Picking the Market’s Pocket, Part Two

July 27, 2005 – I carefully explained in the last letter how the gold cartel has been picking the pockets of gold traders.  We’ve just been given another example of their diabolical scheme.  We even have the proof. 

The Commitment of Traders report shows the huge swing in open interest that resulted from traders reversing their positions from long to short over the past couple of weeks while the commercials (part of whom are in the gold cartel) went the other way.  Given the drop in the gold price during this period, the traders lost money – they had their ‘pockets picked’ yet again by the gold cartel, who stole what the traders lost. 

More proof came from the announcement by the European Central Bank that it had sold 31 tonnes when gold was in the $440’s.  Drawing on the work of John Brimelow, GATA even issued a press release because the evidence was so glaring.  Quoting Brimelow the release stated: “An indisputable pattern has now developed for the ECB to step forward as a massive seller when gold approaches the $440s.”

Though we have seen this same pattern happen time and again, I didn’t think when I wrote the last letter that we would be where we in fact are today.  I did express some caution (for example, my recommendation to take our profit on the gold put we had sold at much lower levels).  Nevertheless, I thought that the gold cartel was about to have its head handed to it, like it did in the Fall of 1999.  Actually, the move back then was big, but not big enough – the gold cartel only had their ears handed to them.  They haven’t lost their head – yet.  But I believe it is about to happen soon, and the reasons are clear.

First of all, just as the truth can only be suppressed for so long, so too can markets only be held back for so long.  And the pressure in gold has been building for years.  National currencies are continually being inflated and debased, with the consequence that asset classes across the board are near or at record highs – except gold.  It’s too important to trade freely so as the GATA release states, manipulation of the gold price is occurring to “deceive [everyone] about reckless government monetary policies”.

Second, and more importantly, while governments can create paper currency out of thin air, they cannot create gold that way.  Their supply of all-important gold is limited.  So governments since 1999 have recognized the inevitable, that they are fighting a losing battle.  As a consequence, they have been allowing gold to climb slowly, while the gold cartel picks the pocket of traders to help them absorb the losses they have on their huge short positions in gold.  But the moment of truth is fast approaching.

When gold clears $456 to make a new 17-year high while it is also making new multi-year highs against other currencies, then the gold cartel will be sent scurrying for cover.  Thereafter the gold price will climb to a level to more accurately reflect its true value.  And what is that level?

Given my point about asset classes being near or at record highs, we should expect no less from gold.  Focus on some level over $850, and once we break $456, I expect to see that level soon thereafter, probably within 12-18 months of the break-out.

So in summary, while the last couple of weeks have again been frustrating, don’t be discouraged.  Look across the valley.  And more importantly, recognize that there is a flip-side to the gold cartel’s actions.  They are making gold artificially cheap.  That means we are buying it cheap, getting rid of our over-valued dollars by accumulating undervalued gold.