Gold: The 2009 developments

Nby has been closely interested in gold market movements from the start of 2007. Below is a quick catch-up for investors on our comment track record most recently.

10th May 2009

Gold. A year ago, nby suggested exclusively (if you can do such a thing) that the Americans might well be selling gold to the Chinese - for them it was a defence of the Dollar and falling markets, and for the Chinese the logical move for a Power which will be in charge for much of the 21st century. Nonsense said the experts. But then two weeks ago the Chinese suddenly announced that their gold bullion reserves had doubled....and the US continues to obfuscate about its own sales in recent years.

About nine months ago,we suggested that some central banks would like to flog off their gold if they could do it discreetly - and in fact might already be doing so. The Swiss came out of the closet first, and today most central banks followed suit to admit to large-scale disposals. (They need the money)

Does this mean you should get out of gold? Emphatically not: for two reasons. First, now that these disposals (secret or otherwise) are out of the way, gold will start to behave more like a natural market again. And second- in a world where governments are printing money in order to refloat and repay - the only way for a naturally-behaving gold market is up.

Buy whatever you can get hold of.

19th July 2009

President Zuma and the new Central Bank Governor. It's always worthwhile keeping a close eye on what Jake Zuma is up to. Today we were given the 'asked to leave and so I said yes' line on the Former Governor of SA Bank, Tito Mboweni. He is to be replaced by Gill Marcus.

The powerful government-aligned Congress of South African Trade Unions (COSATU) has been lobbying to boot out existing governor Mboweni, blaming the bank's inflation targeting policy for high interest rates and rising food prices. That is, to say the least off it, something of a random kind of blame. Basically, COSATU want job creation, and inflation control doesn't do job creation.

Gill Marcus is a white middle class former ANC hardliner, and very left-wing. She left South Africa along with many other activists in 1969, was recruited by the ANC in London during 1970, working full time for the organisation from 1975 onwards. She edited a newsletter, the Weekly News Briefing, which was distributed by the ANC around the world. When the ANC came within sight of power, she was 'instructed' (the ANC's own word) to return to SA immediately.

Her climb to power since then has been meteoric- especially since the ANC Left captured the Party and Zuma became President. Marcus is a specialist in Gold, and is the exec Chairwoman of Gold Fields Ltd....although her main job is as Chairwoman of Absa Bank - SA's biggest. This powerful lady has now been squeezed into a pivotal economic role by Zoooomer - a close ally vital to keeping the Whites and the West onside - and after pressure from the Trade Unions. Indeed, Marcus avoided answering a question at the news conference where her appointment was announced by Zuma on whether or not she would continue to pursue inflation targeting, saying the journalist was on a "fishing expedition". And indeed ducky, sounds like he caught a big one.

The South African opposition said it was "unacceptable that a new Governor should dodge a question fundamental to South Africa's economic framework and the foundation of our monetary policy: the market needs a clear answer as soon as possible."

But what of Ms Marcus's other links? Well, there is her interest in Gold. A recent press release by the company noted that

'Gold Fields will retain exploration joint ventures with Sino (Gold Co) over the Jinshu project and other nominated properties in China'

In June 2007, China launched a China-Africa development fund to the value of US$1billion to encourage, finance and support Chinese companies in their investments across the African continent. (See nbys passim) In October 2007, China's largest bank, the Industrial and Commercial Bank of China, bought a 20% stake in South Africa's Standard Bank for US$5.5-billion. This is the biggest single foreign direct investment in South Africa to date. (See also nbys passim)

This may represent nothing more than a string of unconnected facts. But in appointing her, Zuma could be said to be signalling a move East and Left.

Certainly, Beijing will not be displeased by the appointment.

29th July 2009

Here we gold again. Sorry, awful pun....but this has been such a recurrent theme on nby over the last eighteen months, I feel the need to keep refreshing it.

The latest stock market 'recovery' having stalled in the mud of Squanders, I knew at the start of this week what would happen next: an attack on the gold price. Opinions vary as to (a) whether this whole idea is a fantasy (b) if it isn't, who's selling what to whom, and (c) why are they doing it? As to (a), the vast majority of observers are in the 'it's a fantasy' camp, but being contrarian is nothing new for this column: in the contemporary financial 'system', today's nutter is tomorrow's seer. But the other two questions/doubts deserve a thorough examination.

I'd be happy to be the man supplying it, but neither I nor anyone else outside the Sino-American Establishment will ever be given the opportunity. That's because in both the US and China, there are two types of gold. In the US, there is Federal Reserve gold (freely available for auditing) and Fort Knox 'deep reserve' gold (which no President has even visited since 1952, and to which access for any and all Congressional investigators has been denied since that date). Sounds like conspiracy paranoia bollocks? Check it out - you'll find this is 100% accurate.

In China, there is gold we have already bought that we're happy to tell you about.....and gold we haven't bought or mined yet, but will soon. For definition differences, see previous paragraph.

Throughout 2008, nearly all the media, governmental and Establishment gold specialists nby contacted about manipulation of the gold price rubbished the idea. It has been my experience over four decades that the more folks laugh at a theory, the more likely it is to be proved correct. It has also been my experience that if enough facts build up about whether something is a duck or not, chances are it'll turn out to be a duck. Here are five very strong pointers:

1. Falling gold prices since mid 2007 have nearly always preceded stock market days expected by opinion leaders to be bad. Furthermore, they tend to take place in the half-hour before and after London and New York markets open.

2. The falls range in size, but are never less than ten bucks - and have been as high as thirty-five. On 9/11*, the price fell $3.50.

3. Before the latest econo-fiscal crisis, gold had ALWAYS risen in price during a period of plummeting equities, and ALWAYS risen faster still during uncertainty about currency values/governments printing money. We've had all these factors over the last two years, but the price of gold has on the whole remained stubbornly below a $1000 breakthrough level.

4. On April 24th 2009, out of a clear azure-blue sky, the Wall Street Journal's Marketwatch website announced a dramatic increase in China's gold reserves to 1054 metric tons. Hu Xiaolian (the man in charge of foreign holdings) said the reserves had risen steadily by 454 tons since 2003. But this didn't entirely tally with the 600 metric ton increase over the stated March 2009 level....a level which previous Chinese figures insisted hadn't changed since 2002. Confused? You will be after thinking about this: the 600 month-on-month tonnage 2009 increase represents a 132% leap. Ho Xiaolian speak forked tongue or have big maths problem.

Clearly, the Chinese bought it from somewhere - their mining output is growing, but not by 132% of existing reserves a month.

Qu: Who has the most gold after China? Who is China's biggest trading partner? Who owes most cash currency debt to China?

Ans: (In backwards writing for security reasons) aciremA.

5. Demand for the metal. In December 2008, Swiss refiners admitted 'having great difficulty in keeping up with demand for gold bullion'. Call any bullion dealer, and they will tell you that you can have a limited amount - usually at a 40-50% premium to the stated bank paper-tracker price.

So the conclusions I draw respectively from all this are as follows:

1. A large amount of gold has been sold by the USA to China, with two complementary aims: to stem a wholesale desertion of the stock market, and reassure the Chinese that there's plenty more where that came from in terms of holding Yankee debt in something more tangible than paper. Both those things aside, this does of course represent a massive shift of power from West to East: America is (like a number of central banks in Europe) selling off the family's best tableware.

2. Manipulation of the gold market has been going on for at least two years - at first to defend the dollar, and then to defend US equities. If the biggest attack ever on America's homeland produced a $3 fall, 'market forces' do not generate $20 falls on a regular basis in line with regular time zones. That is just a silly, silly idea.

3. The gold price is being capped by massive sales benefitting both vendor and purchaser; and bona fide investors are being cheated out of their gains as sensible buyers.

4. The Chinese figures are contradictory and nonsensical. Their release is based on the well-known theory of all elites, viz, if the People are asleep and/or frightened, you can sell them any old tosh as an explanation.

5. There is no precedent in recorded human history for (a) a safe haven falling in price during uncertainty and (b) a falling price sitting alongside insatiable demand. To believe otherwise really is to have been Born Yesterday.

At exactly 8.00 am London time today, the gold price fell by $9.50. At precisely 8.30 am New York time, the gold price began a further rapid fall of $11. The FTSE (having plunged 100 points in the twenty opening minutes) recovered during the day to be half a per cent up. The Dow (having plunged 80 points in its opening half-hour) recovered to end two-thirds of a per cent down.

As to interpretation of all the foregoing, the choice is yours.

*....and no, this is not another 9/11 conspiracy theory.

16th September 2009

Gold trading ranges. The shiny stuff is up at $1017 today as I write. With every week, its trading range gets higher and higher. I've been plugging this line without offering formal advice (because I mustn't) for a year now. All I can say is that I got in with much of our spare cash at $827 - and if I didn't have a new roof to pay for, I'd be piling more in now.

There are various reasons for this rise; the technical ones are still largely beyond me to be honest, but the common sense, observational ones are clear:

1. Western governments are printing money - still largely in the UK (as Merv the Swerve admitted yesterday) to little effect, because consumers in debt are now once-bitten. The 'model' is bust, and the smart money wants a safe haven from it.

2. Anything China's collecting I want too.

3. The oil price continues to languish, suggesting a continuance of nerves about economic performance in several regions.

4. Huge EU debts have still not been declared (see below)

5. The UK house-price 'recovery' can't last (see below) thus reducing further the options available for low-tax capital growth

6. Packaged-product banking madness is back with us already (see above) showing to anyone with grey matter that the learnings from Lehman et al are zero-diddly-squat. There will probably be another stock dive within the year (all markets except China and Brazil are, in my view, massively over-bought) but above all, none of the systemic global banking flaws have been addressed. For the investing strategist, therefore, the safe-haven rule applies.