U.S. Government Gold: Myth and Reality

February 22, 1999

MYTH…

Central Bank Gold Sales: much ado about nothing

All well-informed market students are aware the Fed and its lackey cronies in other Central Banks have for a number of years used the cry of "Central Bank gold sales" as the perennial Boogieman to scare off gold buyers (read 'investors'). Frankly, I got a little sick and tire at this decrepit cliché parroted by those who do not think for themselves (like central bankers and others of their ilk). Therefore GOLD-EAGLE plotted net Central Bank purchases and sales during the last 40 years from 1960 through the present.

Indubitably, there are many insights one may glean from the chart of Central Bank Annual Purchases and Sales, here are just a few of the more obvious ones. We invite our readership to analyze and evaluate the data to arrive at yet new interpretations of the chart. And should you have the time, please share your findings with our readership from 144 countries - as they are one and all goldbugs, seeking the guidance of truth - devoid of Central Bank misleading propaganda about "ominous" Central Bank Sales.

Following are the observations which leap to mind from the Chart shown below.

  • On-balance Central Bank sales have been more than purchases in the last 30 years. HOWEVER, these are data from the Western world. They do NOT reflect data from the Far East (like China and Japan who have never been prone to divulge important data to the West). There is logical reasoning to believe both China and Japan have been accumulating gold in recent years to beef up their minuscule gold reserves.
     
  • When taken into perspective, the actual level of Central Bank gold sales is INSIGNIFICANT to the daily gold trading volume in the London Bullion Marketing Association (LBMA) in recent years. Let us just examine last year's Central Bank gold sales. The chart shows Central Bankers divested only about 15 million ounces IN THE ENTIRE YEAR! Compare that to the 30 million to 40 million ounces TRADED DAILY IN THE LBMA, and one is obliged to conclude that Central Bank gold sales are pittance - in reality a Frankenstein Monster created specifically to frighten the "tots."
     
  • Actual Central Bank gold sales may well be a buying signal for the Midas metal. The chart shows when Central Bank gold sales culminated, it was a BUY SIGNAL for gold, as it precisely marked the market bottom. Let us view just three of the last gold market rallies: 1968 to 1975, 1979 to 1980 and 1993. (Gold cash price source: Handy & Harmon - London)
     

Central Bank gold selling peaked at the beginning of 1968, whence gold rose from about $40 to $180 - having soared approximately 350%

Central Bank gold selling peaked at the beginning of 1979, whence gold rose from about $210 to $675 - having soared approximately 221%

Central Bank gold selling peaked at the beginning of 1993, whence gold rose from about $325 to $405 - having risen approximately 25%

The "Frankenstein Monster" of Central Bank sales is a MYTH. Indeed, Central Bank peak selling was nearly always a Gold Buy Signal.

 

 

REALITY…

Official U.S. Mint Gold Coin Sales (1992 to Present)

We have all seen media reports that the U.S. Mint has been experiencing burgeoning gold coin sales. However, we had no idea how great they have become in comparison to recent years' sales. Therefore, we charted gold coin sales covering the last seven years (1992 through the present). We plotted average monthly sales of gold coins, measured in ounces.

The results are as startling as they are prophetic.

Monthly gold coin sales of the U.S. Mint were running at about an average of 25,000 ounces per month from 1992 through 1997. Suddenly, in 1998 there was a burst of gold coin sales - they went ballistic, soaring to nearly 300,000 ounces monthly. That represents an annual increase of 1,100 percent from average yearly sales. Consequently, that is prophetic of what is happening in the market place, and forecasts what is coming this year!

The incredible rise in U.S. Mint gold coin sales is due to two reasons. Firstly, gold prices are near a 19-year low. Traditionally, a low gold price has stimulated sales. Secondly, the looming Millennial Menace and anticipated disruptions in the financial system worldwide, indubitably, are prompting prudent folk to load up on monetary "insurance."

The cost of the monetary "insurance" is pretty close to zero for the following reasons. Gold coins are presently being purchased at near 19-year lows. And if the Y2K Bug turns out to be just a harmless "insect," the gold coins may be readily turned into cash, or be placed into your IRA account (if they are U.S. Gold Eagles). Therefore, the effective cost of the "insurance" against the Millennial Menace is ZERO.

In view of the extreme importance of U.S. Mint gold coin sales, we will update this chart monthly. The accelerating trend of gold coin sales will provide a barometer of the public's apprehension about the Y2K Bug, and a consensus of what gold prices may well be tomorrow.

 

It is our personal opinion we are on the threshold of greatest gold bull market in history. THE Mother of all gold bull markets… will you miss it…

Founder of Gold-Eagle in January 1997.  Vronsky has over 42 years’ experience in the international investment world, having cut his financial teeth in Wall Street as a financial analyst with White Weld. Vronsky speaks three languages with indifference: English, Spanish and Brazilian Portuguese.  His education includes a degree in Petroleum Engineering from the University of Oklahoma, a Liberal Arts degree from Hartnell College and a MBA in International Business Administration from UCLA – qualifying as Phi Beta Kappa and Tau Beta Pi for high scholastic achievements.  Vronsky believes gold and silver will soon be recognized as legal tender in all 50 US states…and many countries worldwide.  You may reach I. M Vronsky at: vronsky@gold-eagle.com and/or vronsky@bellsouth.net

Small amounts of natural gold were found in Spanish caves used by the Paleolithic Man about 40,000 B.C.

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