Over a weekend in April six years ago, without any corresponding news, the
gold price was smashed out of the blue for nearly $200. For months before the
smash analysts often said that China had put a floor under the gold price,
buying whatever it could to hedge its U.S. dollar exposure without pushing
gold's price up too much.
That analysis made sense, since, with its estimated $3 trillion in
foreign-exchange reserves, mostly in U.S. dollar instruments, China was in a
position to control any market on the planet.
But over that weekend in April six years ago the supposed Chinese floor under
gold disappeared. Regardless of how much gold China had been buying, no
collapse of that size could have happened in any major international market
without China's cooperation or consent.
The gold smash was clearly a coordinated intervention by central banks. So
soon there was speculation that the central banks had decided that the gold
price was getting away from them too fast, particularly for China's
dollar-hedging purposes.
Now, over the last week, gold and silver prices have been spiking
dramatically and unprecedentedly, and central bank intervention against gold
seems to be diminishing. This is suggested by the gold-trading footnotes in
the monthly reports of the Bank for International Settlements, as well as by
the lapsing of the European Central Bank's gold sales agreement with its
members. The decline in intervention may result in part from the exhaustion
of central bank gold available for intervention, just as the collapse of the
London Gold Pool in 1968 was caused by exhaustion of the gold reserves of the
participating Western central banks.
So who is buying the gold?
Central banks not so closely allied with the United States have announced
substantial purchases in the last couple of years, and over the last eight
months even most-secretive China has resumed announcing purchases, if small
ones that may represent only a fraction of that nation's purchases. Of course
China still has a huge foreign-exchange reserve in dollars with which it can
dominate any market, at least for a significant time.
So either central banks now are divided on policy toward gold or they no
longer want or are able to suppress the price with sales, leases, swaps, and
futures market intervention. Indeed, with even President Trump clamoring for
a cheaper U.S. dollar, the gold policy of the U.S. government itself may have
changed, though the government long has refused to say what its gold policy
is.
* * *
All this will exhilarate long-suffering investors in the monetary metals,
whose view of the world financial system has been correct but who have been
defeated by comprehensive cheating. As the monetary metals strain and break
their shackles, their investors deserve a triumphal march, maybe to Dick
Powell's rendition of "The Gold Diggers' Song" from 1933:
http://www.gata.org/files/DickPowellSings.wma
Gone are my blues, and gone are my tears.
I've got good news to shout in your ears.
The silver dollar has returned to the fold.
With silver you can turn your dreams to gold.
All the same, it seems so long ago when Bobby Godsell, then chief
executive of AngloGold, remarked that gold investors and the gold-mining
industry aspired to "a good gold price in a good world."
A good gold price -- that is, a price determined by a free-market
relationship to other currencies and financial assets -- would always help
insure a good world by safeguarding it against recklessness, stupidity,
corruption, and tyranny in government. Of course to remove that safeguard is
why over the last half century central banks intensified their largely
surreptitious efforts to suppress the gold price. Gold impeded their power.
So now we may be on the way to a spectacular gold price in a terrible
world, a world engaged in trade and currency wars and getting closer to more
shooting wars, a world in which central banks frantically continue to destroy
all market mechanisms, buying equities and bonds to support prices, secretly
trading financial and commodity futures to dissuade investors out of
alternative assets, pushing interest rates toward and even below zero, and
rushing to devalue their currencies, virtually proclaiming the worthlessness
of government-issued money.
* * *
Amid all this the monetary metals will protect people, but only to a
certain extent. If people also come to need guns, ammunition, and large
supplies of freeze-dried food and drinking water, the metals will not be
quite the consolation their investors have hoped for.
Indeed, the world already seems to be going crazy. At least the
well-dressed people running it have gone crazy, presiding somberly every day
over the chaos they instigated with their decades of market rigging,
conducting the most important affairs of humanity in secret while encouraging
people to believe that there is something for nothing.
Far from creating a good world, the people running it are creating a
world, in Norman Mailer's words, "where orphans burn orphans and nothing
is more difficult to discover than a simple fact."
So the song today for everybody, not just monetary metals
investors, may be Cole Porter's "Anything Goes" from 1934. He
performs it himself here:
https://www.youtube.com/watch?v=Wd1w5tn040g
The world has gone mad today
And good's bad today
And black's white today
And day's night today
And that gent today
You gave a cent today
Once had several chateaus.
As long as anything goes, a good world will be a long way off.
