Final Words on Gold Bullion for 2012

With Special Guest Robert Appel, BA, BBL, LLB

Usually, we do not publish controversial editorial. We try to base our opinions on economic and company data as it is released. But once in a while, something catches our attention that we believe our readers should at least be aware of. The following is such an example of journalism, based partly on fact, partly on very right-wing opinion. These are some closing words on gold bullion for 2012 from our gold guru, Robert Appel, BA, BBL, LLB:

In front of three witnesses, then Bank of England Governor Eddie George spoke to Nicholas J. Morrell (CEO of Lonmin Plc) after the gold price explosion in September/October 1999. George said, “We looked into the abyss if the gold price rose further. A further rise would have taken down one or several trading houses, which might have taken down all the rest in their wake. Therefore at any price, at any cost, the central banks had to quell the gold price, manage it. It was very difficult to get the gold price under control but we have now succeeded. The U.S. Fed was very active in getting the gold price down. So was the U.K.” (Source: Zero Hedge, last accessed December 20, 2012.)

To understand any puzzle, you need to look at all the pieces. For instance, we know that Reagan in 1989, by presidential order (which is rapidly becoming a replacement for the constitution), created a semi-secret group of financial interveners, empowered to use public money to assist in “emergencies,” and “stabilize” markets. “Stabilize” being, of course, a polite word for fix or manipulate.

We know that in 1991, leading Canadian publication The Financial Post published on its front page interviews with lifetime gold traders from all over the world. The gist of the story was that something “odd” was happening in the gold pits, something they had never seen. The events of this period compelled the owners of gold mines all over the world to band together and publicly accuse the Western governments of manipulation. Their organization, the Gold Anti-Trust Action Committee, is still very active today.

We know that in-your-face gold manipulation seemingly reached a zenith in 1999, when for the first time in 100 years, gold failed to maintain its usual ratio with the Dow Jones Industrial Average (prior to the 2000 crash); and we know that Gordon Brown not only sold tons of England’s gold for the lowest possible price in the last two decades, but did so in the public eye, and with gusto, possibly with the intent of showing the world that gold was, as he put it, a “useless asset…taking up space” in their vaults. And cost Britain billions in the process.

We suspected, at the time, that Brown was not alone, that all the Western nations were taking turns bad-mouthing gold, and selling gold wantonly, with the U.S. the lead choir singer.

Now, consider that the above quote, the “smoking gun” if you like, did not surface until about 2010, but retroactively confirms our worst suspicions. It is especially interesting that George gave the U.S. credit for the 1990s main gold whacking, but he was quick to add that the U.K. played its part, too. This is important when you recall how many times this year we have sent readers trading charts showing overnight whacks, either starting with the London bourse, or, more commonly, the N.Y. bourse. Sometimes, London is followed by the U.S., but—with the sole exception of the last three weeks, which we discuss below—never in Asia.

Now step back, and look at the big picture.

By the late 1990s, “da boyz” (whoever these gold whackers were) had done a great job.

By the end of the first decade of the new century, however, their performance was much less impressive. Gold had gone from $250.00 to $1,500 an ounce, and China was (unlike the west) buying up all the gold it could get, encouraging its own citizens to own gold. (In China, you can buy gold at most malls.)

So against this backdrop, and (we believe) seeing the $1,700–$1,800 level as a “line in the sand,” what do da boyz do in 2012?

And consider this too—over a decade has passed since the date referenced in that quote. There is incredible new technology now at the fingertips of the gold whackers. They also have a larger war chest from the many successful (but short-lived) “whacks” they have been attempting over the intervening years.

And, even better, for them, the public at large has become more de-sensitized to manipulation than anyone would have thought possible. In fact, we are now all living in an era (and historians of the future will write about this with shock and horror) where multiple sovereign governments intervene in markets on a regular basis and then boast about it on the six o’clock news!

(Make no mistake—we have now reached a point where one arm of the U.S. government borrows money in the bond market to meet cash obligations, and then another arm of that very same government steps in and purchases said debt—bonds—with newly printed cash or equivalent. Not only does John Q. Public see nothing amiss with this, but, astonishingly, the demand for these bonds—demand, please recall, which is covertly created by the same party who issued the bonds in the first place—appears to be so strong that, as is the nature of all debt markets since the beginning of time, rates are constantly dropping to reflect the “high demand for,” and “safety of,” these same instruments.)

So what is the bottom line?

We are ending one of the worst years for gold in a decade. A year where, mysteriously, technical analysis by the best of the best failed to predict that gold would weaken or go sideways. Mysteriously (again) gold keeps getting hit every time some news comes out that otherwise would be gold-positive.

OK, we take off our hats to these gold whacking guys. They “won” 2012. But China (the world’s strongest promoter of gold as a key factor in currency rebalancing) is rapidly approaching the point where its own middle class will soon be able to sustain its economy without being fully dependent on the West.

As we have said before, if this were easy, everyone would do it. We think da boyz will not be as successful in 2013 as they were in 2012. We note that the mining sector, in particular, is selling at bargain-value ratios only seen (on average) about five or six times every 100 years.

And every single time in the past that these specific ratios were hit, the market always turned bullish thereafter. We do not, however, want to be responsible for keeping anyone up at night. The world is too complex already. If the risk is too much, sell. But overall, nothing has changed. If anything, we expect the tide for gold to turn.