Sep 8, 2007

Casey Research's Ed Steer on gold

It was very encouraging to see the price of gold close over $700 in the spot market, even though it was just by a few thin dimes. But it closed nowhere near the highs of the session, as 'gentle hands' were there to make sure the price did not get totally out of control to the upside. In the afternoon, a serious attempt was made to close gold below $700, which fortunately did not succeed.

The Commitment of Traders data for gold that was released on Friday at 3:30 Eastern Time, showed a deterioration of 25,500 contracts in the Gold Cartel's positions. As the Non-Commercials et al were going massively long, the Commercials (the banks I mentioned yesterday) reduced their long positions by 13,200 contracts and increased their short positions by 12,300 contracts. The reporting cut-off for Friday's COT report is Tuesday at the COMEX close, which is around 1:40 Eastern Time. The deterioration in the three days since then (including Friday) has been massive. How bad it was won't be known until next Friday.

As long as the Gold Cartel is selling their longs and increasing their short positions on any price rally--and then covering their short positions on the subsequent waterfall decline (which they themselves orchestrate!)--we are not going to see a massive price break to the upside. There are only two things that will allow a runaway gold (and silver) price to occur, and those are: 1) if some exogenous event happens and the resultant rush into gold completely overruns the Cartel; or 2) if the Cartel stands back and doesn't sell into the rally. At that point, the Non-Commercials et al that are buying, will be buying into a vacuum ... just the opposite of what happens when the Cartel pulls their bids and they are forced to sell into a vacuum. In this case the prices for both gold and silver will explode to the upside rather than crashing to the downside, which is what we are all conditioned to expect now.

However, not everything is sweetness and light with the Cartel in both gold and silver. They are in a real world Catch-22 situation which they have manufactured themselves. Because of the mis-pricing of these two monetary metals after decades of down-side price management, the demand for both is going right off the charts. Sales into the Gulf States are up one third from this time last year ... and the same goes for Turkey. The icing on the cake is one of several stories that have cropped up on the Internet in the last couple of weeks regarding the number one gold consuming country, India. Here's the story on that Click here.

The World Gold Council is predicting that India's gold consumption this year will be north of 1,000 tonnes! That's a 50% increase over last year and a whopping 40+% of 2007 gold production! So where, pray tell, is all this gold (for all these countries) going to come from? Well, from the only people that have any, the Central Banks. They have to provide the gold to fill the deficit whether they want to or not, otherwise the price would explode. They just aren't reporting these sales to the public. It's GATA's belief, from extensive independent reports, that the central banks of this world have already sold half of their gold reserves (about 16,000 tonnes) into the market already.

The Gold Cartel would LOVE to see a monstrously high gold price, as it would kill retail demand stone cold dead. BUT, and it's a big one, in doing so they would ignite a gold rush of biblical proportions and the run from paper assets to hard assets would be on in earnest. And lest I forget, there's the collateral damage to the bullion banks and the gold miners that are heavily short these two metals.

So, in the face of the worst economic, financial and monetary crisis the world has experienced since 1929, the Gold/Silver Cartel is about to crash and burn. It's just the timing that's unknown. However, I'd rather be "all in" well before the event (which I've been for years) than trying to climb on when the "ask price" is on it's way to the moon.

Have a good weekend.

Casey Research correspondent-at-large Ed Steer is a keen observer of the financial scene and a board member of

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