to let currencies reset the clock to gold's market value. When will it be proper to let currencies reset to a gold? When no more moves can be made to hold gold back or a key player who can turn the ball over decides its time. Is oil the key to turning the ball over? It seems so. Why?
Oil going higher and gold staying low has skewed the historic relationship of gold to oil. It would interesting to see a chart of oil vs. Dow, as this would likely show the reset is in progress but through oil this time [as a leading indicator]. It is oil that appears to be the leverage that will cause a turnover. The reason is the record trade deficit, the rise in US dollar inflation, and the subsequent inability of the US to control inflation as reflected into the economy by higher oil prices. We saw this in the PPI on last Friday (10/13/00). It showed a nearly 12% per annum inflation rate. As more oil dollars chase less physical gold, physical gold will dry up and reset the gold clock. The turnover will be complete. For now, though, the dollar is still in play and stashes of OPG (other peoples' gold) are being put in play to extend the game.
So, the WHEN, now becomes when the physical gold is all called for and oil has no more to buy, then currencies will reset. Oil will drive gold higher through an ever increasing appetite for physical gold. The game can only be extended as long as players accept more and more dollars for paper gold. Once this insatiable appetite for paper has been stopped, physical gold will rise. The ME (Middle East) may then be an attempt (in this game) to leverage the leverage or turn the timetable up. Any quick turnover, would cause more harm to the US. The ME may be such an attempt. It has the effect of ratcheting oil prices higher, forcing the hand in the trade deficit quicker, and making inflation that much more apparent. Gold is now starting to react to such pressures (but was quickly contained). The ME would seem to be another horseman then. Oil has gone ahead of gold in its traditional behavior from a lagging to a leading indicator and now oil supplies are being threatened that further compounds this traditional break in gold vs. oil. If oil ratchets higher quickly, then this will force hands much sooner. All eyes turn to the Middle East. (The currency battle has turned violent in the ME).
I am fairly certain that all the Euro gold (Swiss 2000, British 400 or so and whatever else was allowed through the Washington agreement) is all called for already. It is supplies of new or OPG that are being tapped. And when that run dries, the changeover may occur. Oil and tensions over oil appear to be the play that could force the Euro into reserve currency status much sooner than hoped for or thought possible. Higher oil prices will allow more dollars to buy more physical exerting more pressure. Physical gold will dry up much more quickly with higher oil prices. More profit, more gold. More gold, less available. Less available, higher prices for gold, once the paper can't or won't satisfy.
So, the question now becomes: how long can the Commodity exchanges for gold support a lower gold price? Answer: as long as those buying the paper are satisfied to not convert paper into gold. Or, as long as those buying physical can still buy it at the artificially lower price of gold as set by COMEX and LBMA. When physical gold becomes scarce it will require more and more of it to be directed to COMEX. Or, COMEX will have to set up to demand less and less physical gold. When COMEX no longer needs physical gold or can't provide it, or provides an alternative (dollars?) for settlement, then physical gold will rise. Only those who follow COMEX much closer than I could tell us when this might be. Are the gold lease rates the barometer for this? Some of you know.
18 October 2000