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Gold and silver bugs complain a lot, and rightly, but they're winning
2:16a ET Thursday, April 26, 2007
Dear Friend of GATA and Gold:
Our friend M.F. raises an issue that may be worth trying to answer in public:
"Most gold investors believe that if the central banks ended their selling of physical gold, gold prices would rise quite sharply. I have some doubt. For supposedly the central banks dishoarded their silver reserves years ago and yet the cartel has been able to keep silver down despite the lack of metal to feed into the market over the past few years. So why would the cartel not be able to keep gold in check in similar fashion even if the central banks stop dishoarding gold?"
Yes, M.F., the central banks and their agents, the big international investment houses, have been suppressing precious metals prices for many years, but their efforts really can't be considered so successful.
When GATA was founded in 1999, gold was $250 per ounce. Now it's above $680. Check the 10-year chart of the gold price, which you can find in the right column of the Kitco home page here:
In 1999 silver was $5 an ounce. Now it's near $14. Check the 10-year silver chart at the lower right side of this page at Kitco:
http://www.kitcosilver.com/charts.html
Yes, without central bank intervention against the precious metals, gold and silver would be much higher. Even so, where since 1999 could ordinary investors have found better returns with as little risk as there is in taking delivery of precious metals?
Meanwhile shares in gold and silver mining companies on average have far outperformed other stocks. Compare the returns on the Dow Jones Industrial Average and the American Stock Exchange's index of unhedged mining stocks (HUI) for the last five years:
http://finance.yahoo.com/q/bc?s=%5EDJI&t=5y&l=off&z=m&q=l&c=%5EHUI
The Dow is up maybe 15 percent, the HUI about 215 percent.
Futures, options, and other derivatives in the precious metals -- financial instruments essentially underwritten by the central banks, insofar as they are sold in the belief that here too the central banks will be the lenders of last resort -- CAN and DO divert much demand from real metal into mere promises of metal. These promises will more or less default on the day of reckoning, the comprehensive currency and precious metals revaluations that lie ahead. (See what market analyst Peter Millar expects in this regard:
http://www.gata.org/node/4843.)
Futures, options, and other derivatives accomplish the same diversion of demand for EVERYTHING they touch. Indeed, diverting demand from the real to the imaginary is increasingly their very point. And just as derivatives divert demand, they fake producers into selling their products for prices substantially less than what a free market would require.
The public prices of gold, silver, and other commodities are the prices AFTER much demand -- especially investment and commercial hedging demand -- has been so diverted from the real to the imaginary.
But purchases and sales of real things have NOT ceased entirely. Even with so much demand diverted into mere promises, the rising prices of the precious metals and other leading tangibles, like oil and base metals, long have been indicating not just actual shortages but also MONETIZATION.
That is, just as gold and silver have been REmonetizing themselves amid the worldwide debasement of fiat currencies, other tangible assets, particularly oil and the base metals, are being purchased increasingly as financial instruments too. (See the January 2006 report from Platts News: http://groups.yahoo.com/group/gata/message/3604)
The market rigging undertaken or inspired by the central banks is immoral and becoming more pervasive (and obvious), but anyone who is buying real stuff and stashing it somewhere safe has been doing well for years now.
That is, despite the overwhelming advantage of the market riggers, the ability of the central banks to create infinite amounts of legal tender and to provide it to their agents, the investment houses, the market riggers are losing and we're winning ... just not as quickly as would be the case if markets were as fair as they are misrepresented as being.
Dishoarding gold and backstopping the gold derivatives sold by the investment houses, the central banks are buying time -- but they are buying it dearly, with their most precious asset, selling it at bargain prices. Selling their gold, the central banks are purchasing confidence in the illusions of their own currencies, this confidence being more vital to them than their gold, since, for the moment, their currencies are valued much more than their gold. But the balance is shifting, and this is visible to anyone who wants to see it.
So why are so many precious metals investors always sunk in anger or depression?
Of course we have been cheated and are being cheated every day, but, even so, for quite a while it has been almost hard to lose in this sector if one has been conservative and has had the patience to hold on for a year or so.
Part of the problem is that so many of us invest too much on margin in the mining shares or the futures rather than just buy metal on price dips and take delivery.
GATA itself may be part of the problem. It is our charter to show how the precious metals sector is being cheated by the central banks and their agents, and this message may be heard more than its corollaries:
-- That there really is neither a gold price nor a gold market at all yet.
-- That there is only the matter of how much gold the central banks are ready to dishoard precisely to prevent a gold market from breaking out and a gold price from being discovered, and to prevent an unfavorable price from being assigned to the government currencies.
-- That as the central banks exhaust their gold reserves and reduce and then end their dishoarding, the world will enter a strange new dimension with the precious metals, their utter reconceptualization. Suddenly, overnight or nearly so, perhaps first by happenstance but then quickly by official decree, everything financial will be very different.
-- And that most people alive now will live to see that day.
That day will raise profound political questions and vastly increase the risk of owning gold. But in the age of ever-encroaching government, gold is far from the only thing at risk; at least in the United States private property and individual liberty themselves are already hanging by threads.
The U.S. government has been surprisingly candid about this. It lately has been claiming the power to deny the right of habeas corpus to anyone simply declared by the government to be an enemy of the state. And two years ago the Treasury Department told GATA, in writing, that it claims the power to seize not just gold and silver coin and bullion from individuals -- the dreaded second confiscation that gold and silver bugs love to get paranoid about -- but the power to seize every other financial instrument as well:
http://groups.yahoo.com/group/gata/message/3276
Some of us understand and accept the risk of gold and silver ownership and ownership of mining shares because we like to fancy ourselves as freedom fighters in a small way. Others among us accept the risk in the belief that we will have time to transfer assets to jurisdictions beyond the reach of the Treasury Department -- countries potentially more respectful of private property, like China and Russia. And still others among us accept the risk because, as currencies are debased and financial systems are corrupted, most other investments carry even more risk.
In the meantime it's a helluva business. For years it has been full of big winners -- not just gold and silver themselves but so many mining companies, like NovaGold, Glamis Gold, Western Silver, ECU Silver, MAG Silver, Northern Dynasty, Aurelian, Wits Gold; even old Hecla Mining, practically despised six years ago at a dollar a share, is up 900 percent since then; and on and on and on -- and we're STILL depressed and complaining all the time.
Maybe it keeps the riffraff out -- or in!
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committe Inc.
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