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James Turk: Fundamental and technical analysis are on gold''s side
12:48p ET Saturday, December 10, 2005
Dear Friend of GATA and Gold:
The following essay by Michael Kosares, proprietor of
Centennial Precious Metals in Denver, is adapted from
his comments posted today at the firm's invaluable
Internet site discussion group, the USAGold Forum.
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
* * *
By Michael Kosares
Centennial Precious Metals, Denver
Saturday, December 10, 2005
In the past two days the Financial Times -- the newspaper read by
major policy- and market-makers in London and beyond -- has
published five articles on the gold market.
These articles do not deliver much that is new to readers of the
USAGold Forum. More important for us is the FT's confirmation of the
elements of gold's bull market that were discussed here months and
even years ago. We were right, and the message now is being
delivered in the world of influence.
This is a cause for cheer among gold enthusiasts because it alludes
to the long-term nature of the change in the gold market. The FT's
coming out on gold represents a major shift in the thinking of the
Why is this happening?
Many ingredients of gold's bull market that have been discussed at
the USAGold Forum now are being delivered to the readership of the
Financial Times -- central bank demand, investor demand in Asia and
the Mideast, currency flight, etc. This is a break with the past,
when the mainstream press expended its interest in gold by running
down the metal's prospects. Commentary was controlled by the gold
bears housed at the major bullion trading houses in London and New
That John Dizard's column ("Lustrous gold outshines the big
currencies") appeared not in its regular space in the Financial
Times but on the newspaper's opinion page sends an unmistakable
signal: Gold is now an acceptable subject for discussion. Better
yet, Dizard's column might signal that gold "needs" to be discussed
because, despite the best efforts of its detractors, gold refuses to
The last paragraph in Dizard's column sums up that signal:
"The gold price in major currencies may soon correct from the rapid
rise of the past two weeks. After that, though, it will continue a
fitful but dramatic increase over the next several years."
A simpler and more direct explanation for the surprise reinstatement
of gold could be that trading houses now recognize that any money to
be made will be made on the brokerage side of the gold business --
getting gold to customers -- rather than on the trading side. (The
article in FT's Markets section sums up that sentiment: "Gold the
clear winner in a lacklustre field.")
I alluded to this possibility back when the Rothschild firm exited
the London AM/PM price-fixing group. I remarked that Rothschild's
primary interest might be to find physical metal for its clientele --
including mining companies short the metal -- and that leaving the
London gold price-fixing group relieved Rothschild of any potential
conflict of interest.
Now we can entertain the notion that there could be a big business
for the London trading houses servicing gold demand from the Gulf,
Asia, Russia, the United States, et al.
Reports circulating this weekend about the flow of Gulf money into
London are a case in point. Because of the Sarbanes-Oxley
legislation in the United States and the U.S. war on terrorism, Gulf
money is now gushing into London as a safe haven. Gulf investors are
sidestepping New York, fearing that the U.S. government, in a fit of
rectitude or rightful reaction, could seize Arab assets. Much of
that money is going into U.S. Treasuries. (United Kingdom holdings
have jumped 80 percent to more than $180 billion during the first
nine months of 2005.) But knowing the Gulf's proclivity to own gold,
we can guess with some confidence that much petrocash is being
funnelled into gold as well -- at least as much as the physical
market can accommodate.
Gold has been in a steady rise since mid-July and it seems that the
demand for physical metal is behind it. Paper traders take paper
profits and we haven't seen much in the way of corrections since mid-
July. Such price action carries the unmistakable mark of physical
interest -- someone buying because he believes that the metal itself
is a better holding than any paper claims on it. It also tells us
that someone is buying because he believes that gold is a better
holding than major currencies, as Dizard explains in his column and
as the forum has discussed at length.
One characteristic of the strong gold price action over the past few
months is, as mentioned above, the lack of a major selloff in any of
the primary markets around the world. Prices have been upheld around
the clock. As soon as one market closes, the price not only holds in
the next opening but often goes higher -- London, New York,
Australia, Tokyo, Hong Kong, Dubai, Switzerland, then back to
London. As a rising and sustained oil price fuels global inflation,
global investors, including oil producers like the Gulf states and
Russia, latch onto gold -- an irony with nearly perfect symmetry.
I found this observation by Dizard particularly insightful
("inciteful" if you are an investor):
"The truth is that all the major currency areas are burdened by debt
and fiscal commitments that cannot be met out of their income. Some
of these commitments will be paid. Some, such as U.S. housing and
consumer loans or European pension promises, will be defaulted on,
and some will be inflated away. The gold market has been
anticipating the inflation component of this adjustment.
"Furthermore, the chronic and developing world debt crisis has now
been turned on its head. No one seems to have told Bono, but the
real debt problem is the developing world's growing holdings of
shaky RICH-world debt. The developed currencies need to be
collectively devalued relative to those of the rising powers. During
the coming years of the gold bull market, the world monetary system
will be reconfigured with a much larger role for emerging-market
currencies and a much more frugal life, relatively speaking, for
people in developed countries."
And reconfigured with a much larger role for gold.
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