October 6, 2003
The Silver Lining After Gold Drubbing
Last month, with speculators increasing their long positions and commercials going heavier on the short side, Mr. Saville offered the outlook that most goldbugs’ have been dreaming about for years:
“…if the large speculators are well financed and have a lot of conviction then they, not the commercials, have the upper hand because they have the ability to demand delivery.”
At the time, these comments seemed strangely familiar…
The Plunge. The Anger.
Last Friday gold plunged by more than $13 an ounce and the price of silver was decimated with one felt swoop back below $5 an ounce. Given silver’s inexplicable rally above $5.00 an ounce a shakeout in silver was not entirely unexpected. After all, silver, which couldn’t beat $5.00 an ounce before Iraq, had been on a tear until mid-September (fixing over $5.30 an ounce). As for gold, once its pre-Iraq peak was beaten it was basically understood that either $400 an ounce would be eclipsed or the POG would correct. Taking last week’s dump into mind, it is obvious that the latter came to pass.
Regardless, following last Friday’s vicious sell off the regular suspects lined up to scream bloody murder. The always entertaining GATA/Le Metropole Café cult probably had some choice words for the gold ‘cabal’ last week as well, but the three commentaries below will suffice:
“…it hurts to see any market trashed in this way by the government.”
How Governments Manipulate the Gold Market - A Primer Turk
“Let’s face it, this is WAR, nothing more, nothing less. The Cartel took in as much as $280,000,000 real dollar bills in Friday’s attack right out of YOUR POCKET thanks to your ADVISORS who no virtually nothing about gold…It was a power play made by the Cartel that was set up by the ignorance of almost every gold advisor out there.”
The Curse of the Gold Advisors (Oct 5) Sinclair
“The liars, cheats, pimps, and whores of the financial world came out full force and swinging on Wall Street with all their might on Friday just a few minutes after 12:00 noon…” Taylor
Time to get Even?
I’ll be the first person to admit that I thought gold had enough momentum behind it to carry above $400 an ounce during the latest rally (perhaps it still does?). Moreover, I don’t buy the nonsensical argument that a better than expected government procured statistic – last Friday’s jobs report – is directly responsible for the plunge in silver and gold. However, before arguing that the government is behind every drop in the precious metals market, it is worth remembering that each time gold rallies the Saville’s climb out of the woodwork to argue that ‘it may be different this time’ – that the speculators are, for some unknown reason, going to take delivery to try and destroy the cabal. Suffice it to say, what this theory fails to mention is that terrifically bad economic/financial market developments are required for most investor’s/traders to even think of acquiring hard gold. Indeed, most COMEX volume trades gold for the money…fiat money that is.
Thus, while not directly impacting trade in gold, what the jobs report indirectly did was quell some of the apocalyptic overtones in the gold market. Quite frankly, those speculators that tried to use gold as a hedge against a slumping dollar – based on the premise that a slumping dollar could only be regarded as a near-term negative – were not overjoyed by the prospect of the U.S. economy adding jobs (perhaps also these speculators were perturbed by Japan’s promise to buy dollars and/or the steady action in the bond market last week?). Think about it: if the jobs report had been ugly and the dollar was under pressure the stop loss orders in gold would probably not have piled up, and a few buyers would have probably shown up. Instead, the report was crafted in a positive light, and gold market ripened for an informed seller – either backed by the government or simply a tipped off institution - to easily crash prices lower (or to aggressively sell gold until the stops started getting knocked off).
Does the investor try to get even after this sell off or do they admit that the speculators, as they usually do, simply folded their cards?
Conclusion
As the Turk’s, Sinclair’s and Taylor’s continue to point to every sell off as proof of a government conspiracy, the investor should listen to these arguments for what they are – speculations – and then proceed to ask why they choose to own gold. If gold is your game for a short term profit via futures, options, and equities, your risk is extremely high in the near term. By contrast, if you plan on buying hard gold and forgetting about – based on the assumption that U.S. policies are making the financial and/or geopolitical world more treacherous than it has been in decades – your risk is (in my opinion) quite low.
As for gold stocks (Excel), which were also beaten down last Friday, should the drop in gold continue this could be a blessing for the investor looking to buy. If prices continue to decline the pick of the litter may be former Wish List company Meridian Gold. Meridian’s current operations (mainly El Penon Mine) have disappointed as of late, but the company’s stock price has lagged primarily because MDG’s Esquel mine project has encountered many roadblocks. Meridian shares seem to be discounting the likelihood of Meridian acquiring regulatory approvals for Esquel, and as a long-term investment MDG could do well if these investor’s are wrong.
Needless to say, I am all for conspiracy theories, but I still believe The Great Gold Conspiracy Has No End Game.
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