- Ben Bernanke’s bogus reason central banks keep gold…
- … and the real reason those gold reserves are growing right now
- Tech stocks suddenly tank: Where’s hot money going now?
- Another retail bankruptcy… Tough climb for GE’s new CEO… Canadian Trader Joe’s knockoff closes
- Your editor’s evolving views on gold manipulation
It was one of the more memorable moments of Ron Paul’s too-short tenure as chairman of the House subcommittee on monetary policy.
On July 13, 2011, Dr. Paul got to quiz Federal Reserve chairman Ben Bernanke about gold and its role in the monetary system. It led up to a fascinating exchange about why central banks still keep gold in their vaults during our present day and age…
Paul: Do you think gold is money?
Bernanke: [LOOOONG pause] No.
Paul: It’s not money?
Bernanke: It’s a precious metal.
Paul: Even if it has been money for 6,000 years, somebody reversed that and eliminated that economic law?
Bernanke: Well, it’s an asset. Would you say Treasury bills are money? I don’t think they’re money either, but they’re a financial asset.
Paul: Why do central banks hold it?
Bernanke: Well, it’s a form of reserves.
Paul: Why don’t they hold diamonds?
Bernanke: Well it’s tradition — long-term tradition.
“Tradition.” Central banks just happen to keep the stuff lying around because that’s how the Bank of England did it back in the 1690s and no one’s ever given it a second thought.
Or something like that. Right, Ben?
The news this morning gets us closer to the real reason central banks hold gold.
It turns out the gold reserves of central banks and other gigantic “public sector” players just reached their high mark of the 21st century.
Or so we learn in a new report from OMFIF — the Official Monetary and Financial Institutions Forum, a think tank for central bankers and other egghead types. The report examines the holdings of 750 central banks, government pensions and sovereign wealth funds around the world. Their combined gold holdings grew by 377 metric tons last year, to a total of 31,000.
Not a big increase, but the total is now the highest since 1999.
OMFIF chief economist Danae Kyriakopoulou attributes the increase to gold’s status as a “haven asset.”
“There was a lot of political uncertainty in the past year,” she tells the Financial Times. “There were big political shocks with Brexit and Trump, which have driven investors back to gold.”
It’s also a function of declining confidence in the dollar as the globe’s main reserve currency. “Central banks and public institutions have been adding to their strategic gold holdings for a number of years,” says Alistair Hewitt of the World Gold Council.
“A lot of emerging-market central banks hold significant amounts of U.S. dollars, and they have bought gold as a hedge against this concentrated currency exposure.” Sure enough, the OMFIF report says the big gold buyers in the last year include the central banks of Russia and China.
And it’s not just enormous government entities stepping up their gold purchases.
The London-based bullion dealer Sharps Pixley maintains a gold vault within walking distance of Buckingham Palace. It reports a 252% increase in bullion demand over the last 12 months.
That pace is only accelerating this month with the train wreck of the U.K. elections. “The current bout of buying,” says CEO Ross Norman, “is exceptional and the uncertainty surrounding U.K. politics has prompted a rush to safe-haven assets”.
As we’ve mentioned in recent days, Jim Rickards is confident this safe-haven rush to gold will propel the dollar price past $1,300 this summer. But shorter term, he’s anticipating a huge move in the coming days in select gold stocks.
Jim and his team have identified at least 10 gold stocks that are set to leap with startling speed — thanks to a first-of-its-kind anomaly to hit the market. He’ll explain just what’s at stake at this unique moment — and how you can reap enormous fast gains — during a live online briefing Wednesday at 7:00 p.m. EDT. Access is free, but we do ask that you RSVP. You’ll find Jim’s invitation and easy signup at this link.
Gold is moving little today at $1,265 an ounce… but it’s holding up better than the stock market.
After we went to virtual press on Friday, the technology sector fell out of bed after months of nonstop strength. The Nasdaq ended the day down nearly 2%. And because only five ginormous tech stocks have been propping up the S&P 500 in recent months — Apple, Alphabet (Google), Microsoft, Amazon and Facebook — the S&P also took a hit.
And so it goes today. The Nasdaq is down another three quarters of a percent at 6,160. The S&P is off about a third of a percent at 2,424.
“Friday’s jolt was a slap in the face,” says Greg Guenthner of our trading desk.
“Big tech’s mammoth gains and the market’s notable lack of volatility lulled many investors to sleep. It’s a painful reminder that stocks can’t rocket higher every single day without encountering some pullbacks and corrections along the way.”
Greg doesn’t see the drop as an ill omen. “A healthy bull market is like a relay race,” he explains. “When market-leading industries and sectors become overextended, traders will move on to the next hot group of stocks. That’s what’s happening right now. Financials and small caps are getting some love, while the biggest winners of the year endure some downside action.”
Indeed, the small-cap Russell 2000 is holding up better than the Dow, the S&P or the Nasdaq — down only a quarter percent at last check.
For the record: The ongoing retail apocalypse has claimed another victim. The children’s apparel seller Gymboree filed for Chapter 11 this morning.
Elsewhere the Street chatter is about a changing of the guard at General Electric: Jeff Immelt is stepping down as CEO after 16 years. MarketWatch tells us during that span, GE has been weakest among the 30 stocks in the Dow Jones industrial average. Perhaps not coincidentally, GE shares are up nearly 4% on the day.
Immelt’s replacement is John Flannery. He hails from GE’s health division, which has benefited enormously in recent years from health care costs soaring far out of proportion to the overall cost of living. Good luck repeating that trick across the entire company…
Litigation gone wild: Canadians who want their fix of Trader Joe’s products will have to head south of the border again.
In 2011, a Canadian named Mike Hallatt got a bright idea. Because Trader Joe’s had not opened any Canadian locations, but many Canadians became attracted to its products during their U.S. visits… he would step in to meet the demand, at least in his home base of Vancouver.
“Like some kind of Prohibition rumrunner,” says a BBC story, “he would cross the border into the U.S., stock up on Trader Joe’s goodies and bring them back to Canada, where he sold them — at a markup — from a small storefront under the name of Pirate Joe’s.”
In 2013, Trader Joe’s sued in Washington state — where Hallatt was buying his supply of dark chocolate peanut-butter cups, frozen arugula ravioli and sweet apple sausage. The state courts threw out the case, but on appeal a federal court sided with TJ’s last year.
Hmmm… Hallatt is perhaps on shaky ground with the use of the “Pirate Joe’s” name. But he’s on more solid ground with his insistence that by buying the goods at full retail price, his business model was legal under “first sale” doctrine — as we saw with the Supreme Court’s Lexmark case two weeks ago.
In any event, he can’t afford a protracted legal fight. Pirate Joe’s shut down last week. No more of those bootleg soy-flaxseed tortilla chips moving north…
“Nice to see you so clearly on the defensive regarding your dismissive stance toward the suppression of prices in gold and silver on the Comex,” a reader writes after our musings on the topic last week.
“Kinda fun to see you forced to acknowledge that the suppression scheme not only exists but clearly drives the market at least a good amount of the time. I would say most days. Certainly when it counts.
“You say we should glory in the opportunity to buy the metals at artificially low prices. Amen. And yet you just can’t bring yourself to say what a cryin’ shame it is that the Comex exchange is so degraded and the system so completely void of integrity now that the whole exercise has become part farce/part mafia-styled racket.
“Why is that? Is it because you maintained for so long… via your defense of the validity of your chart chimp Guenthner’s analysis… that these markets were basically free and fair, driven by actual supply and demand dynamics? Is it because any acknowledgment of the crimes in progress compromised the credibility of Mr. Rickards’ haruspications, despite the fact that he… to his enduring credit… said the manipulations were so obvious the perpetrators should be embarrassed? (Clearly, they are not. Sociopaths never feel regret.)
“Why don’t you just finally admit that you had your head up your ass and stayed in denial for way too long, buying into the absurd Doug Casey/Pierre Lassonde mantra that no coordinated manipulation exists, align yourself with the voices of truth and righteousness and stop taking jabs at people who might agree with the likes of Zero Hedge, rather than the likes of you… the obfuscators and dissemblers? You know, people remember that s*** about sitting in your mother’s basement obsessing over the COT and the other slurs you’ve so gratuitously doled out.
“Come on. You’re 90% of the way there. Sure, you had to be dragged there, but you’re there. Come clean. Come out and tell the truth. I’ll even script it for ya. ‘The Comex gold and silver markets are absurdly leveraged paper-trading cesspools where deep-pocketed players who have no legitimate hedging interests routinely drive prices down for profit AND to keep a lid on the would-be competition to fantastically inflated currencies… at the behest of the ESF, the BIS, the IMF the Fed and the rest of the poohbahs. Where the price of the metals goes is determined, almost completely, outside of times of crisis, by this manipulation, so don’t waste your time with chart reading and fundamental analysis. Get savvy to the con. Buy it while it’s cheap and trade opposite of what the charts would indicate you should do.’
“You run a good service. That said, you’ve consistently covered yourself in shame on this subject. Time to rectify that. Laying off the insults would be a start.”
The 5: Defensive? Hmmm…
It would be fair to say that this editor’s views on the topic have evolved over the last seven years.
Yes, I once subscribed to the Doug Casey view, for the same reasons he identified: The manipulation crowd couldn’t come up with an explanation that survived the Occam’s razor test.
That changed over time as I interviewed an assortment of experts including Eric Sprott. And it was indeed Jim Rickards who finally explained how gold prices are manipulated… in a way I could explain to a lay readership in plain English.
But what I don’t understand — and never will — is the obsession certain people have with looking for smoking-gun evidence of the manipulation, attributing every $15 drop in the spot price to said manipulation even when such evidence is lacking, and lashing out at fellow gold bugs who question their narrative.
And who’s to say a manipulated market still can’t be analyzed on a chart — especially when using a trend-following system? Oil prices have been manipulated from the day that oil futures as we know them started trading in 1983. (James Norman documented the phenomenon in his indispensable book The Oil Card.) But we don’t hear anyone say chart analysis of crude is rendered invalid by market manipulation.
Too, we’ve gotten emails from gold bugs thanking us for Greg Guenthner’s warnings about gold in 2013 — from $1,650 in February all the way through the short-term bottom in June at $1,180.
Nor will we overlook fundamentals such as demand for physical metal — as Jim Rickards helped us spotlight here on Friday. Because it’s that demand — in conjunction with some kind of market shock — that will ultimately put an end to the manipulations. We’d be remiss to ignore them…
The 5 Min. Forecast
P.S. We’re only days away from a significant dislocation in the small and often-volatile gold-stock sector. And Jim Rickards is ready to help a select group of readers pounce on the opportunity.
Play it right and he says you could make up to $101,000.
To help you seize the moment, Jim is leading a live online event this Wednesday at 7:00 p.m. EDT. This event is FREE to watch. Sign up at this link, and you’ll be guaranteed access