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I Want to
Believe
By Jon Nadler The automaker
rescue plan was agreed upon by US lawmakers
overnight, and it gives the Formerly Big Three
$15 billion in bridge loans and commits them to
forward a restructuring plan within 90 days. A
car czar will also likely be named (possibly
Paul Volcker) as a result of the agreement.
Obviously, the question remains whether the
fossilized US auto industry can actually get its
act together in three months, when it could not
do the same in thirty years' time. Hope springs
eternal. Some previously shelved designs and
technologies are likely to be dusted off and
reconsidered, now that the fuse has burned
nearly to its end.
Stock futures and commodities cheered the
automotive news, while the dollar fell
marginally as indications of a spark of risk
appetite held it under the 86 level on the
index. In the interim, the story of the global
contraction continued to unfold without pause.
Chinese exports fell for the first time in over
seven years, Japanese machinery orders slumped
4.4% in October, car sales in India cratered by
19% last month, hotels were cutting room rates
for the first time in five years, and US
consumer spending is seen as taking its biggest
hit since Pearl Harbor next year. How is that
for a partial list of current woes?
New York bullion prices rose at the opening of
the mid-week session, helped primarily by a
hefty gain in crude oil values. Gold was ahead
by $13.60 quoted at $789.20 an ounce, while
silver tried for an assault on the double-digit
mark once again with a rise of 14 cents to $9.95
per ounce. The putative IMF mega-dump of 3,000
tonnes did not materialize - in case you were
holding your breath. The 'imminent' Comex
default is next on the myth-busters agenda.
Platinum rose $12 to $824 while palladium gained
$2 to $177 per ounce. One would have expected
larger gains from the noble metals following the
carmaker rescue plan. Maybe they are also
waiting for concrete plans, like the US
lawmakers.
Speculation that OPEC will successfully enlist
Russia to jointly curb production in another
attempt to stem the oil price plunge. While some
analysts are still talking about $25 oil, other
gurus envision a return to $100 based on global
economic recovery. When it comes. If it comes.
Reality is probably somewhere in the middle.
Like around $40 to $50 per barrel.
And now, a return to an old topic that refuses
to die. Like desperate mountain climbers
attempting to lift themselves by their
bootstraps, gold price suppression theorists
(A.K.A. tinfoil-sporting writers of fiction)
have tried for what seems like ever to incite
the masses to slay an invisible monster that is
supposedly hovering over them and preventing
them from making money. Never mind that
according to such a tale, the price of gold
would have never been able to rise to above $400
let alone to where it actually went. Never mind
that the evildoers would have suffered a dozen
violent deaths by now, trying to short a market
that basically quadrupled in value. Hey, it
sells newsletters and makes for intrigue and
romance. More than anything, it keeps hope
alive.
Thus, we offer you one take on the matter that
comes from a true veteran in the industry - well
known to those who have been reading about
metals over the years, and to those who attend
hard asset conferences. We directed you to a
link of his recent debate on the topic, in
yesterday's comment. Now, here is Tim Wood's
take on the non-issue that is the gold
manipulation nonsense.
"Let me demonstrate why the very campaign to
assert a conspiracy to suppress the gold price -
which, I might observe, rose from less than 250
dollars an ounce to over 1,000 dollars in ounce
in just 7 years has damaged gold as an
investment class.
FIRSTLY: For two decades after the 1980 price
spike, investing in gold acquired a reputation
as the last refuge of feeble-minded
survivalists.
Let me disabuse you of any notion that it is a
position I accept. I am merely reporting a
perception made fact. After 2001 there was an
opportunity to reform this professional
investment bigotry that was stoked by years of
soft assets inflated by those great virtues of
easy money and profligate credit. Rebranding
succumbed to revisionism. The survivalist meme
was replaced by a conspiracy mantra.
Not unlike Al Gore’s global warming hoax - where
tomorrow’s sunrise must surely be the product of
more carbon dioxide in the atmosphere - we now
face a situation where any correction in the
gold price becomes proof enough of cartelized
short-selling. Alternatively, any uptick becomes
necessary and sufficient evidence that the price
didn’t go high enough.
We surrendered reason for remonstration. We
traded the next generation of gold investors
into suckers for sub-prime loans, collateralized
debt obligations and auction rate securities.
Now they’re liquidating, and that money won’t be
back for a long, long time. Economists call that
an opportunity cost. We should call it an epic
blunder.
SECONDLY: Conspiracies not only deplete reason,
they deform markets.
It became opportunistic for gold producers to
ride the “unhedged” bandwagon even if it ended
with a trip over a cliff. So we had many
executives boasting about full exposure to the
gold price by refusing forward sales of their
un-mined gold at an agreed price. That is a very
useful and bold thing to proclaim and maintain -
just so long as prices move only higher and
costs move only lower… There were several
counterfeits in this revivalist movement;
veiling revenue hedges with arcane footnotes and
slippery language.
Those who weren’t brazen enough to bluff
panicked and swore off any hedging whatsoever
because. It turns out that fashion victims come
in all stripes. The net result has been awful
for gold bugs. Those darling un-hedged gold
equities have under-performed their hype by a
mortifying margin even as base metal equities,
which have remained heavily hedged, roared
higher.
Not one of the dire prophecies about hedged gold
producers becoming extinct has come to pass. Now
the gold industry has lost access to a good deal
of the liquidity, experience, relationships and
knowledge that are essential to responsible risk
management in all mineral industries.
A consequence is the demolition of gold producer
margins. Equity investors are not gamblers, and
resource investors should be demanding that
producers lay out full-faceted hedging programs
that balance risks associated with revenues,
currencies, interest rates, input costs and
shareholder dilution. In two words, management
risk.
THIRDLY: Building on the previous point,
conspiracy arguments allowed mischief-makers,
book-makers actually, to insert themselves
between investors and their money.
In convenient concert with the no-hedge assault
investors were lobbied that they should want
precious metal equities to clone the minerals
they mined. The mendacious argument was that
investors preferred maximum leverage. Indeed,
but not naked leverage. If investors were so
robotically intent on maximizing leverage they
would trade exclusively in warrants, futures and
options.
Equities are equities for a reason, but some
investors took the bait anyway. Lo and behold,
when exchange traded funds emerged that were
genuinely leveraged to their underlying minerals
an unprecedented asset swap commenced, and is
continuing. ETFs have filched liquidity and
value from equities because they demonstrate
superior optionality - if only because they
eliminate management risk.
Gold equities were bullied and redefined as a
consequence of the conspiracy onslaught. Why
weren’t they bullied to stop issuing new shares
faster than the U.S. Treasury issues one dollar
bills?
FINALLY: The great tragedy of hammering on this
supposed conspiracy is the misallocation of so
much time and talent. Of course governments and
financial institutions affect the price of gold.
Gold is money after all! We are not one iota
closer to safeguarding private gold holdings in
the United States. The first and last effort of
true gold bugs should be to build an impregnable
barrier against government predation.
Using the full faith and credit of these United
States, President Roosevelt in 1933 expropriated
private gold. Weeks later, the dollars he paid
in exchange for the gold were devalued by 41%.
Now that’s manipulation of the gold price!
How much more worthy this conspiracy collective
would be if it was directed toward saying “never
again, FDR!”. Citizens should never again have
to forfeit their gold to their government. A
forever campaign of super-heated rhetoric about
market players with more clout than you does not
do that. We have the opportunity of a lifetime
right now to contrast the ongoing credit crisis
with the value of hard assets in every family’s
portfolio. And we have an unusual opportunity to
sweep converts up into a movement that seals
gold as a permanent, irrevocable private
property right.
I know that I would prefer to safely pass my
gold to my children rather than forever tilt at
JP Morgan’s empty windmills.
Tim Wood is Vice President, International
Investment Conferences
In light of which, you are likely to see today's
likely return to $800 gold as a 'triumph' of the
efforts of the aluminium squad, and nothing
short of the 'dawn' of a new era. Again. This,
on the day when a former general in the
conspiracy army had predicted nothing short of a
gold price massacre by the IMF. Close the
X-files, please.
PS: For sale: five fine acres of prime Florida
wetland. Includes snakes and mud at no charge.
First come, first served.
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