Richard Russell: my take on gold

Here's a short extract from from Richard Russell's Dow Theory Letters reiterating his position and strong commitment in gold's generational bull market:

August 25, 2010 -- Dennis Gartman is an experienced commodity trader. Dennis has been very cautious about gold; he “sort of “ likes gold, so he calls himself a “gold agnostic.” For this reason it’s most interesting to read what Dennis says about gold in today’s report.

“Turning, then to gold and other metals, prices turned sharply for the better yesterday as the world rushed out of equities and looked for any safe harbors that were available. Certainly the rush to the Swiss franc was obvious, as noted above, and so too the rush into sovereign debt securities. But frankly, the rush was on to gold once again. We remain long what we have referred to as an ‘insurance’ position in gold, but we own it in terms of EUROs and /or of British pounds sterling, otherwise we remain an agnostic. To assuage our friends who are gold-bug-leaners, we shall not be short of gold. Nothing likely shall ever turn us manifestly bearish of it. But for the moment we are simply hard upon the sidelines, owning only this small ‘insurance’ position and comfortably in that position.

“Might we be enticed back to the bullish side of the market eventually? Of course we might. If the situation in the global equities markets became dire, we might move from agnosticism to ‘faith.” If we were to see the monetary authorities throwing caution to the wind and massively explode their balance sheets, we might be enticed away from our agnosticism to ‘faith.’ If the political situation were to become untoward, and patently uncomfortable, we’ll throw our agnosticism into a heap and join the gold market faithful. But until then, agnosticism works for us.”

Russell response — I can understand Gartman’s caution. Dennis is an old-time trader, and he’s seen a lot of traders get killed by taking huge and wrong positions.

My own position is that gold is in a clear and obvious primary bull market. These situations come along maybe two or three times in a lifetime. I was convinced back in 1999 that the bear market in gold had ended with gold selling at 256. In the year 2000 they were literally giving gold mining shares away. At that time gold shares were so ridiculously cheap that I told subscribers that they should buy these stocks (many selling for just a few dollars a share) and hold them as perpetual warrants.

At the same time I told my subscribers to start buying bullion one-ounce coins and “put ‘em away.” I’ve suggested that my subscribers do the same thing ever since.

I know bull markets, and I’ve never seen or experienced a primary bull market that didn’t end with a third speculative phase—this is the time when a bull market “blows its top”. I feel certain that the current huge bull market in gold will do the same.

But I have other reasons for being bullish about gold. Gold is the only real Constitutional money. The fiat paper that we’ve been using as money is only money because our government says “it’s money.” If the US government told you that printed paper was real money and legal for the payments of all debts, would you believe them. Well, you already have believed your government.

But I maintain that the truth will out, and that fiat paper is a fraud that will be found out. When that happens and people realize that they have been hoodwinked by their government, there will be such a rush (including both fear and greed) for gold that it will make the recent tech mania look like conservative investing.

As I write at midday, Dec. gold is up over nine dollars. Gold has been up 8 out of the last 10 days. As the months go by, we are pressing ever-closer to the speculative phase of the gold bull market. That will be something and even terrifying to see.

I am pleased to say that many of my older subscribers are now in the process of getting rich on their gold holdings. I’ve said over and over that one of the most difficult things to do in investing is to get in early on a primary bull market and ride the bull through to the latter part of its final speculative third phase.

The market seldom gives you the chance to get rich. This gold market has defied the odds and allowed its early followers and believers to get rich.

Anyway, that’s my take on gold and why you should own it and why you should follow my advice.

Richard Russell

Kitco's Jon Nadler still can't make up his mind about central bank gold price manipulation

Here's a special case of split identity in the person of  Kitco's analyst Jon Nadler and a brief story of gold price manipulation, as reported by GATA:

"How does Kitco senior gold market analyst Jon Nadler get away with it?

Interviewed Thursday morning by TheStreet.com's Alix Steel, Nadler dismissed complaints that central banks and their agents, bullion banks, collude to suppress the price of gold. As he did at the Vancouver resource investment conference in June (http://www.gata.org/node/8717), Nadler insisted, "There's no vested interest on anybody's part to suppress prices here."

You can find Nadler's comment to TheStreet.com here:

http://www.thestreet.com/story/10760375/1/top-5-reasons-gold-prices-move.html

But just a few hours later, interviewed about gold on the "Trading Day" program of Business News Network in Canada, Nadler remarked that a gold price of $5,000 would signify "disruptions on a major scale" and a price like that is "something that the central bankers of the world have decided probably not to allow to happen."

You can find Nadler's interview with BNN here:

http://watch.bnn.ca/#clip341191

So if central banks have no interest in suppressing the gold price, why should they decide not to allow gold to reach $5,000? Indeed, why should central banks care about the price of gold at all?

Of course the answer is well documented in history. Indeed, the modern history of gold is almost entirely a matter of central bank price manipulation and suppression, because gold is a currency that competes with central bank currencies and profoundly influences interest rates and the price of government bonds.

Much of the modern history of gold has been outlined well by Bill Buckler, publisher of The Privateer financial letter, particularly in regard to the London Gold Pool of the 1960s and the gold dishoarding by the International Monetary Fund and the U.S. Treasury Department in the 1970s, two acknowledged mechanisms of price suppression. You can find The Privateer's outline here:

http://www.the-privateer.com/gold2.html

And at least four chairmen of the Federal Reserve maintained or expressed interest in suppressing the gold price.

-- William McChesney Martin Jr., the longest-serving Fed chairman, kept in his archive a detailed plan, dated April 1961, for surreptitious government intervention to rig the currency and gold markets to support the U.S. dollar and to conceal, obscure, or falsify U.S. government records and reports so that the rigging might not be discovered. This document remains on the Internet site of the Federal Reserve Bank of St. Louis. Along with some explanatory commentary it can be located here:

http://www.gata.org/node/7096

-- In June 1975 Fed Chairman Arthur Burns wrote a seven-page memorandum to President Ford about controlling the gold price through foreign policy and defeating a free market in gold. That memorandum can be found here:

http://www.gata.org/files/FedArthurBurnsOnGold-6-03-1975.pdf

-- In November 2004 former Fed Chairman Paul Volcker published an excerpt from his memoirs in the Nikkei Weekly in Japan in which he regretted that central bank intervention was not undertaken to suppress the price of gold during a currency revaluation in 1973. Volcker wrote: "That day the U.S. announced that the dollar would be devalued by 10 percent. By switching the yen to a floating exchange rate, the Japanese currency appreciated, and a sufficient realignment in exchange rates was realized. Joint intervention in gold sales to prevent a steep rise in the price of gold, however, was not undertaken. That was a mistake." The excerpt from Volcker's memoirs can be found here:

http://www.gata.org/node/8209

-- And former Fed Chairman Alan Greenspan has acknowledged or remarked favorably about central bank intervention to suppress the gold price a number of times, including during the May 1993 meeting of the Federal Open Market Committee. According to the minutes of the meeting, Greenspan said: "I have one other issue I'd like to throw on the table. I hesitate to do it, but let me tell you some of the issues that are involved here. If we are dealing with psychology, then the thermometers one uses to measure it have an effect. I was raising the question on the side with Governor Mullins of what would happen if the Treasury sold a little gold in this market. There's an interesting question here because if the gold price broke in that context, the thermometer would not be just a measuring tool. It would basically affect the underlying psychology." You can find the May 1993 minutes of the FOMC meeting here:

http://www.gata.org/node/8208

GATA has compiled so much more evidence of central bank manipulation of the gold market here:

http://www.gata.org/taxonomy/term/21

Given the U.S. government's fierce secrecy about gold -- GATA has had to sue the Fed in U.S. District Court for the District of Columbia for access to the Fed's gold records, including gold swap agreements the Fed acknowledges having with foreign banks -- we seldom can be sure of what central banks are doing in the gold market at any particular time. But central bank interest in controlling the gold price -- what Nadler keeps denying -- is the gold market's first and overwhelming fact.Any analysis that denies this is disinformation. And any analyst who denies and acknowledges it on the same day to different news organizations must be very confident that they're not paying attention and not inclined to do any research. Unfortunately Nadler probably has that much right."

CHRIS POWELL, Secretary/Treasurer

Gold Anti-Trust Action Committee Inc.

Adrian Douglas: The imminent failure of the second London Gold Pool

Manipulative selling of gold on the daily London PM fix has failed to suppress the gold price since April 2009, when China announced that it surreptitiously had accumulated a large gold reserve over the previous five years, GATA board member Adrian Douglas disclosed today in a statistical study. Since then, Douglas finds, ever-increasing dumping of gold in London by central banks and their bullion bank agents has been having less and less effect on the gold price. He concludes that the second "London Gold Pool" -- a clandestine one, unlike the first -- is imminently facing a collapse identical to the collapse of the first as physical gold demand overwhelms the ability or the desire of the market riggers to provide the necessary metal. Douglas' study is titled "The Failure of the Second London Gold Pool" and you can find it here.

Adrian Douglas: The imminent failure of the second London Gold Pool

Egon von Greyerz interview on CNBC Squawk Box Europe

Egon von Greyerz: There Will Be No Double Dip

The world economy will soon go into an accelerated and precipitous decline which will make the 2007 to early 2009 downturn seem like a walk in the park. The world financial system has temporarily been on life support by trillions of printed dollars that governments call money. But the effect of this massive money printing is ephemeral since it is not possible to save a world economy built on worthless paper by creating more of the same. Nevertheless, governments will continue to print since this is the only remedy they know. Therefore, we are soon likely to enter a phase of money printing of a magnitude that the world has never experienced...

Egon Von Greyerz: There Will Be No Double Dip

Adrian Douglas: Gold market isn't 'fixed'; it's rigged

GATA board member Adrian Douglas has studied the morning and afternoon "fixing" of the gold price by the major London trading houses and concludes that it is just as much a price-suppression mechanism as the London Gold Pool of the 1960s admittedly was. Douglas' analysis is titled "Gold Market Is Not 'Fixed,' It's Rigged" and you can find it here:

Adrian Douglas: Gold market isn't 'fixed'; it's rigged

Gold council CEO helps The Economist put investors to sleep

Aram Shishmanian, the CEO of the World Gold Council speaks to Economist on gold's purpose, market volatility and the dynamics of demand in China and India. He remarked that Indian women hold twice as much gold as the tonnage reported held by the U.S. Treasury Department. Shishmanian added that Indian women don't sell their gold, though maybe the WGC will contrive a scheme through which they can lease it to the exchange-traded fund GLD. 

The Economist's interview with Shishmanian may be most remarkable for avoiding discussion of currency market issues even as the currency markets are cracking under the strains of national insolvency and market intervention. With industry leadership like this, gold's triumph over the crookedness of the central banking system is assured in about a thousand yearzzzzz....

Adrian Douglas: The LBMA joins the gold squeeze cover-up

The LBMA joins the gold squeeze cover-up

The London Bullion Market Association has just taken the highly unusual step of blocking access to statistics relating to the trading activities of its member bullion banks. This information has been available to the public since 1997 but as of this week it is available only to LBMA members. (Seehttp://www.lbma.org.uk.)

I have recently written a series of exposes of the LBMA (see References 1-4 below) using the association's own data to show that the LBMA's bullion banks are operating on a "fractional reserve" basis. My analysis indicates that the bullion banks are holding only 1 real ounce for about every 45 ounces of gold that they have sold, a reserve ratio of just 2.3 percent

At the March 25 public hearing of the U.S. Commodity Futures Trading Commission on precious metals futures markets I cited the LBMA's own statistics to label the "unallocated gold" accounts of the bullion banks as a Ponzi scheme. (See Reference 3 below.) There were bullion bank representatives at the hearing but no one expressed an objection. That hearing was videotaped and posted at the CFTC's Internet site but the bullion banks have not made any public statement rebutting what I said. In fact at that hearing Jeffrey Christian, CEO of the CPM Group, acknowledged that what is widely called the "physical market" is in reality a largely "paper market" trading gold and silver as if they are financial assets and not physical metals. Christian stated that 100 ounces of paper gold are traded for every 1 ounce of physical gold.

When the LBMA first made its trading statistics available in January 1997, observers and analysts were shocked. (See Reference 5 below.) No one could reconcile the statistics with other market data, nor comprehend how the bullion banks could be trading on a net basis more than 240,000 tonnes of gold annually while the global mine output was only 2,400 tonnes. Over the years the furor over these statistics had subsided until the end of 2009, when I commenced writing about my studies, showing that the statistics can be reconciled with other market data if the bullion banks are operating a fractional-reserve bullion banking operation with a recklessly low reserve ratio. I have also shown how the price of gold is suppressed because 45 ounces of demand are being diluted to result in purchase of only 1 ounce of real metal. If instead all 45 ounces were to be sourced and purchased, the gold price would be multiples of the current price.

Typically when people are exposed in a scandal their first reaction is a cover-up. The most notorious examples of this are the Nixon administration, when it doctored the Watergate tapes, and Arthur Anderson, which shredded millions of pages of documents relating to audits of Enron Corp.

The LBMA has now commenced a cover-up with respect to the gold trading activities of its member bullion banks, withdrawing statistics from the public domain.

This appears not to be the only cover-up going on in the gold market.

For years the International Monetary Fund has made great fanfare of its mere contemplation of selling some of its gold, and actual sales by the IMF have been widely publicized. Since February the IMF has been surreptitiously selling large tonnages of gold each month, but these sales now are to be found only by digging through the IMF's financial statements, and even there the recipients of the gold are not disclosed. (See Reference 6 below.) One has to wonder why the IMF now is trying to fly under the radar with its gold sales.

Similarly it was recently discovered that the Bank for International Settlements didn't feel it necessary to announce its involvement in the largest gold swap in history, 346 tonnes. (See Reference 7 below.) The BIS swaps instead were discovered only because a market analyst dug through the footnotes of the bank's financial statements.

These developments have all the hallmarks of cover-ups.

In June the LBMA trading statistics showed that in May 2010 the average net daily trading in gold by LBMA member banks jumped a massive 50 percent from the month before to 24 million ounces each day from 16 million ounces each day. That translates to $7.5 trillion annually. If an operation is running on a razor-thin fractional reserve basis, such step changes are often fatal.

It appears that a run on the bullion banks has commenced.

There is a cover-up of back-door injections of liquidity of physical gold, and the LBMA now is trying to conceal trading information.

There has been much debate about how investors, politicians, and regulators didn't see the 2008 financial crisis coming, and lack of transparency was cited as a key reason. Clearly those who have been manipulating the gold market are trying to skulk deeper into darkness. They have a lot to hide.

Investors could have been blindsided by the events of 2008, but anyone who misses the writing on the wall about what's going on in the bullion markets is just foolish. The bullion banks have sold far more metal than they can deliver, and more and more customers are asking them to deliver. This has led to back-door bailouts and cover-ups.

Anyone who has "unallocated" bullion should be very concerned. The LBMA itself describes owners of "unallocated bullion" accounts as "unsecured creditors." That means that the account holder has no collateral or title to any bullion.

Bullion bank unallocated account agreements require the bank only to settle in cash for non-performance. That means when the physical squeeze that is evolving takes gold and silver prices to multiples of the current price, holders of unallocated metal accounts will not get any bullion, nor will they be compensated at the prevailing market price.

I interpret the LBMA's move to secrecy as a sign that the opportunity to get real metal is closing fast.

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References:

1. Adrian Douglas: Proof of Gold Price suppression -- Gold and the U.S. Dollar:

http://www.gata.org/node/8844

2. Adrian Douglas: Price Suppression Follows Inevitably from Fractional-Reserve Gold Banking:

http://www.gata.org/node/8820

3. Adrian Douglas: It's Admitted to the CFTC: London Gold Market Is a Ponzi Scheme:

http://www.gata.org/node/8478

4. Adrian Douglas: Jeff Christian's CPM Group Explains How to Make Paper Gold:

http://www.gata.org/node/8627

5. The Grand LBMA Expose: A Collective-Mind Analysis:

http://www.gold-eagle.com/gold_digest/baron907.html

6. Adrian Douglas: IMF Can't Explain Gold Sales Now Without Revealing Squeeze:

http://www.gata.org/node/8607

7. Adrian Douglas: Mysterious BIS Gold Swaps Are Likely a Bullion Bank Bailout:

http://www.gata.org/node/8803

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Adrian Douglas publishes the Market Force Analysis letter (http:/www.MarketForceAnalysis.com) and is a member of GATA's Board of Directors.

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