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Sadly, commodity investors must again set aside the difficulties of
reading the runes of supply-demand-inventory and of trying to second guess the
extent to which existing positions have correctly incorporated their status,
in order to try to fathom out instead what wilfulness and spite will be
inflicted upon them from the corridors of power.
As we have often expounded, the vicarious gangsters we call
politicians – while only too glad to bask in the reflected glory (and
to revel in the enhanced campaign contributions) during the Boom – have
predictably turned into a whole bath-house full of petty Marats in their
vituperative attempt to harness to the most venal ends the understandable
popular anger and disquiet which has arisen at the evils inflicted upon the
citizenry by the dysfunctional, modern, state-directed
financial system. Thus, we again face the prospect of ‘hearings’
(would ‘show trials’ be a more accurate description?) in Congress
aimed at limiting access to the commodity futures markets to the
politically-favoured few.
Here we can only pause briefly to re-iterate our fervent belief that
there would be no need for any new regulation to prevent so-called
'speculative excesses' anywhere if
banks simply had to comply with basic, everyday property and contractual law;
if money were a hard, free market good and not a pliable construct of the State;
and, perhaps if recourse to that other positivist legal fiction, the limited
liability partnership or corporate entity, were denied to those with
fiduciary responsibility for other people's affairs. It would be much more effective - if
politically inconceivable – to address the root cause of all our ills,
rather than to visit economically-illiterate prejudices on its symptoms. If
we cut the shoals of 'vampire
squid' down to their proper size, we could abolish the CFTC, the FDIC, the
OCC, the SEC and the rest of the New Deal alphabet soup altogether, rather
than uselessly empowering yet another tool for arbitrary, legislative
grandstanding.
If the actions of overleveraged commercial and investment banks had not helped keep interest rates so
artificially low, if governments were not so fiscally profligate, and if the
central banks – initially insouciant - were not now rushing to
underwrite the follies of both by threatening to destroy their very
currencies at the miscreants’ behest, do you think anyone would be
bothered to over commit what would then be scarce resources (i.e., real
savings) to claims on non-yielding (indeed, often negatively-yielding) stockpiles of tangible goods, the majority
of which are of no direct utility to the owners of those same savings and
which human ingenuity and entrepreneurial endeavour - when all too rarely left to their
own devices - generally render less and less expensive over the longer haul?
To be a commodity investor, ultimately, is to be a disinvestor in the whole
governing class; to despair of the actions of its banking sponsors; to doubt
the motivations of the self-selecting managerial executive cabal; and to
deride the collectivist economists – Mises’ ‘socialists of
the chair’ - who provide the concerted depredations of these
rent-seekers with a diaphanous, pseudo-intellectual veil of post hoc
respectability. A dim awareness of our intrinsic contempt for this whole nest
of vipers may be one reason why we commodity types, as a body, are subject to
such frequent campaigns of victimisation from on high.
One commodity the present uncertainty should favour – at least
in relative terms - is gold. Having given back half the gains made against
the rest of the basket in the great global relief rally which began in February,
gold has broken the corresponding downtrend and has begun to nose quietly
upward once more as the broader momentum exhausts itself and as optimists
everywhere start to second guess themselves.
Figure 5: Gold v
Other Commodities
In absolute terms, we prefer to look at the metal having abstracted
from changes in the value of the US dollar alone, by multiplying the quoted
price by the latter’s TWI. When we do that, we can see that gold is
testing its YTD lows and so threatening to revisit 2008’s broad
congestion pattern. If it does break, a loss of some 8% would take it back to
the mid-point/mean from where it should eventually re-emerge to make another assault
on 1980’s highs some 45% above that (and 32% from where we stand now).
Figure 6: Gold x
USD TWI
If those wishing to hide from financial manipulation, currency
debauchery, political fecklessness, and the loss of privacy and discretion in
managing one’s affairs (such as is being brought about through the loss
of banking secrecy and the bullying of ‘tax havens’) can no
longer invest in the derivatives of a wide range of hard assets, perforce
they may avail themselves of the one remaining, physically-tractable outlet
for their needs.
It would be a delicious irony if, far from furthering the interests of
Goldman, Sachs – as he did during his 18-year employment there –
the revolving-door, poacher-turned-gamekeeper head of the CFTC, Gary Gensler,
turned out to be the man who did the most this year for Gold instead.
Sean Corrigan
Sean Corrigan is Chief Investment Strategist at Diapason Commodities
Management (Lausanne and London)
Also
by Sean Corrigan
Copyright © 2006 - Copyright © Diapason Commodities Management
- Sean Corrigan
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