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Peter Schiff: ‘The gold price is fixed – so what?’
In a commentary, Euro-Pacific Capital’s Peter Schiff muses about growing suspicion that the gold market is manipulated by central banks and their associated bullion banks and he even argues that investors should welcome gold price suppression as an opportunity to obtain metal at a discount to its true value:
We can’t ignore it anymore – the markets are rigged. The LIBOR scandal broke almost two years ago, and the banks found responsible for manipulating that key index are still dealing with lawsuits. Meanwhile, allegations of gold market manipulation have been simmering for over a decade and grew into an inferno after the spot price dropped dramatically last spring.
Yet I’m left wondering what the conspiracy theorists hope to accomplish. Yes, I believe in exposing truth for its own sake and that the individual investor should have the same opportunities in the marketplace as the big institutions. But with these conspiracists, there is often a subtext of, “Because the price is suppressed, buying gold is for suckers.” I think this conclusion is precisely wrong.
Even if banks and governments are manipulating the day-to-day price of gold, the metal’s long-term fundamentals are stronger than ever. In fact, the reasons for them to suppress the gold price are the same reasons for us to buy gold in the first place.
… The evidence of manipulation for both COMEX gold futures and the London fix are large, downward movements in the price of gold at suspicious times of the trading day. More than anyone else, this is going to affect gold speculators who are looking to turn a quick profit.
I’ve always warned serious investors against the risky world of gold futures and other paper gold derivatives. Besides the complexity of the market itself, attempting to become a short-term trader puts the small investor in a league with powerful interests and shady practices. As the father of value investing Benjamin Graham was known to say, “In the short run, the market is a voting machine, but in the long run, it is a weighing machine.” This means that short-term, the market is like an election or other popularity contest – with all the corruption that implies. But over time, what matters most is underlying value.
From King World News:
Military wars, economic wars, currency wars and $10,000 gold
Gold rose fast in recent years and will do so again soon, Egon von Greyerz, founder of Matterhorn Asset Management AG & GoldSwitzerland, tells King World News.
“Sadly the potential of a major war is now increasing dramatically. I would almost say that it’s certain we will either have a major military conflict or a full-blown economic war, which would be just as devastating. And I wouldn’t be surprised if we have both.
“The escalation of hostilities in Ukraine can easily lead to a world war as Paul Craig Roberts has been talking about over the last few weeks. Isn’t it amazing that six months ago nobody talked about Ukraine as a potential catalyst for major conflict?
“War and social unrest cycles point to the next few years being full of conflict that will involve human misery in most parts of the world. Economically the world is in a mess that can only get a lot worse. We’ve had currency wars for a long time already, but these will intensify.
“We are seeing major currencies such as the yen, renminbi, and the ruble weakening. The U.S. dollar will be the next currency to fall but it will fall fast, and that move is imminent. The dollar should soon break solidly below the 80 level on the Dollar Index.
“The U.S. economy has been sustained by money printing and the fact that the U.S. dollar has managed to retain world reserve currency status. But you can’t have a reserve currency that has a foundation of tens of trillions of dollars of debt, especially when the debt is increasing exponentially.
“Sadly, the weakening dollar is likely to lead to the U.S. getting involved in even more conflicts, both economically and militarily. This is what happens to all empires before they collapse. So there will be social unrest as well as major international conflicts. This will lead to major political changes in many countries.
“A lot of people don’t think that gold can move fast in a few months, but just look at what happened in 2011. Gold was at $1,308 in January 2011. By the end of August that year gold was $1,920. That’s a move of 47 percent in just eight months. So gold moved up more than $600 in just eight months.
“That’s the kind of move we could see in 2014. I could easily see gold moving to over $2,000 and possibly as high as $2,500 as I’ve shown on the chart above. I believe the gold market is about to start the next major move. This will be a fast move, in my opinion.
“But this move in gold to $2,500 will just be the beginning because the conflicts we are seeing will lead to a skyrocketing gold price. I believe we will see the beginning of a hyperinflationary depression accompanying gold’s next rise.
“Gold could easily rise to $10,000 in that environment, but we could see a lot more zeros after the gold price if the hyperinflation gets out of control. The bottom line is I think the waiting time is over and the next move higher is imminent and that move will continue for quite a few years before we see any significant top.”
China’s insatiable gold demand
Chinese demand for gold will remain strong for the foreseeable future, driven by longtime cultural affinity for gold, growing affluence among more citizens and government encouragement.
While China became the top producer of gold in 2007, in 2013, China surpassed India to become the top consumer of gold in the world. In total, 1,132 metric tons of gold were purchased, setting a global historic record. That accounted for approximately 26 percent of the total private sector demand in the world and there seems to be little sign of demand waning.
The primary driver of Chinese gold demand is their longtime cultural affinity for gold. Dating back millennia, the Chinese have given gold as a traditional gift for weddings, births and to celebrate the Lunar New Year. More recently, Mother’s Day and Valentine’s Day have joined the roster of gold-gifting holidays. Because gold is also viewed as money, giving gold not only makes the recipient more prosperous, but also shows off the wealth and prestige of the giver.
Einstein couldn’t predict gold prices
Barrick Gold Corp. Chairman Peter Munk says he finds it impossible to accurately predict the value of the precious metal being produced every day by the mining company he founded more than three decades ago.
“I really have no ability to forecast gold prices,” Munk said in an interview at Bloomberg’s headquarters in New York. “I have been in the business for 30 years, and it occupies my mind day and night.”
The world’s largest gold producer wrote down $11.5 billion in value last year and saw its profit margins squeezed as prices for the precious metal plunged into a bear market. The 2013 slump ended a 12-year bull run that swelled profits for mining companies.
Munk is in good company: Federal Reserve Chairman Janet Yellen and her predecessor Ben S. Bernanke have both said it’s hard to quantify what makes gold tick. The metal’s rebound this year defied bearish predictions from Goldman Sachs Group Inc. and Société Générale SA.
Embry warns against ‘paper gold,’ expects a ‘currency event’
Sprott Asset Management’s John Embry, interviewed for a company newsletter, warns investors against “paper gold” and says he expects some sort of “currency event” that will change things dramatically:
“I think that the next shoe to drop will be the geopolitical mess that is unfolding in the Ukraine and elsewhere. I believe there will be others: the Chinese have already stated their intention of diversifying away and pricing everything in Yuans. I think the Russians are going to head in that direction too. I believe there is going to be an overhang of U.S. dollars in the market, which is going to lead to the price of the dollar declining. It’s not that the dollar is particularly overvalued against Euros or any other currencies. It’s just that people are going to want to get rid of all of them, and I think the dollar is extraordinarily vulnerable.”
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