Although I have heard this line of reasoning before, it was
interesting to see it coming from the economist Marshall Auerback.
There is not much doubt in my mind that the markets are being 'managed' here.
By whom, for what reasons, and for how long is another question. But the
trades and the tape are telling their tale.
I am wondering if this is a new phase of the Fed's interference in the
markets in lieu of genuine economic reform. They have used indirect means to
pump equities as a means of wealth transmission before. This was a favorite
ploy of Robert Rubin when he was Treasury Secretary.
It would not surprise me if the gold price was being held around 1600 in
order to give the banks an opportunity to redeem their leased gold IOU's to
avoid embarrassment before things get 'messy' in Europe. The people in
Germany, Italy, Spain, England, and Portugal will be angry enough, and to find
out that their irresponsible banks had sold off their gold to their cronies
in the bullion banks on the cheap might be a bit much. As for the US, that is
a murky situation indeed.
I tend to view this as a long term trend. So whether it comes to light next
week, next month, or next year is of less consequence than the continual
leaking of information that confirms the great changes that are occurring.
If one is looking for quick hot money there are plenty of places and ways to
chase that rainbow. And plenty of carnival barkers and tricksters to tell you
how easy it is to do it.
Ready for the Gold Rebound Before It Is Too Late: Marshall Auerback
by Brian Sylvester
of The Gold Report
August 8, 2012
The Gold Report: Marshall, in a July 12, 2012, post on the Pinetree website, you suggest that some central banks
may have forward-sold their gold against their initial positions, thereby
eliminating them altogether. Can you tell us more?
Marshall Auerback: I have seen these central
banks in action and have met with people from several of them. They would
contend it was their obligation to maximize the yield on any of the assets
they had in their reserves, including gold.
Back when gold was in the low $300s/ounce (oz), the
Bundesbank considered gold nuclear waste from the
old gold-standard era. There are some suggestions, based on Roger
Lowenstein's work, that the Bank of Italy lent
out some of its gold to Long Term Capital Management as a funding source.
The point is that these banks have been a major source of flows into the
market. These flows have had the same impact as de facto sales, in that
they make available gold to the forward market and help fill the gap between
supply and demand.
This is significant that the Bank for International Settlements has talked
about reclassifying gold for commercial banks from a Tier 3 to a Tier 1
asset, which effectively means that gold will have 100% weighting, as opposed
to 50%. This reflects a change in how the official sector views gold.
The second phenomenon is what has been happening in the Eurozone. A fiat
currency is vaporizing before our eyes. A number of central banks hold a
substantial amount of euros in their foreign exchange reserves that may be
worth nothing. Some central banks may have gold holdings, but not as much as
they claim, because of forward sales. There is most likely a structural short in the market
from the central banks.
A decade ago, the mining companies would have been selling forward
production, and the private sector would have had the structural short
position. Today, nobody is selling forward gold because companies are much
more optimistic about the price, and nobody wants to borrow it right now. As
usual, the central banks are on the wrong side of the trade.
TGR: Are you willing to speculate about which central banks are
MA: From what I have heard, it would not surprise me if the
International Monetary Fund and the Bank of Italy have done it. The Bank of
Spain and the Bank of Portugal have sold a lot of their gold and may be
lending the rest; also the Bundesbank.
A lot of these sales took place many years ago when the price of gold was
$500–1,000/oz. My point is that the actual holdings these banks retain
are much smaller than what appears on their balance sheets. Of course, they
would want to get that gold back to spare the embarrassment if the euro blows
up. This is why I have suggested that even if there is one more selloff in
gold, the declines will be cushioned because the central banks will be
bidding to buy back what they sold forward.
TGR: Could this information create a spike in the gold price?
MA: Many thoughtful people would see the demise of the euro as very
bullish for gold, along with the possibility of higher inflation in China and
all of the qualitative easing introduced by the Federal Reserve lately. Yet,
gold has gone nowhere.
If one measures the position of traders reports on the Comex
and then factor in that the Over the Counter market (OTC) is about 5–10
times the size, the net long position of speculative interest in gold is
huge. That said, net positions have been reduced substantially in the past
several months—several hundred tonnes would
be my guess—and yet the price hasn't declined that much, which suggests
that there is a bid in the market. The official sector, perhaps?
I would say there could be another 400–500 tons liquidated, which would
easily be absorbed by the central banks. Ultimately, this slow, ticking time
bomb will resolve itself with a much higher gold price.
Source: Auerback at The Gold Report