Friday, April 21, 2006

Gold to $3,000?

Fascinating interview over at Mineweb.net/radio with Bill Murphy of the Gold Anti-Trust Committee (GATA.) Most investors who have heard of Mr. Murphy blow off his take on the gold situation as a paranoid conspiracy theory. I don't pretend to know anything to either rebut or support his thesis, but it's an interesting one, nonetheless. As mentioned in the radio article, Credit Agricole Cheuvreux Mining, a French company, has come out in support of GATA, and it has other supporters, like a former Putin minister, for whatever that's worth. (Read the Cheuvreux January 2006 report, downloadable from GATA at this page.)

The conspiracy theory claims that central banks have been "lending" gold stocks out to brokerages and banks, who then turn around and sell it or otherwise tie it up with derivatives and so forth. This would imply that central bank gold stocks are over-reported, because the banks report these "loans" as assets, even though the "loaned" gold will not necessarily be returned, some having actually been sold. Furthermore, the "borrowers" also count the gold in question as "assets," creating, according to GATA, a misleading overstatement of existing gold stock.


[Thanks to terpsboy.com for the photo of Saddam's gold stash.]

All of this would translate into a vast undersupply of gold should a market upturn occur, as the gold price now seems to be indicating. GATA does take it one step further to imply that central banks have covertly attempted to suppress the gold price since the 1990s, to create the illusion that all is well with the world's fiat monetary system in spite of the Japanese crisis, the dot-com crisis, the federal hedge fund bail-outs, and other such dangerous events of the recent past. GATA has gone so far as to file lawsuits against the offending parties, and one has been dismissed "for a technicality," and the other is still in process.

I think that's an approximation of the theory. He further states in the interview that he doesn't believe the source of the recent boom in the gold price can be traced to doubts about the dollar's strength, but that the excess dollars in circulation may have an impact down the line. He thinks that the recent moves are only the beginning.

Time will of course tell, as usual.

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