Way back towards the beginning of the twentieth century, there was a man named Lenin. Lenin was a professional revolutionary (many called him a "terrorist") who was the main architect behind the 1917 Bolshevik Putsch. The actual Russian Revolution took place in February 1917. Lenin and his cronies hijacked the resultant government in October 1917. Of the many pithy sayings and quotes attributed to him is one about Gold being used to coat the seats of the public lavatories once the Communist utopia had been built.
Fifty or so years later, there was a man named Milton Friedman. Mr Friedman was (and is) an economist and had written (amongst other things) a quite good book about the history of money in the United States. He was, however, a "monetarist" and held that the money in circulation should increase annually by a given percentage, and that this percentage should be changed (judiciously, of course) to fit the "economic conditions" of the current situation. In the late 1960s when France was sending the Dollars their exports earned back to the US and leaving with the Gold, Mr Friedman was saying that once the "support" of the Dollar was removed from Gold, it would fall to $US 2.50.
Today, there is a British establishment newspaper of long and distinguished standing called the Financial Times (FT). On Friday, April 16, the FT published an article without a byline (no author was indicated) titled Going, Going, Gold. Please read it, if you haven't already done so, the link has already been posted at many "Gold sites" on the net. On the same day as this article was published, another article appeared in the FT. this one was titled Private Buyers Fill Bullion Vaults.
Well now, someone is wrong here. Is it the anonymous editorial writer for the FT or is it the "private buyers" who are filling the London Bullion vaults up with 400 troy oz Gold bars?
As you know, the past week has been a bad one for Gold. On Thursday, April 8 (April 9 was the Good Friday holiday), spot future Gold closed at $US 419.90. On Friday, April 16, it closed at $US 401.00 - after having closed at $US 397.70 the day before.
According to the FT, Gold has taken much more terrible "hits" than have been reflected by the price drop this week. First, that venerable banking firm NMRothschild announced it was withdrawing from trading commodities, including oil - and GOLD. NMRothschild, as the FT gleefully informs us, is the firm which smuggled Gold to the Duke of Wellington in Portugal 200 years ago to finance his Penninsular Wars. It was charged by the British government to buy Gold to fund Napoleon's defeat at the Battle of Waterloo in 1815. It was a founding member and has chaired the London Gold market fixing ever since it started in 1919. What could the withdrawal of a financial firm with such a long history of Gold "trading" mean except that Gold's days are numbered?
Then there was the report that the French Central Bank is contemplating the sale of 500 tonnes of Gold over the next five years - until 2009. Everyone knows the French love affair with Gold. They tried tenaciously to stay on a Gold standard when the rest of the world was abandoning it in the early-mid 1930s. They brought about Nixon's closing of the Gold window in 1971 by demanding that the US redeem the Dollars they were earning from their exports to the US with physical Gold. Clearly, if the FRENCH are contemplating selling Gold (and NMRothschild is getting out of the Gold PAPER market), then Gold's days MUST be numbered.
What the FT conveniently ignores is that when NMRothschild was financing the Duke of Wellington in Portugal and later at Waterloo, they were not doing it with paper, they were doing it with GOLD COIN. Ditto with the start of the Gold fixing in 1919. In those days, Gold coin (Sovereigns) still circulated as money in England. What NMRothschild is doing is getting out of the PAPER Gold trading business. They haven't said anything about selling any PHYSICAL Gold they may have, nor have they said anything about continuing to "trade" in PHYSICAL Gold.
As far as the French Central Bank is concerned, it may have escaped the attention of the FT that the French, along with most of the rest of the EU, recently signed a new five-year agreement to "limit official Gold sales". This agreement updated the original "Washington Agreement" of September 1999 which was due to expire in September this year. The new agreement limits the participating Central Banks to cumulative annual sales of no more than 500 tonnes. The French Central Bank has mentioned selling 100 tonnes a year. Perfectly to be expected under the updated Washington Agreement.
Note too that in this updated agreement, as in the original agreement, Gold is recognised as an OFFICIAL "reserve asset" of the Central Banks signatory to the agreement. That is one of the many reasons why the Federal Reserve is NOT a signatory. Note too that in this as in all past reports of actual or prospective Central Bank Gold sales, there is no indication of who the French Central Bank proposes to sell the Gold to. Isn't it miraculous that, despite many years of recurrent reports about Central Bank Gold sales, the amount of Gold claimed to be held by the Central Banks never diminishes. Could it be that they are just playing "pass the parcel" with each other?
This week ,for the third time in a year which is not yet four months old, Gold has been "HIT". This time, the hit was accompanied by an even bigger hit on Silver and with an outpouring of "scare stories" about Gold culminating with the FT story referenced above. Gold has not been "kind" to those who predict its demise, and its demise has been predicted with almost machine like regularity for many decades now. The author of the FT story has joined a long line of distinguished predecessors.
Take a glance at what is REALLY going on in Iraq right now. Read (or reread) Mr Bush's speech and press conference of April 13. Consider the reaction from all over the world to Mr Bush's deal with Israel's Mr Sharon. Consider the recent bloodbath on the Treasury bond markets. Look behind the facade of the recent (new job creation and retail sales) "strong" economic numbers coming out of the US government. Look at the latest Treasury debt to the penny. Consider the Fed's 1.0% official interest rates in light of the fact that the government now puts the US CPI at 1.8% and private estimates of US price inflation range anywhere from 8% to 12%.
In sum, consider what Gold "should" be doing and then look at what it IS doing. Two weeks ago Gold hit a new 2004 high in $US terms. Right up until this Monday (April 12) it was threatening its ALL TIME HIGH in Euro terms. The situation, for the paper hangers and financial powers that be, is DESPERATE. The "price action" on Gold this week shows that. But what shows it even more is the "stories" being trotted out about Gold. When an old establishment newspaper like the Financial Times decides to publish an editorial predicting the demise of Gold as a financial asset, you may know that the jig is nearly up.
In our report on this page last week, we stated that every effort would be made to prevent Gold from breaking through to new 2004 highs in either $US or Euro terms. The past week has seen a culminating effort which has forced Gold (and Silver) back to the levels they were a month ago. Out there in the paper financial world, the situation has obviously changed - FOR THE WORSE. The action on the Gold paper markets, and even more the "Gold reports" which have accompanied that action, illustrate this clearly. The more solid and potentially long-term a Gold bull market is, the more episodes of this kind take place. There were regular gold "hits" in the bull market of both the early and the late 1970s. All that any of them did was to postpone the inevitable, and make the inevitable when it came more virulent than it would otherwise have been. This time will be no different.