Mike Kosares: There's no rationalizing dishonesty by central banks


By Michael Kosares
Centennial Precious Metals, Denver
Thursday, August 16, 2007

In his commentary today, Dennis Gartman of The Gartman Letter identifies gold as the messenger and then seemingly applauds its slaying as an act in the public interest.

Gartman admits that the financial system is sufficiently precarious that smart money should be headed gold's way. Then he says the central banks might find it necessary to knee-cap gold to make it look as bad as everything else -- a response that denies reality and elevates a dangerous fiction.

What is that dangerous fiction?

It is that someone -- anyone -- should change the appearance of financial reality to present it as something it isn't. Not only does this promote a dangerous fiction, it commits a fraud against society as a whole.

I am not accusing Gartman himself here. He is offering an interpretation of the intentions of the central banks, not a declaration of his own intentions. But that interpretation would deny the public the ability to recognize the situation for what it is, and, worse, would prevent the public from protecting itself.

Why should the common man -- or international money men, for that matter -- be denied the truth as represented by movements in the gold price?

Gartman writes of the dishoarding of gold reserves by central banks: "We suspect they shall use that ammunition if needed, not to nefariously keep gold from rising but to keep it from rising in order to keep gold from sending a signal of panic to the world's investors in equities and debt."

Does Gartman really mean that the parental central banks should use everything at their disposal to keep the child-like rest of us from knowing the awful truth?

Does he mean that there is a panic already under way?

That may be, but we are not children. We are adults with adult responsibilities. We have not only the right but also the duty to ascertain the situation for what it is and the right to be allowed the tools to weather it, not just for our personal well-being but for the commonweal as well. If the "ominous sign" is there for those in the know to read, why should it be kept hidden from the rest of us?

To hide that sign is the height of irresponsibility and a reflection of the belief of the people on the poltiical left (wherever they hold power) that they know better than any of us what's in our best interest. They should lead; we should follow. They should make the decisions; we should accept. They should decide what's fit for public consumption; we should not question.

This attitude reflects the difference between, on one hand, those who truly believe in the free market and, on the other, the closet collectivists who merely give the market lip service.

I am reminded of a tactic used by the Plains tribes to hunt buffalo. They would stampede the herd and allow no avenue of escape until the animals were run over a cliff. If there is an attempt to kill the gold messenger, it is to cut gold off as an avenue of escape for investors, small and large. If so, a judicious separation from the herd might be in order.

Nevertheless, I do not believe that the central banks have the power Gartman attributes to them. The "ammunition" to which he refers is restricted to 500 tonnes a year by the Washington Agreement -- and that agreement is something the central banks agreed to, not something imposed on them by the gold business. In other words, we are talking about Barney Fife with his allocation of one bullet, not General Patton and the Third Army.

The insiders know this, but there are many in the press and Punditville who would like the public to believe otherwise. Hence the stream of anti-gold scare articles of late.

After all is said and done, it really doesn't matter if gold goes up or down. The only thing that matters is whether you own it and thus have availed yourself of the protections it offers now and in the long run. That the central banks, if Gartman is right, would go to all that trouble to keep gold in check tells me that they believe in gold themselves -- or believe at least in its safe-haven powers -- and feel that gold needs to be constantly attacked so few find out what the central banks know.

But again I do not believe that gold is being controlled through the sale of physical metal. It is cheaper and much easier to get the job done in the paper markets where you don't really have to produce the metal to make your point.

"Know your enemy and know yourself and you can fight a hundred battles without disaster." -- Sun Tzu.


Michael Kosares is proprietor of Centennial Precious Metals in Denver and author of "The ABCs of Gold Investing," which can be obtained here:


* * *

Join GATA at these conferences:

The Silver Summit
Thursday-Friday, September 20-21, 2007
Coeur d'Alene, Idaho

New Orleans Investment Conference
Sunday-Thursday, October 21-25, 2007
New Orleans, Louisiana

* * *

Help Keep GATA Going

GATA is a civil rights and educational organization based in the United States and tax-exempt under the U.S. Internal Revenue Code. Its e-mail dispatches are free, and you can subscribe at http://www.gata.org/.

GATA is grateful for financial contributions, which are federally tax-deductible in the United States.