Gold Commentary - Archives - 2011

We began this Gold Commentary in January 1996.
Due to many requests, we began to archive them in May 2000.

December 30 - 2011 - Year End
And yes, it's true that Gold has once again dropped below its 200-day (40-week) moving average as we close out 2011. It did so - for the first time since early 2009 - on the week ending December 16, 2011. Please note in this regard that over the eleven years since the start of the Gold bull market in 2001, there have only been three years when Gold did NOT trade below its 40-week moving average at some point during the year. Those years were 2002, 2007 and 2010.

December 9 - We've Nearly Made It - Through 2011
If the governments of the world, and of the English-speaking world in particular - were trying to cause their citizens to shun them on purpose, they could not design a better set of policies than the ones they are following today.

December 2 - Keeping It In The Family
The Fed certainly wants to see that everybody has ready access to US Dollars. What they do NOT want is for any foreign financial entity - whether commercial bank or sovereign government - to acquire those US Dollars by selling $US "assets" on the market.

November 25 - Deficits Forever?
As you know, the "super committee" tasked with finding $US 1.2 TRILLION in spending cuts over the next ten years - out of planned US government spending of $US 40 TRILLION over that same period - has crashed and burned. The US government blithely goes on with its plans of budget deficits in perpetuity. Why should it change, as long as none of the angst about the future of sovereign debt is aimed at Washington DC?

November 18 - Gold Bonds To Save Europe??
Please note that the "cure" is presented as Gold-backed bonds, not Gold-backed Euros or, what the heck, a return to Gold itself as money. Please note also that there is no suggestion that NON Euro nations - including the UK and the US of course - should or would ever be in a position to resort to any such measures.

November 11 - Buying The Dips?
The biggest difference between the Lehman collapse in 2008 and the situation today is the type of paper asset which is causing the "problem". In 2008, the credit freeze and bank lockup was caused by derivatives composed of bank lending to indivduals - notably the infamous "MBS" (Mortgage Backed Security). Today, the financial world is being shaken by rising doubts as to the viability of government-issued or "Sovereign" debt.

November 4 - A "Sovereign" Mess
As yet, nobody has come up with the simple reason why all these potentates have been unable to come up with a way to "fix" this comparatively minor debt problem - almost microscopic in the global scheme of things. Could this reason be that there is NO "fix" to the problem? Could it be that the occasional voice of reason which keeps pointing out that you don't fix a debt problem with more debt is actually RIGHT?

October 28 - A Nasty Precedent
To paraphrase many financial commentators inside Europe - and many more across the English Channel and across the Atlantic - Europe has refused to use their central bank (the ECB) in the way that it is "supposed to be used". They are dragging their feet on using it as a lender of last resort - to the government. Worse still, they have had the temerity to impose a 50 percent "haircut" on the sovereign debt of a Euro-using European government.

October 21 - They Know Not What They Do
These people are not supporters of cutting the size of government. They do not want less government intrusion into their lives, they want more. They are as resolutely opposed to recognising the simple fact that you can't have your cake and eat it too as are the bureaucrats and politicians they profess to be furious with. Above all, they are incapable of recognising the fact (or refuse to recognise it) that the "system" which they are counting on is coming apart at the seams.

October 14 - We've Never Seen "Faith" Move A Mountain
But there is no doubt at all that it can move markets. On October 14, for example, the Dow rose 166 points to close at 11644. That is its highest close since the US budget deal was struck on August 3 and moves the index back into the black for the year. In the two weeks since October 3, the Dow has gained almost exactly 1000 points in an all but straight upward trajectory.

October 7 - The Poor Battered "Barbarous Relic"
The extent to which the rest of the world is relying on the focus remaining on Europe was put perfectly in perspective by Ben Bernanke during Congressional testimony. No doubt utilising a talent for keeping a straight face which would have made Jack Benny green with envy, Mr Bernanke informed his Congressional listeners that he and his US colleagues were "innocent bystanders".

September 30 - Back To The Bottom Of The Uptrend
From intraday top to intraday bottom in the present Gold correction so far, Gold has fallen just short of 20 percent in US Dollar terms. In the 2008 correction, the intraday top to bottom fall was about 33 percent. A 33 percent drop from Gold's mid August 2011 highs would take it down to just under $1300. The 2008 correction remains the biggest in Gold's bull market so far, but not my much.

September 23 - Market "Synergy" In Action
Of course, in the "real" world, investors cannot bend either very useful appliance to those ends. So they are reduced to raising "liquidity" by actually selling something in order to meet their losses and/or their margin calls. The whole idea is that those who actually RUN the governments and commercial banks are above all that. Need "liquidity". Press a button or hit a keystroke or, if all else fails, fire up the presses.

September 16 - The Last "Hold" On Gold
Gold (in $US terms) has now been at or pretty near the top of its upchannel for an entire month now. Each challenge to break ABOVE the channel has been met with an even bigger announcement from the global financial "powers that be" that they have the situation "under control". Thus far, they have managed to keep $US Gold within "bounds" (see the chart), but they have not yet been able to produce a sell-off similar to the one which took place in the great deleveraging $US rally of late 2008. They are not going to stop trying.

September 9 - Everybody's Getting Into The Act
In the US, there is nothing at all said about longer-consequences. Sometime next week (or the week after at the latest) the Congress will up the Treasury's borrowing "limit" by another $US 500 Billion after the Treasury chewed through the first $US 400 Billion "installment" in just over a month. But hey, Treasury yields are at historic lows and the US Dollar has soared this week as financial Europhobia has skyrocketed.

September 2 - How's This For "Volatility"?
The initial reactions on the markets were not very promising to the powers that be. Stocks swooned while precious metals - Gold in particular - soared. Was it just last week that the CME raised its margin requirements on Gold by 27 percent and the "price" plunged $US 200 in less than two trading days?

August 26 - The $200 Speech
The speech in question was, of course, Mr Bernanke's remarks at Jackson Hole, Wyoming on August 26. The eager expectations from financial markets everywhere, but Wall Street in particular, that Mr Bernanke would announce yet another panacea with this speech was little short of mind boggling. In the event, Mr Bernanke said little if anything.

August 19 - The Canary In The Bank Vault
In actual fact, if Mr Gordon Brown wakes up in a cold sweat in the middle of the night, he doesn't do it because he is reminiscing about all the "money" the BoE has lost since it stopped its Gold auctions. He does it for the same reason that every other current or former Central banker or Treasurer does it. They do it because Gold is finally beginning to REALLY make its presence felt as an available and alternative currency.

August 12 - The Fed Spells It Out
In the press release accompanying their August 9 meeting, the Fed spelled out their intention to keep their funds rate at its present level FOR AT LEAST THE NEXT TWO YEARS - until mid 2013. This is an extraordinary decision, unique in the history of the Fed or any other major central bank. It is also clearly an act of desperation.

August 5 - The "Flight To Quality" Hits Turbulence
As we prepared to sit down to write this week's Gold commentary, the US ratings agency Standard and Poors' dropped a bombshell. They downgraded their rating for US sovereign debt from AAA to AA+. This was the first time any major US ratings agency had ever put Treasury debt below their top AAA rating. Moody's have held Treasuries at that level ever since 1917.

July 29 - Keeping The Lid On The "Too Hard Basket"
Nobody wants to discuss anything in the way of a fundamental issue. Well - almost nobody - there is Ron Paul. The entire debate is being conducted on the assumption that there are no fundamental issues involved. The word "unsustainable" has never had any meaning in Washington DC because it implies an interval of time before an unworkable system ceases to work.

July 22 - Et Tu - Europe!
The US, Europe and the rest of the world's governments are faced with an insoluble problem. The global economy is damned if they do cut their debt, and doubly (triply, "quadruply" ...) damned if they don't. In either case, the physical economy of the world dives. In the second case, the medium of exchange becomes in commerce what it has long been in reality - waste paper with pretty pictures and august signatures on it.

July 15 - Some Things Are Too Big To Ignore
The most fascinating aspect of the debt limit "debate" is the contention by all the abovementioned authorities that the US government can preserve, protect and defend its full faith and credit merely by increasing the amount they are giving themselves permission to spend. This is a wondrous argument. All that it necessary to perserve one's "solvency" is to borrow more money, preferably MUCH more money. One wonders why it hasn't worked in other countries, like Greece or Spain or Portugal or Ireland or Italy for example.

July 8 - Down One Week - Up More The Next
Look at the situation. Government two-year paper in Greece, Portugal and Ireland is yielding well over 15.00 percent. In the US, the equivalent paper dived back down to 0.39 percent on Friday on the back of a much worse than expected employment report. In peripheral Europe, any bad piece of economic news sends sovereign debt yeilds soaring. In the US, it sends them plunging.

July 1 - Happy Independence Day
Nobody in his or her right mind expects Greece to "pay off" its government debt. Nobody in his or her right mind expects ANY major nation - most certainly including the US - to "pay off" its government debt. The chances of Greece "defaulting" on its debt are said to be in the region of 80 - 90 percent. The chances of the US doing likewise are said to be in the region of 3.5 - 5.5 percent. This is wishful thinking at its apogee.

June 24 - The Good Oil
Two days later, Gold closed at the $US 1501 level. In what has by now firmly been slapped with the title - the Oil slap down - the International Energy Agency (IEA) suddenly announced the sale of 60 million bbl of oil on June 23 - half of that to come out of the US strategic reserve. The size of the sale is minuscule, of course, far less than one day worth of global consumption.

June 17 - Desperately Shifting The Focus
Please read this June 16 article in the British Guardian newspaper - How Dominique Strauss-Kahn's arrest in New York worsened Europe's woe.

June 10 - It IS Happening Here
"The usual "cure" for these dark thoughts is the assumption that the Fed will not let anything "bad" happen. If it becomes clear after June 30 that the system cannot get along without their "help", they will simply embark upon QE3 - 4 - 5 - ... And, of course, nobody really thinks that the Congress will NOT pass an increase in the Treasury's debt limit."

June 3 - Waiting Patiently In The Wings
"US stock markets in particular have had one of their worst weeks in years this week with the usual effect on stock markets everywhere else. US Treasury yields are back to 0.01 percent at the "short end" - the three month paper. Ten year Treasury yields have again dipped below the 3.00 percent level. The US Dollr is falling yet again, notably against the Euro, the currency which has long denominated the headline "sovereign debt" crisis. Gold, meanwhile, isn't doing much of anything."

May 27 - How Much Longer Can "They" Hope To Be Taken Seriously?
"In truth, pretty well nothing "economic" came out of the G-8 summit, except for the fatuous claim of increasing "growth" and the pious pledge to do something - at some point - to some degree - about the debt burdens they are all carrying."

May 20 - Oh What A Tangled Web
"The preparations to "distract" the world from this unfortunate fact have been meticulous and have been going on ever since the end of April. They are still going on. On May 14, the head of the IMF, Dominique Strauss-Kahn, was hauled off a flight to France and accused of sexually "molesting" a New York hotel maid."

May 13 - The More Things Change ...
"Last week, Treasury Secretary Geithner came out with the old chestnut about a "strong" US Dollar being government policy. No sooner had the echoes of that died away than Fed Chairman Bernanke - at his first post FOMC meeting press conference - let it be known that the Fed would take care of the "fundamentals" and that they would take care of the "strong" Dollar."

May 6 - The More Things Change ...
"Last week, Treasury Secretary Geithner came out with the old chestnut about a "strong" US Dollar being government policy. No sooner had the echoes of that died away than Fed Chairman Bernanke - at his first post FOMC meeting press conference - let it be known that the Fed would take care of the "fundamentals" and that they would take care of the "strong" Dollar."

April 22 - 2013 Or Bust?
"Standard and Poors, the US government "accredited" debt ratings agency, has done something that no ratings agency has done since the mid 1990s. It has issued a "negative" outlook on US government debt paper. S&P has "warned" that unless something "credible" is done to rein in the size of US government budget deficits, that same US government "might" be in danger of losing its "AAA" status - by 2013"

April 15 - Gold And Silver - Money And Investment
"The point here is Silver is leading the commodity gains this year, by a "neck". Gold is still mired amongst the "also-rans" in $US terms and in terms of ALL other major world currencies. Silver is primarily a commodity and secondarily a "money metal". Gold is primarily a money metal and secondarily a commodity."

April 8 - The $US Breakout
"With all this, and with the ECB "breaking ranks" too this week with their first rate rise since July 2008, the focus is once again going to home in on the fiscal condition of the US government. Silver has been putting out warning signals for over a month. This week, Gold joined in."

April 1 - The Things They Do For Paper
"At the end of the 1990s, there was a huge complacency best exemplified by the polls which showed individual investors blandly expecting 20 percent annual increases in the stock market in perpetuity. We all know what happened next. Today, the theme on Wall Street is not so much complacency but a feverish refusal to see anything that they don't want to see coupled with an absolutely pavlovian "certainty" that the Fed will never let the well of "liquidity" run dry no matter what."

March 25 - $US 1400 and QE 2
"Spot future Gold closed above the $US 1400 an ounce level for the first time ever on November 8, 2010. That was less than a week after the Fed officially began the eight month and $US 900 Billion Treasury debt monetisation exercise which has become known as QE 2. Since then, there has been a battle royal going on."

March 18 - Back To "Basics" On The Paper Money "Markets"
"Here's a whimsical scenario for you. Can you imagine a circumstance in which the government money managers and central bankers from the G-7 nations became so concerned about the flagging prospects for Gold (or Silver) that they had a conference call and decided to get together and do something about it? No? You're not alone, we can't either."

March 11 - The True "Fundamentals"
"Bill Gross at Pimco has ruffled the US investment markets by revealing that the investment company he runs is ENTIRELY out of the US Treasury market. Pimco has sold ALL their Treasuries and ramped up their "cash" position. Mr Gross has asked the pertinent question - "Who will buy Treasuries when (if?) the Fed stops?""

March 4 - The Wall Of Worry Gets Steeper
"Paper Gold holders of all descriptions are still looking at Gold and Silver as a way to "make" money rather than as a way to preserve purchasing power against the ever increasing damage being inflicted on all paper currencies, notably the US Dollar itself. At least they are in the "developed" world."

February 25 - With Inflation Rampant - Prices Must Follow
"There is nothing as ridiculous in modern monetary and financial "governance" than the professed vigilance of central bankers to make sure that "inflation" does not rear its ugly head. These central bankers are the source - and ultimately the only source - of what is today called "money"."

February 18 - Silver Leads The Way
"On February 17, the spot future price soared $US 0.95 to close at $US 31.57, a new high in the current bull market. On February 18, the Silver price added another 0.72 to close for the week at $US 32.29. That is $US 1.17 or 3.76 percent above Silver's previous 2011 high set in January 3. An equivalent performance by Gold would have seen it close at $US 1476.40 on February 18."

February 11 - Get It While The Getting's (Comparatively) Good
"On top of all that, it is a well known fact that the Chinese and Indian people are not only being allowed to buy physical Gold (and Silver) they are being actively ENCOURAGED to do so by their governments. The pressure on the paper markets is inexorable. Between them, China and India have not too far off TEN TIMES the population of the US"

February 4 - Look At Those Treasuries Go!
"The cheerleading has reached such a pitch that Ben Bernanke is now even giving press conferences. He fronted up to the National Press Club to explain the many benefits of the Fed's monetisation program to the breathless scribes. Look, said Bernanke, it's working - alright, pointing straight at the stock market."

January 28 - What Is Seen Trumps What Is Not Seen
"None of these events had any effect at all on the Gold price on the US futures markets. All of them are much more ominous and have a vastly larger potential effect on the stability of the global paper money system than does a popular uprising in Egypt. But, of course, they are all invisible. The thousands of protesters on the streets of Cairo and othe major Egyptian cities are not."

January 21 - Don't Want Paper Gold - Do Want The Real Stuff
"This week, the big news was the announcement by the Chinese (and the Japanese) that they stood ready, willing and able to buy the debt of the peripheral European nations that were having so much trouble selling it to anybody else. Presto - "the marketplace believes the worst is over regarding the crisis in the euro zone."