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Wrapping Up A Year in Gold
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(November 20, 2006) Gold has recently held its ground at $600+, having convincingly broken a pattern over the past few months of tracking oil prices, which on Friday fell to a 17-month low of $56/barrel. Gold has actually been boring lately, although boring at a plateau we haven’t seen in decades…
Gold’s $200 surge in the first half of 2006, with its peak of $725 spot price on May 12th, left most of us in the bullion business exhausted. Trading in physical gold tends to increase at an astonishing rate in a steady rising market, and the most recent segment of this current bull market in gold, the $300 run from summer of 2005 to summer of 2006, was certainly no exception.

In such a market, buyers come in with an increasing urgency, and sellers emerge, tempted, during this spring’s run, by prices that had not been seen in decades. And in the small world of domestic US physical bullion trading, there is no ready supply of experienced bullion hands that can be hired on short notice. Thus, people and resources within the industry can become fairly stretched during a boom.

By contrast, action since the summer peak has been decidedly quiet. As always, a falling or uncertain market causes buyers and sellers to stand aside in a ‘watch and wait’ attitude. The phones at the bullion shops don’t ring so often, as the players adjust to new price realities.

You would probably find the same to be true if you talked to a real estate agent today. Go ahead, give her a call. I bet she answers on the first ring.

Not that gold buyers don’t respond to price corrections. Gold market plunges such as June’s tumble to the $560s, and the second such dip that we saw in October, were among our busiest times this year. Buyers can take a market by storm when they judge that a price correction has run its course. And, yes, tumbling world markets, in whatever commodity, can also inspire selling in the domestic physical markets.

Because one person’s screaming opportunity, is another’s opportunity to scream in panic. Same as it ever was, fast-moving markets are a psychological study all their own, and a rich source for students of human behavior.

But overall, other than the two sharp price dips in gold, new orders generated by the introduction of the US Buffalo coin, seasonal gold demand during Diwali, and the Pig’s arrival to complete the Lunar gold Series, it’s been a bit quiet lately.

But quiet does not mean without potential. On the bullish side, in the past six months we have seen two corrections each bottoming out right around $560, which some would call a pretty convincing double bottom. Gold has staked out a steady $600+ level while finding its own strength versus most currencies and in the face of falling oil prices. Yet, apathy rules. People aren’t paying much attention to gold, excitement is lacking, and all the headlines we saw about gold during its rise this past spring, are now absent.

Gold refiners, mints, and distributors are showing much smaller volume this fall, reflecting a lull in the US physical bullion market. Such thin, calm markets may indicate nothing at all special by themselves. But they are also very vulnerable to unforeseeable events, shocks, or surprises – something to keep in mind before we completely turn our attention to the holidays and the usual round of year-end divertissements.

I’ll leave you with a note from Chris Powell of the Gold Anti-Trust Action Committee (GATA). In it, he points out a statistical error of many orders of magnitude in a story about the “Gold” exhibit which opened November 18th and runs through August of 2007 at the American Museum of Natural History (http://www.amnh.org):

“Dear Friends of GATA and gold:

”Here's a story about the opening of a fascinating exhibit about gold at the American Museum of Natural History in New York, but it contains a terrible error. It reports that all the gold ever mined totals "330 million tons." The World Gold Council estimates that the total gold mined as of 2001 was only "145,000 tonnes," and yearly gold production since then has been less than 3,000 tonnes.”

”Of course all the paper money printed since central banks escaped the discipline of a monetary system tied to gold may weigh far more than 330 million tons, and all the money created by central banks and investment houses out of mere electrons in the last few years weighs nothing at all. That may not make for much of an exhibit about the glory of central banking.”

”But the inference that can be drawn from the story about the new gold exhibit is sound: This is the age of infinite money, and we now joyfully await the age of infinite goods and services.

-CHRIS POWELL, Secretary/Treasurer Gold Anti-Trust Action Committee Inc.

Of course, money isn’t infinite, or at least real money isn’t. But in this brave new age of electronic representations of money, with seemingly infinite credit creation, and derivatives thereof abounding, you have to wonder, just how elastic is money? Money is only valuable insofar as it is scarce. Absent scarcity, exit value.So how far can the dollar really be created, stretched, and inflated?

If you do not question the very validity of this ‘vaporware’ that we call ‘money,’ even as it spirals into infinity, then you truly are among the blessedly innocent who “joyfully await the age of infinite goods and services.”

- Richard Smith

 

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