Gold, Gold, Gold (Max)
Gold, Gold, Gold
Posted by Max
A viewpoint on Gold (warning: the following may be considered controversial and the management disavows any responsibilty).
Regarding Gold per COT:
Gold had a divergence of Commercials/Specs, with Commercials accumulating. Also technical, fundamental and seasonal indicators were pointing higher. Part of the institutional commercials are central banks, such as the Bank of England. So why the sudden, surprise (and to me, blatent)announcement by the B of E? Especially as there had been much talk since intro of the Euro to limit central bank gold sales.
Two things to know:
1.) Gold is THE most "political" of commodities.
2.) Gold price is a key inflation indicator (along with petroleum).
3.) Gold has been "driven down" for several years now and has been lately "held down" below 300. There is a "railroad track" it has been kept on.
I had noticed funny aspects over the last few years but I especially sat up and took notice of a strange occurance on the very day of the Oct 97 mini-crash. The TBonds rose as expected from flights to safety and Gold likewise as a "safe harbor" was starting to get buyers - after all the Asian
markets were collapsing and now the US market was appearing about to crash. The Swiss central bank unexpectedly announced "sales" of Gold. Gold dropped and any buyers high-tailed it into Bonds. I looked into it further. Turns out the Swiss were not actually selling Gold, they were
considering simply "moving " it (making it available for lease), turns out even if they did they´d have to pass a national referendum, and finally, the event wouldn´t occur for a year or more in the future.
The effect was ´in´ nonetheless. The rise in Bonds continued as more buyers went there through the ´Asian Flu´ recovery and Gold went lower and lower breaking 280 by Jan, ´98.
In the first two weeks of March of this year, Gold started making a strong move up again as the technicals all looked good and Gold and Gold stocks were attracting attention again. Out of the blue, the Canadian Prime Minister called for the IMF to sell Gold reserves to raise money for poorer
debtor nations. As we saw, Gold was sharply slammed - temporarily. Many were confused by the fact that the statement had come from Canada, being one of the largest Gold producers as such an action would negatively impact their own industry.
Now, more recenly, Gold and especially Gold stocks showed very good seasonal and technicals,and even COT Commercials in accumulation. The spot close on May 6 had broken above the 100-day and 200-day moving averages. With the Balkan bombing, the US Dollar weakening, the Tbond yields soaring precipitously - and still rising, Crude and oil stocks taking off like a rocket, AND with more and more Americans day-trading on the interent and chasing the latest "hot stocks" -- Gold and Gold stocks were getting noticed and rising. The XAU had risen 50% in four weeks. In short, Gold was moving toward 300, was at 290.70 already, and continuing to gather strength.
Then...an unexpected, out of blue, surprise announcement that the U.K. government would sell 415 tons of gold in the medium term, with 125 tons to be unloaded before April 2000, and convert the gold reserves to "foreign-currency assets". Naturally, gold prices and stocks of gold producers reeled and gapped lower. This amounts to more than half of the UK´s gold reserves.
If you carefully look at the effect of higher Gold price in terms of:
1.) the effect of Gold price on the US Dollar
2.) inflation, (in addition to oil, puts pressure on the Fed to hike interest rates and thereby cause an increase in the "risk premium" demanded by investors to hold paper currency-denominated debt instruments)
3.) the effect it would have on the highly valuated stock market
4.) relationship to TBonds (moving inversely to Gold historically)
5.) the effect, in addition to the already inflationary massive increase of money supply from over a year ago,
you begin to see substantial reasons for certain global, geopolitical interests to keep Gold inside the "railroad track" its been herded along.
I go one step further and add:
5.) it is important to continue the appearance that "Gold is dead"
6.) keep as many participants in, and added to, the US markets as possible, as opposed to savings, CDs, etc.
7.) get as many world currencies off gold-backing and into the floating-currency system as possible
If these assertions have any basis, look for additional pressure on the IMF to release up to 10 million ounces (325 tons of gold) to alleviate Third World debt and also for additional Gold sales by other countries´ central banks.
And Gold staying under 300.
Best ´o trades,