Here is An Offer You Cannot Refuse
By Jon Nadler
prices vaulted higher again during the midweek
session, as spec talk of gunning for the 1K
level kept buyers at the helm. As such, bullion
came to within about $12 of that number. Gold
has now achieved and surpassed (by $8.40 thus
far) the 'inside' top end we put forth in late
December. Will it also take out the $1080
'circumstantial high' we proposed? Place your
bets here. After you read the paper offered at
the end of this commentary.
The seven-month high at near 988.50 was welcomed
by many physical holders, but did attract a
portion of them to the sales tables. A 1000
level was achieved elsewhere in gold - in
tonnage terms, by the gold ETF. The gorilla in
the gold market room is taking
on...gorilla-sized proportions, making the
average 800-pound one seem like a gnat.
New York gold trading was off to the races in
the latter part of the afternoon, with prices
pushing higher as fresh trend-followers piled
in. The nearly $9 decline of the morning was
obviously not seen as a deal-breaker, as options
expiry approaches next week, and anxiety levels
around the world show very little in terms of
abating. Maybe when spring springs hope,
conditions will be regarded as less Armageddon-ish.
Silver prices climbed 25 cents to $14.36 and
platinum rose $11 to $1098 per ounce. Palladium
was quoted at $218, up $2. US carmakers are
begging for another 36-40 billion and GM at
least, is shedding brands faster than it burns
through its original stack of doled out taxpayer
money. Saab, Saturn, and Pontiac will soon be
brands you will reminisce about, rather than
The World Gold Council's (creator of the
aforementioned vehicle) tracking statistics
indicate that identifiable investment demand
during the fourth quarter of last year amounted
to 304 tonnes, excluding ETF-related offtake. In
so many words, global investors showed an
appetite of about 2.6 million ounces per month
more in the final stretch of 2008 than was seen
during the same period in 2007. Little surprise
then, that some mints around the world
-accustomed to selling an average of about
300,000 ounces of bullion in round form on an
annual basis for quite some time- were stressed
out and encountered production and shipping
delays. Let's delve into the subject matter at
hand: it sure seems to obsess a lot of hard
money pundits - and their readers.
Fact: The US Mint ended up selling 860,500
ounces to investors last year, and of that
figure, 413,000 ounces were sold in the last
quarter of 2008. While the more than 24 tonne
2008 figure is certainly impressive, consider a
few other numbers for perspective of the proper
kind, especially when reading about
'unprecedented' demand in many a newsletter.
Fact: For example, in just one month (Nov. 1986)
the Mint sold 626,000 + ounces to investors.
That year's total was nearly 1.8 million ounces
- and it was sold in just three months. Let's
chalk that anomaly up to the frenzy surrounding
the coins' debuts. However, during the following
epic year of market crisis (1987) the Mint sold
1,253,000 ounces to coin buyers. In 1998, almost
one million more ounces of gold were moved by
the Mint as compared to 2008's total.
Fact: As the world of gold bugs was preparing
for the End of Days (Y2K) in 1999, more than 2
million ounces were sold by the Mint.
Conclusions? Draw your own, but we see a
developing pattern of crisis anticipation and
mania buying, followed by a return to more
normal levels for the remainder of the time.
Kind of like a...cycle, you know? Angst followed
by calm, followed by complacency, followed by
new angst. Disbelievers can simply click on:
and learn the facts for themselves. Others, can
continue to place faith in dealer hype, E-bay,
and the quasi-Biblical tone of the subscriptions
they receive from gold 'gurus.' There is always
Of course, the caution flags we raised yesterday
were swiftly fired at as 'anti-gold propaganda.'
Well, there is a choice to be made in that
interpretation as well. The first condition
however, is to accept the fact that this writer
has never abdicated the firm conviction that you
must hold a life insurance policy for your
basket of wealth. Perhaps 10 or 15 percent is
tantamount to being 'anti-gold' to you, but that
is your take on matters.
However, when it comes to The Globe and Mail's
Alan Robinson, after this morning's piece on
gold, he will surely become the next target of
conspiracy club hate-mail, and will either be
vying to wrest the Moron of the Year award from
your truly, or be labeled as an MSMer. Which, he
is. But, your choice is to accept 'news'
dispatches from little more than goldbug forums
as 'the truth.' Take it away, Alan:
"The price of gold has soared as investors seek
a refuge from market turmoil, but one analyst
says anyone betting on a U.S. recovery would do
well to take some profits in the precious metal.
"We think the sun will shine again and we think
the tremendous and unprecedented stimulus that
is coming from all over the place will stabilize
the U.S. economy," said Vincent Delisle, a
strategist with Scotia Capital Inc.
Gold rose 2.7 per cent yesterday, reaching a
seven-month high before ending the day up $25.30
(U.S.) an ounce to $967.50. It peaked yesterday
at $974.20. As recently as mid-January, gold
traded at $806 an ounce. Gold is breaking all of
the rules that work in normal times. Typically,
the metal weakens when the U.S. dollar is
strong, but yesterday both rose sharply. It also
tends to move in sync with the price of oil, but
this year gold has been climbing higher while
The historical correlation between gold and West
Texas intermediate crude is a positive 81 per
cent, compared with the negative 53 per cent
since the beginning of 2009, he said. The risk
of inflation that normally sparks gold buying is
pretty much absent.
"These relationships have broken down in the
past few weeks and these are anything but normal
times," Mr. Delisle said. And that might not be
good for gold, which has taken on the role of
safe refuge in times of turmoil along with the
U.S. dollar, the Japanese yen and U.S.
Treasuries. The S&P/TSX global gold index has
been strong during the past few years and this
year the index has performed well. The gold
miners now account for a record high of 12.5 per
cent of the S&P/TSX, and Scotia Capital, which
has been overweight the group, now recommends a
Over the past 30 years, gold stocks have
accounted for about 7 per cent of the value of
"If you want to buy low and sell high, you need
to be a bit of a contrarian," Mr. Delisle said.
"This is really a tactical move on our part. We
think the market is exaggerating the pessimism."
Gold, in terms of weaker currencies such as the
euro, British pound and Canadian dollar, is at a
record high, said Bob Tebbutt, vice-president of
corporate risk management for Peregrine
Financial Group Canada Inc. Using Canadian
dollars, gold traded at $1,207 an ounce
"I guess what you have to say, is gold is
finally performing as it should perform in times
of uncertainty," Mr. Tebbutt said. "Finally, you
are seeing a move to the upside, but it hasn't
set a record in U.S.-dollar terms."
Gold traded at a record $1,014.60 (U.S.) an
ounce in March, 2008. However, a look at the
S&P/TSX shows the gold mining companies have
recently shown some signs of fatigue. The S&P/TSX
gold index jumped 4.6 per cent yesterday and it
is up 18.1 per cent during the past month, but
only 10 per cent so far this year. The index
rose almost 1 per cent in 2008, but that
performance was relatively good compared with
the 35-per-cent plunge in the S&P/TSX composite
index. During the past three and five years, the
gold index is up 26.9 and 59.2 per cent,
"When we look at the broken correlations, we
think the reversion [back to the mean] will hurt
the relative performance of gold," Mr. Delisle
said. "One has to wonder how much more 'market
share' gold can gain if the sun ever comes up."
Call it whatever you like, but facts, figures,
and history bear out some familiar patterns:
make too much of one thing and conventional
wisdom takes a backseat to unconventional
behavior. One cannot figure out human actions
and better than the potential actions of the Big
Ape in the room. One of the things that is
really being made much of these days, is
inflation. Not just plain-vanilla type price
increases, but mammoth - Weimar Republic
flavoured- wheelbarrow inflation.
Such a purchasing power-eroding outcome is seen
as the inevitable outcome of today's 'reckless
printing' etc., etc. Two things on the subject
at hand. One, the full story on the Fed,
inflation targets, Mr. Bernanke, and the media.
Marketwatch's Rex Nutting brings us the other
story of the day (the first one being gold's new
"The "extraordinary measures" taken by the
Federal Reserve to restore the flow of credit
vital to the U.S. economy won't stoke inflation,
Fed Chairman Ben Bernanke said Wednesday. In a
rare appearance before journalists at the
National Press Club, Bernanke said the Fed will
be able to quickly reverse much of what it's
done to expand credit, once the economy
"A significant shrinking of the balance sheet
can be accomplished relatively quickly,"
Many of the programs are designed to
automatically disappear once market conditions
improve, he said, while others will require more
active intervention by the Fed. 'At this point,
with global economic activity weak and commodity
prices at low levels, we see little risk of
unacceptably high inflation in the near term;
indeed, we expect inflation to be quite low for
Bernanke emphasized that restoring the economy
to vigor is the Fed's one and only job now, and
that concerns about inflation must wait.
For now, deflation ranks as a greater concern.
"At this point, with global economic activity
weak and commodity prices at low levels, we see
little risk of unacceptably high inflation in
the near term; indeed, we expect inflation to be
quite low for some time," Bernanke said.
The Fed has expanded its balance sheet by more
than $1 trillion by lending money to banks,
foreign central banks, and more directly to
businesses through its commercial-paper lending
"Extraordinary times call for extraordinary
measures," he said.
The result has been an expansion of the nation's
money supply. Some critics say "will ultimately
stoke inflation," Bernanke acknowledged.
But the Fed chief said that most of that money
is sitting idle, on deposit with the Fed or in
federally insured bank accounts. Indeed, he said
the U.S. central bank expects growth in the M2
measure of money supply to "slow considerably"
For nearly a year, the Fed's come under intense
criticism and legal challenge for withholding
information about the assets it has taken on
from the rescue of American International Group
and the fire-sale of Bear Stearns assets.
Bernanke sidestepped those complaints in his
talk, but he did announce two new efforts to
increase Fed transparency and accountability.
The Fed will unveil a new Web site with more
details and analysis of its public information
pending a thorough review of the Fed's secrecy
policies, he said.
But more importantly, the Fed will take a step
closer to his ideal of inflation-targeting by
publishing the policy-setting Federal Open
Market Committee's long-term economic
The FOMC's projection of inflation over the next
five years, he said, "may be interpreted ... as
the rate of inflation that FOMC participants see
as most consistent" with price stability and
The first projections will be published later
Wednesday with the release of the minutes from
the FOMC's January meeting, he said."