Gold bugs hurting, yellow metal losing value vs. U.S. dollar

Gold bars. (Image via Wikipedia)
Gold bars. (Image via Wikipedia)

WASHINGTON, November 28, 2014 – In case you haven’t been looking lately, gold has been a miserable investment in 2014. The Prudent Man has to confess he’s been big fans of the yellow metal, taking the occasional ETF position in the stuff, but mainly as a market or inflation hedge.

Unfortunately, gold has not even worked as a hedge this year, and with the dollar showing surprising firmness, it’s losing its value as an inflation hedge as well. While most people don’t actually deal with gold, we have to pay attention to what’s going on here, as this is more than just a commodity trade. In tough times, like the ones we’re still in, gold still serves as what economists like to call “a store of value.” So why does everyone seem to be selling it in these continuing difficult economic times, particularly when every first, second, and third world country seems bent on devaluing its currency to promote prosperity?

We are not gold experts, but there’s a persuasive case to be made for a little bit of hanky-panky being played by the Powers That Be with, perhaps, a little help from their friends, Goldman Sachs and the Gnomes of Zurich. We have seen some writers putting together a case wherein paper contracts for gold actually exceed the availability of physical gold, creating a potential catastrophe for world markets if this is ever found out.

Concurrent with this, it’s also been noted that certain governments, namely Germany, the Netherlands and others, have been quietly moving government old physical gold from rented-out vaults around the world to their own government vaults. A third piece of the puzzle involves huge short positions by major banks and trading firms that seem to be counting on continued downward pressure on the yellow metal.

Conspiracy theorists—and we’re not necessarily dissing them here—figure that at least on one level, this is all a concerted plan to get a massive quantity of physical gold, held at least custodially to back popular gold ETFs like IAU and GLD, out of the hands of the small investors that effectively hold the gold, and back into the vaults of governments and large financial institutions.

At least that’s what the highly-suspicious Jesse ar Café Américan thought last year (and still thinks), with explanations by the Prudent Man in square brackets:

Each time they smack down the paper prices of gold and silver, they free up bullion from GLD [gold ETF] and SLV [silver ETF].  I wonder who decides where and how that bullion is sold into the market.  

With TOCOM and COMEX [Tokyo and U.S. commodity exchanges] scraping the bottom of their deliverable inventory, and big drawdowns on the customer inventory held at JPM [J.P. Morgan], the release of tonnage from the ETFs matters. 

Who is the custodian for GLD again?  Oh yeah.*  

If and when gold finds a footing, it will be interesting to see who is holding bullion, and who has had it stripped away by this price operation that started in October of last year.   [Underline, Jesse.]

I suspect its purpose was ‘to save the system’ which is another word for the Banks who were caught short on that big run higher. 

But this is all for conjecture for now.  Let’s see what happens when it happens.

[*For the uninitiated, HSBC Bank USA is the designated custodian, but stores the gold in its London vault, while also using vault facilities of the Bank of England and the London Bullion Market Association, FWIW. –-ed]

None of the gold info we’re presenting here has a lot to do with current trading action, except if you happen to be trapped in a long position in GLD or a similar ETF or are holding physical gold that you bought up around $1800 an ounce. (It’s now approaching $1100.)

But the underlying actions, again clearly on a massive scale, that are meant to pry gold out of smaller hands and back into bigger, more secretive hands, bear watching. That’s because they may have a lot to do with the security of currencies, not to mention governments and banks, in the weeks and months ahead.

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Terry Ponick
Biographical Note: Dateline Award-winning music and theater critic for The Connection Newspapers and the Reston-Fairfax Times, Terry was the music critic for the Washington Times print edition (1994-2010) and online Communities (2010-2014). Since 2014, he has been the Business and Entertainment Editor for Communities Digital News (CDN). A former stockbroker and a writer and editor with many interests, he served as editor under contract from the White House Office of Science and Technology Policy (OSTP) and continues to write on science and business topics. He is a graduate of Georgetown University (BA, MA) and the University of South Carolina where he was awarded a Ph.D. in English and American Literature and co-founded one of the earliest Writing Labs in the country. Twitter: @terryp17