Is Gold Price Control Ending?

March 2, 2001

Just so you know, it is widely held in close gold-bug circles that physical gold is being held back by certain Central Banks, including our own Fed. They do this in order to make inflation look low, to protect a number of large bullion from getting into derivative problems from their long-time practice of leasing gold and then selling it into the bullion market, and to invest the proceeds into higher yielding investments. Many hedge funds took this practice up. And by now gold has been sold short to an estimated 10,000 to 17,000 tons (no body knows for sure). This represents four to six years of production. In other words, physical gold is the Achilles Heel of the new economy.

Should the price of physical gold rise above $290 for any extended period of time and it become a popular investment media as it had been once in the late 1970's, the entire banking sector could go bankrupt because of the above practice. You can print money, but you cannot print more gold.

Gold is not only a commodity. It is a political metal and money. It is as much controlled by governments as are their own currencies, but government allows it to trade in world markets as a commodity. It is this dichotomy and hidden-purpose of gold that could break our economy and as such the price is highly controlled. So, any investment in gold stocks is fraught with great risk (and possible great reward) as the underlying metal is in such dire straights. Some have recommended only buying physical gold as a hedge against all paper investments. Volatility remains improperly explained on all Financial News shows and news rags. Every time a pundit says they believe that the markets won't turn around for three to six more months, we can all rest assured that it will be several years to a decade (maybe) to recover from the excesses in the paper markets since 1982 (and mostly since 1994).

The Euro and dollar continue to be at odds and in competition for status as a World Reserve currency. Gold is the foundation of this competition. Those who hold the most gold, will ultimately win this battle. That is why you see gold lease rates rising currently. Gold is now only in strong hands. All weak hands have been pressured to sell their gold and there is not any gold in quantity that can be forced into the market. Those with the gold don't want to let any go, but now the decisions are being made, "do we let gold into the markets to satisfy the every increasing demand, or do we let gold loose to find its own market value or do we have alternatives?" I believe we are seeing this question work itself out. If the inevitable rise in gold can be put off, it will be, but it is becoming increasingly harder to curtail, and, thanks to the Internet, it is being done in broad daylight.

With the latest CPI and PPI indicators pointing to higher inflation more eyes will turn to gold as a hedge. Those that choose the gold paper path, will find themselves in a market that doesn't make sense. They will ask as many gold bugs have asked, "why do my investments continually fall?" Paper gold may not be the hedge or protection against falling technology investments as long as the leasing of gold and the paper games meant to suppress the price of physical gold and the demand for it continue. And until the ultimate winner of the Euro v Dollar battle hands are raised in the winner's circle, the dollar-based investments on US markets will continue to suffer from a loss of value and will continue to miff those pundits so entrenched in their own lack of seeing that the Fed no longer has the control they believe.

Seventy-five percent of all gold in circulation has been extracted since 1910