Hold Cheer Until Gold Hits
By Patrick A. Heller
Perhaps the most significant news involving gold
in the past week was the pattern of gold trading
after last Friday’s Bureau of Labor Statistics
announcement of the U.S. unemployment rate.
According to the BLS, the U-3 definition of the
unemployment rate had jumped 54.5 percent in the
past 12 months to 10.2 percent. This is the most
commonly reported unemployment rate.
The BLS also reported that the U-6 definition of
unemployment had climbed 45.8 percent from a
year ago to its current level of 17.5 percent.
As those who have read my past columns
understand, both of these reported figures
understate U.S. unemployment. According to John
Williams’ Shadow Government Statistics (www.shadowstats.com),
using the BLS methodology before it was changed
under President Clinton, the current U.S.
unemployment rate is about 22 percent.
A poor unemployment report reflects negatively
on the U.S. economy with the result that the
U.S. Treasury would have to pay a higher
interest rate on its debt. One way to offset the
poor unemployment news would be by having the
U.S. dollar show strength against the price of
gold (i.e., having the price of gold drop).
The U.S. unemployment report matters to the gold
market because of the regular pattern of U.S.
government gold price suppression coincident
with the release of this data. Of the previous
50 monthly reports, almost all showing a rising
unemployment rate, the gold’s price has been
clobbered 48 times almost exactly as the reports
were released. Gold often took a few weeks to
return to the pre-suppression levels. In the
past year, however, the price suppression has
had a shorter term effect.
Last Friday, the price of gold was rising
overseas before the release of the latest
unemployment figures. With the release of the
data, the price of gold actually kept
increasing. As it neared $1,100, price
suppression tactics kicked in. First, the price
of gold was knocked down about $10 almost
instantly, not long after the London p.m. fix
was set. A price suppression effort right after
announcement of the London p.m. fix is one of
four standard times during the day that the
manipulations tend to occur.
The gold market shrugged off this sudden drop.
Prices started to rise again towards $1,100. As
it neared that level, another attack quickly
knocked down the gold price by $7. After this,
the gold price again started to climb, closing
on the COMEX just under $1,097, a new high
(ignoring inflation). The ACCESS market, which
begins trading a half hour after the COMEX
closes, saw gold prices reach the $1,100 level
at one point last Friday.
When Asian markets began trading Monday morning
(Sunday night in the U.S.) the price of gold
quickly topped $1,100 and stayed there during
European markets. It remained above that level
in U.S. trading on Monday.
Now that gold has reached $1,100, what next?
For the next two weeks, there are relatively few
economic developments that would call for the
aggressive manipulation downward of the gold
price. It is possible that the price of gold may
see significant gains soon. The reasons behind
the rise in the gold price, despite tremendous
suppression efforts over many years, have not
been cured or resolved. In fact, the economic
conditions have gotten worse. So, while it is
always possible for a temporary profit-taking
retrenchment in the price of gold, the prospects
are overwhelmingly in favor of much higher
prices in the near future rather than any long
The references to the price of gold rising to
all-time record high levels are misleading.
There has been significant inflation since gold
peaked at $850 in early 1980. Using the current
government statistics on inflation, the price of
gold would have to reach (depending on whose
calculation you use) somewhere between $2,100
and $2,600 just to match the 1980 record of
$850. John Williams, whose work I cited above,
notes that the U.S. government has changed the
way it calculates the fluctuation in consumer
prices. By his calculation, using the
government’s 1980 methodology, the price of gold
would have to reach about $6,500 to really
represent a record high price.
When you realize that the price of gold, even at
$1,100, is still far below its
inflation-adjusted past record high, you can
more easily understand why the price of gold has
a lot of potential for a major increase.
David C. Harper, editor of Numismatic News
recently posted a column on Numismaster where he
related an e-mail exchange between someone
concerned that my own columns were too much
gloom and doom and also too politically
oriented. You have to put my columns in context.
People with significant investments in gold or
silver have been generally very happy for
several years. When customers are selling their
precious metals lately, they are almost all
cheerful at the profits they are realizing (of
course, you have to keep the effects of
inflation in mind).
I became a coin collector in 1964, as did almost
everyone in my family. After sorting some silver
coins out of change, I made my first gold and
silver bullion-coin purchases from a coin dealer
in 1973. I realized a huge profit when I cashed
out in 1980. My ability to make a profit trading
precious metals is one reason I became a coin
dealer myself in 1981. I profited by avoiding
purchases when the market was weak (most of the
1980s and 1990s) and by swapping between gold
and silver when the ratios went to extremes.
My company’s past newsletters have frequently
included selling or trading recommendations. For
instance, I don’t recall any other coin dealer
who matched our recommendation of selling 1982
one- ounce gold Pandas in August 1987 when they
were trading for more than $4,000 each. I have
been consistently bullish on gold and silver
prospects for the past several years during a
time when their price increases have far
surpassed that of the stock markets or the value
of the U.S. dollar.
After carefully studying a myriad of factors
that affect precious metals markets, I remain
just as bullish today as I have been for the
past several years. However, I reject the label
of “gold bug.” I think the ideal form of money
should be decided by the free market rather than
by politicians. It just so happens that gold and
silver have proved to be a nearly ideal form of
money over thousands of years. We are
approaching a time when they again may play a
major monetary role. But I don’t know that
precious metals will always be an ideal form of
As for being political, I have consistently
attacked bad government policies no matter which
politician has been in office. As I understand
the American political system, I don’t think it
makes that much difference which of the two
major presidential candidates wins the election,
as the general results will be roughly the same
no matter who holds the office. My objections to
political actions are based on their content,
not the identity of the particular politician.
By the way, my bullish expectations for gold and
silver do not carry over to platinum or
palladium. So, I don’t recommend all of the
standard precious metals. While platinum and
palladium may appreciate from now into the
future, I expect gold and silver to far
outperform them. Even though the price of gold
has topped $1,100, don’t start cheering until at
P.S. The other three times during the day that
you tend to see gold price suppression efforts
are 1.) at the opening of the London market (4
a.m. EST/3 a.m. EDT); 2.) whenever some
particularly horrible economic news is being
released by the U.S. government, and 3.) during
the thinly traded ACCESS market after 2 p.m.