Some Thoughts on Gold and
Silver
Roland Watson
Posted Nov 13, 2007
There have certainly been a
few things locally and globally that point to good times ahead
for gold and silver.
The first was from that tried and tested source of financial
news - my wife. She rarely if ever mentions precious metals unless
they are wrapped around her fingers, wrists and neck in an ornate
and beautiful fashion. But this time it was different. One of
her wealthier associates had been talking to her financial adviser
who was recommending she diversify some money out of property
into gold and silver. If my wife never again said anything about
precious metals investment, this would have been enough.
This told me two things. Firstly, the public is cottoning on
to this gold-silver thing. In other words, we are approaching
the endgame for this particular gold-silver bull phase. When
gold and silver begins to be discussed by people who never mentioned
it before, we are on the verge of a blow-off.
Secondly, she was recommended to lighten up on property. We have
seen investment money first chase the stock market up to the
year 2000. When that went sour, the hot money began to diversify
into property until recently. Now that is going sour so where
does the fiat money go? You don't need a PhD to see where a lot
of money is going to flow towards in the months ahead. As the
gold-silver bull gains speed, people who did not care for gold
before and will not care afterwards will be jumping onto the
"next big thing" and creating a positive feedback
loop for a frenzy of momentum trading.
So far, so good. Meanwhile I read that various governments are
not too keen on dollar refugees parking their cash in their currencies
and forcing them up on the international exchanges. The formula
is well known; a more expensive currency makes exports more expensive
and hence distorts the trade balance.
As a result, various capital controls are in force or being devised
rather than going for devaluation at this point (i.e. we like
the value our currency is at, go and bother another currency).
Well, that is bullish for gold and silver too because there is
no Central Bank for gold and silver to deter investors. You can
park your dollars in gold and silver without too many obstacles
in your way.
On the subject of central banks, did you know that while selling
gold to manage its price at sensitive times (i.e. not all the
time) these guys may be buying it back on the quiet to reload
their guns? At least that is the implication of a document cited
by GATA from the Reserve Bank of Australia. The document is at
http://www.rba.gov.au/PublicationsAndResearch/RBAAnnualReports/2003/Pdf/operations_financial_markets.pdf
I quote from two parts:
"Foreign currency reserve assets and gold are held primarily
to support intervention in the foreign exchange market."
That is the part GATA quotes. There is another ignored quote
before it and my emphasis is in italics.
"There is a range of operations that the RBA undertakes
in the foreign exchange market on its own account. The most noticeable,
though least frequent, outright transactions are those intended
to influence the exchange rate - "intervention" in
common parlance. In these cases, the RBA buys or sells the Australian
dollar in exchange for US dollars, with a view to affecting not
only the currency's short-term price but also expectations about
its likely course over the longer run. Such transactions are
typically infrequent, but in fairly substantial amounts, and
may be accompanied by statements making explicit the RBA's views.
Their impact on the domestic money market is fully offset, so
that they have no impact on domestic monetary conditions.
The RBA also undertakes transactions to restore its reserve
position after periods of intervention have occurred. Such transactions
are typically consistent over a period of time, but in small
amounts. While they probably, at the margin, have some
impact on the exchange rate, they are undertaken in ways designed
to minimise such effects. Their intention is to take advantage
of a more favourable exchange rate to re-position the RBA's portfolio."
This raises an interesting
question for those who believe central bank gold reserves are
vastly understated. If gold is treated like foreign currencies
in a government's strategy when they sell it then why not when
they buy back? If a government buys back foreign currencies in
a quiet, piecemeal fashion in order to reload, then why not gold
as well? If you accept the first quote then why reject the implication
of the second? You cannot pick and choose your quotes.
That sounds like a valid question to me. Not that it matters,
gold and silver are in bull markets whether central banks have
the gold or not.
Further comments can be had
by going to my silver blog at http://silveranalyst.blogspot.com
where readers can obtain a free issue of The Silver Analyst and
learn about subscription details. Comments and questions are
also invited via email to silveranalysis@yahoo.co.uk
Roland Watson
email: silveranalysis@yahoo.co.uk.
321gold Ltd
|
