Monday, March 4, 2013
As analyst after analyst turns on gold, now well into the second year of correction, those who came to this currency relatively late are probably losing conviction. It certainly is disheartening to see every upward thrust countered by a torrent of selling on the comex.
Keep in mind that while there is a limited amount of real gold in the world, there is an infinite number of paper contracts that can be traded on the futures exchange. Any government that can print its own money can pour an unlimited number of sell contracts onto any rally.
So how will gold ever rise?
Because there is a gold market that is operating out of sight of the small investor. This is the gold market operating on the level of Central Banks.
Central Banks are buying and hoarding gold. Central Banks are settling huge oil and gas transactions in gold bullion.
None of that affects the paper price of gold traded on the futures exchange.
And the paper price has very little effect on the gold price in the negotiated agreements between Central Banks.
The US Central Bank is certainly the world's most powerful. Right now. So they can control the paper price of gold. Right now. Because they can print as much money as they want. Right now. And they can settle any amount of debt in printed dollars. Right now.
But with 120 Trillion in notional debt obligations, with forty cents of every dollar spent simply printed, and with the Fed buying 90 Percent of all newly issued US debt, the game is obviously unsustainable.
Yes, the euro, and the yen are in no better shape.
That's why whenever the game unravels - and nobody knows when that will be - it will unravel quickly.
Why quickly? Because disastrous events are unexpected. And with interest rates at zero and real rates negative, and debt levels astronomical, whenever the next disaster hits, there will be no financial amnunition left to combat it.
And then the paper price of everything will reset before anybody has time to react.
That's why you buy gold - real gold bullion - now, and hold it. Even if it takes a long time for the game to unravel. Because nobody (except maybe George Soros) can time it.