Gold has nowhere to go but up

October 22nd, 2012 → 7:57 pm @ // No Comments

Before it’s all over, gold will be $10,000 an ounce or higher

They have pulled the plug…the western elite central bank led cartel
has…and it is definitely to their advantage to make it all hit bottom
while there is still more gold in the west than in the east. The clock is
ticking.

That advantage is changing day by day, and the developing giants of
the east (China, India, etc.) may beat them to the punch. There is a new
PAGE in the directory of exchanges.

The new exchange will be known as the Pan Asian Gold Exchange
(PAGE), and it will be situate in the hub of eastern economic vigor.
There will no longer be the need for global gold buyers to put up with
the shenanigans of the London and COMEX exchanges, the U.S.
government, or the Federal Reserve. The insider market manipulations
of the western exchanges will not extend to the new market.

Many barriers presently experienced by smaller investors will be
removed. Buyers will be able to take physical delivery of precious metal
directly from the exchange. Lower contract limits will open the doors to
smaller investors, and the commodity buying world will snap its
attention to the east.

The western central bankers are quite aware that this is happening,
but they are not going out in the flames of self-immolation that would
be sparked off by announcing it publicly. They will continue on in their
present course for as long as possible, which is being accompanied by a
behind the scenes shift away from debt-based US dollar assets, and into
physical commodity precious metals.

The routine will be for all of them to use their bloated asset
stockpiles (real, as in the massive growth-fueled increases in the eastern
monetary base, or imaginary, as in the Fed-distended example of
western central bank created asset illusion) to load up on commodity
metal. They will perform this routine as long as they are able to pass off
their increasingly worthless fiat mirages called USDs, of which everyone
is holding too much. The goal will be to try to enhance their possibility
of performing a controlled crash-landing upon impact. The world has
lost faith in the USD and all nations are quickly and quietly reducing
their dollar-denominated holdings. It is all about globally exiting the
dollar.

Once the loss of faith in any currency is widespread, it is on a oneway
street to the dumping ground of history. There may be the
occasional, and brief reprieve, or reversal of opinion, but like the
chartable downward spike wounding of commodity metal prices caused
by regular metal market manipulations which have not succeeded in a
reversal of the overall trend upward, neither will momentary lapses of
public or market memory reverse the fatal erosion of faith in paper (or
electronic) currency.

Regardless of market manipulation, the price of commodity metal
has managed not only to keep up with all other asset classes; it has
provided a better return on investment than most. The price just keeps
going up and the lower the level of trust in the paper (or electronic) US
Dollar decays, the higher it will go. Detractors of gold as an investment
have raised the specter of an imminent reversal in the rise of gold and
silver prices, and have stated that the current price levels are an illusory
projection of unfounded investor exuberance of expectation of metal
price increase profitability. They say that the rising price is because gold
is in a “bubble”.

This is utterly ignorant or just plain disingenuous, as in reality,
investors are flocking to precious metals, not as a profit-producer, but
for the most part, as a value-holder. The resultant rising demand is
rightfully reflected in the continued upward price direction. It is
precisely that there is a lack of confidence in other asset classes that
investors have sought the protective harbor of intrinsically valuable gold
and silver. Gold is not in a bubble, trust is in a bubble.

The price of gold has repeatedly been found in a market-priced
mode known as “backwardation” as basically the price of promised
futures of gold is lower than the current spot delivery price. This is a
normal effect of a shortage in the supply of a commodity when sellers
with a deliverable quantity of the commodity can bid whatever the
market will bear. Holders of such a commodity (which was likely gotten
at below the current spot price) in such a climate can arbitrage or sell at
the higher spot price and replace the asset again at the lower futures
price and pocket the difference when the contract is settled. That is, if
they have reasonable assurance that they can receive delivery on a
future contract.

There is no reason that gold should be in backwardation, except for
a lack of confidence that future contracts of gold will be receivable. It is
much like the reaction of a commodity market to times of hoarding
when there is plenty of a commodity, but none of it is for sale. In a
backwardated futures market, a commodity price that is pledged at a
future date may have been at or even above the spot price on the day it
was offered, but by the time that the delivery date rolls around, the
spot price is so high that the future price from before is now lower.
In a trade, the sellers offer is called the bid price and the buyers
offer is called the ask price. Usually the ask hovers above the bid and it
usually is a wash or even a loss to sell and re-buy the same asset. In a
backwardated market pattern, where the spot bid price is above the
futures ask price, buyers are displaying confidence in spot deliverables
and doubt that the climate will improve, regardless of how
comparatively attractive the futures price is made to be. Spot prices
normally will only go so high, before they are too high, and the market
will not bear it. Normally when the spot price goes high enough to
extinguish the demand, the price corrects to a point that is closer to or
below the futures price and the backwardation is eliminated.

This is not happening with gold because the commodity that is in
shortage is trust. There is a shortage of trust in what is being offered in
exchange for gold, which is the ailing paper Dollar. The trust shortage
extends to paper-backed precious metals equities and ETFs. Buyers
would rather have the physical product in hand than bet on a promise in
the future. People do not, for the most part, buy gold as a speculative
source of profit. It is true that apparent speculative gains (apparent, as
these gains actually reflect diminution of the paper value, hence an
apparent rise in price) could have been realized as the price of gold has
marched upward, but that is not usually the reason why people buy
gold. People also do not buy gold as a consumable commodity, which
can be done without if the price goes too high. It is not a commodity
that can be reproduced or replaced by anything else as suitable. It is
not bought in reaction to waves of popularity, or to media attention
either positive or otherwise. People buy gold because it is good as
money, and it will hold the value entrusted to it. When enough
confidence has been lost in paper currencies, gold cannot be priced high
enough against it to stop the demand for it, and finally not high enough
to encourage the selling of any more of it.

Observant traders have noticed the increase in volume of gold being
bought by the world’s central banks and many of the biggest
corporations. All of the central banks had spent much of the past 3
decades diversifying out of gold reserves and into bonds, primarily US
Treasury bonds. The flow has decidedly reversed, as the central banks
are now diversifying out of paper equities and back into gold. As
reported by the World Gold Council (WGC) the primary reason for the
shift is,

“a continued desire among central banks to diversify
their sizeable reserves in light of credit downgrades
which have brought into question the safety of
holding massive amounts of US dollar and euro
denominated reserves.”

The WGC has reported that 2011 saw the purchase of 439 tons of
gold by central banks, a level that has not been seen for close to fifty
years. The net reversal of a gold selling to a gold buying trend began in
2009 and has increased. As central banks accumulate gold, there are
already several countries that have suggested that their currencies be at
least partly backed by gold, as in the case of the Swiss franc, or fully
convertible and exchangeable for gold, as the Chinese have announced
is the plan for the Yuan. In a departure from the London Metals
Exchange and the COMEX in New York, the Chinese have offered the
Renminbi Kilobar Gold, a gold spot contract denominated in Yuan as
opposed to USDs. This is a fateful step toward the acceptance of the
Yuan in the status of a gold-backed world reserve currency in
anticipation of sounding the death knell of the US Dollar.

At the same time that central bank gold purchases have increased,
the sales of gold from central bank reserves have essentially ended.
Many central banks have begun to take steps to repatriate gold reserves
they have had stored outside their borders in the vaults of other
countries. Venezuela holds the largest percentage of its international
reserves in gold of any Latin American country at over 60%. In 2011, in
a move that was considered hostile to the west, but still made good
business sense, Venezuelan President Hugo Chavez repatriated all of
Venezuela’s gold reserves that had been stored in European and North
American banks. The bank of England, the oldest central bank in the
world was obliged to cough up almost 100 tons of the yellow metal.
Other banks in England, Switzerland, Canada, and one of the world’s
biggest metals trading banks, JP Morgan Chase in the United States
were all hit up for the Venezuelan gold they held which amounted to a
total of somewhere around 211 tons of gold being moved to vaults in
Venezuela. Venezuela itself has seized vast oil reserves and
infrastructure that lay within its own borders as it nationalized oil
projects that were owned by U.S. energy producers. This resulted in a
multi-billion dollar asset grab which is perhaps why Chavez may have
feared a retributive seizure of Venezuelan gold reserves held within the
U.S. Venezuela is now exporting that oil to developing countries,
notably China. Chinese and Russian investors are putting money back
into oil-loaded Venezuela.

The South American country is not the only example of national
concern over the whereabouts of national gold reserves. Swiss
Parliament is debating a measure called the Gold Initiative, that if
passed would mandate an audit of and reveal the location of the gold
reserves that remain of the property of the Swiss people. The German
central bank is under increasing scrutiny as calls have gone forth for a
full audit of Germany’s gold holdings, including their storage locations.
It is generally reported that the majority of the gold reserves owned by
the Bundesbank, but held outside of Germany, are in the vaults of the
Federal Reserve Bank of New York. Discussion of the question as to
whether in the event of a currency debacle, there is likelihood of a U.S.
confiscation of any gold within its reach has increased the anxiety over
the German gold reserves being held in New York and other places
outside of Germany. Concerns about the fitness of fiat paper currency
to hold its value will continue to inspire holders of paper assets that
represent inflation and debt to convert those paper assets to gold, and
to seek physical deliverables instead of futures contracts. Concerns
about the possibility of U.S. confiscation, will continue to inspire owners
of gold held in the U.S. to remove that physical gold to beyond the
confiscatory reach of the potentially dangerous flailing of a dying
empire.

Following Venezuelan President Hugo Chavez, the central banks of
the world are questioning whether to take physical possession of the
gold they own, so that they may return it to safe-keeping within their
own borders. This amounts to an official vote of no confidence in the
promise that gold on loan or retainer, or that is simply being stored, will
be returned to its rightful owners if a real currency meltdown were to
occur.

It is particularly foreign–owned gold stores that are inside the USA
that are feared to be the most imperiled. If the US Dollar crashes hard
enough, the fear is that the U.S. will confiscate any gold within its
borders, so as to have the leverage to influence the conditions for the
inauguration of a (probably metal-backed) new world reserve currency.

Numerous large asset management firms have invested huge
chunks of their clients’ funds into precious metals for safe-keeping.
These are examples of a general exodus into gold which are signaling
wary traders that the time is coming closer to the end of opportunity to
convert depreciating paper portfolio assets into gold.

Government debt is beyond any hope of amortization and the
process of default has begun. The inflationary spiral is steadily and
insidiously destroying the value of all US Dollar denominated assets.
None of the fancy footwork or financial fixes that are advertised to treat
the multitude of terminal financial illnesses has inspired any confidence
in paper currency, in fact, quite the contrary. The bond market has
already been given the cold shoulder as it has already failed to sell at
the levels anticipated, triggering the Federal Reserve to buy up the
surplus. When the auction fails to attract any bidders other than the
Fed, the bond market will have become a ghost town were wealth
would only go if it were looking for a place to die.

It goes without saying that the systematic accumulation of physical
gold is the best way to profit during a surge in demand for gold.
However, for the average investor, the window of opportunity to buy
gold is closing fast. The time is fading to trade out of paper as the price
of gold is already high enough to be prohibitive to many individual
investors. When positions in the metal market are out of reach, there
will still be action in the resource sector for a time, but that will come to
an end as these markets begin to be denominated in metal-backed
currencies.

Backwardation in gold futures is evidence of a market that is on fire
and is consistently outpacing a normal futures price. It is also evidence
that buyers essentially do not trust that gold future contract paper
would be honored in gold, that the paper Dollar will hold its value as
well as the gold, or that they can expect to be able to get gold in the
future at any price.

When finally all faith in the futures market has evaporated in the
heat of spot deliverables prices, there will be no more spot gold sellers
of physical, deliverable metal. No amount of paper will coax it from
hiding, and the paper currency will have collapsed. Gold will have
effectively been removed from pricing against paper currency, and in
the resultant split, the price of services and other tangibles will begin to
be evaluated in gold. In very short order, the paper will be rendered
meaningless regardless of its quantity.

At that point, no matter what happens, physical gold in hand will
still have value. There is no other element on earth that has the unique
characteristics of gold. Gold never changes as it is completely nonreactive,
and chemically inert, so gold will be the same for every future
tomorrow.

And for every tomorrow, gold will still be valuable…because it is
gold.


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