PCR on the Suppression of the Price of Gold

[lektrode]

Re: Roberts has yet to get the word

Over the past month there has been a statistically improbable concurrence of events that can only be explained as a conspiracy to protect the dollar from the Federal Reserve’s policy of Quantitative Easing (QE)
............
If the dollar were not the reserve currency, Washington would not be able to finance its wars or continue to run large trade and budget deficits.

(esp since congress cant seem to even put together a budget and then the howling from the left on the disaster - DISASTER i tell ya, referred to as 'austerity' - huh? - they cant even cut, what - 3%, without 'furlough' of essential personell - or cut congressional perks/pork-parties? - NO WAY baybee - they might not get re-elected and just think what a disaster that would be....)

The threats to the dollar are alternative monies--currencies that are not being created in enormous quantities, gold and silver, and Bitcoins, a digital currency.

The Bitcoin threat was eliminated on May 17 when the Gestapo Department of Homeland Security seized Bitcoin’s accounts.
..........
That leaves gold and silver. The enormous increase in the prices of gold and silver over the last decade convinced Washington that there are a number of miscreants who do not trust the dollar and whose numbers must not be permitted to increase.

The price of gold rose from $272 an ounce in December 2000 to $1,917.50 on August 23, 2011. The financial gangsters who own and run America panicked. With the price of the dollar collapsing in relation to historical real money, how could the dollar’s exchange rate to other currencies be valid? If the dollar’s exchange value came under attack, the Federal Reserve would have to stop printing and would lose control over interest rates.

The bond and stock market bubbles would pop, and the interest payments on the federal debt would explode, leaving Washington even more indebted and unable to finance its wars, police state, and bankster bailouts.

(nor give away the treasury to buy votes for... ahem... so the lib-dems can pump up the 'other' constituency - aka the .edu/welfare state)

Something had to be done about the rising price of gold and silver.

There are two bullion markets. One is a paper market in New York, Comex, where paper claims to gold are traded. The other is the physical market where personal possession is taken of the metal--coin shops, bullion dealers, jewelry stores.....
....
Since the April 12-15 attack on the gold price, subsequent attacks have occurred at 2pm Hong Kong time and 2 am New York time.....

(well, after friday's news out of hong kong, guess they wont have to worry about them anymore?)
When the dollar goes, Washington’s power goes, which is why the bullion market is rigged. Protect the power. That is the agenda. Is it another Washington over-reach?

http://www.paulcraigroberts.org/

nah - ya think?

[lektrode]

Re: Roberts has yet to get the word

Over the past month there has been a statistically improbable concurrence of events that can only be explained as a conspiracy to protect the dollar from the Federal Reserve’s policy of Quantitative Easing (QE)
............
If the dollar were not the reserve currency, Washington would not be able to finance its wars or continue to run large trade and budget deficits.

(esp since congress cant seem to even put together a budget and then the howling from the left on the disaster - DISASTER i tell ya, referred to as 'austerity' - huh? - they cant even cut, what - 3%, without 'furlough' of essential personell - or cut congressional perks/pork-parties? - NO WAY baybee - they might not get re-elected and just think what a disaster that would be....)

The threats to the dollar are alternative monies--currencies that are not being created in enormous quantities, gold and silver, and Bitcoins, a digital currency.

The Bitcoin threat was eliminated on May 17 when the Gestapo Department of Homeland Security seized Bitcoin’s accounts.
..........
That leaves gold and silver. The enormous increase in the prices of gold and silver over the last decade convinced Washington that there are a number of miscreants who do not trust the dollar and whose numbers must not be permitted to increase.

The price of gold rose from $272 an ounce in December 2000 to $1,917.50 on August 23, 2011. The financial gangsters who own and run America panicked. With the price of the dollar collapsing in relation to historical real money, how could the dollar’s exchange rate to other currencies be valid? If the dollar’s exchange value came under attack, the Federal Reserve would have to stop printing and would lose control over interest rates.

The bond and stock market bubbles would pop, and the interest payments on the federal debt would explode, leaving Washington even more indebted and unable to finance its wars, police state, and bankster bailouts.

(nor give away the treasury to buy votes for... ahem... so the lib-dems can pump up the 'other' constituency - aka the .edu/welfare state)

Something had to be done about the rising price of gold and silver.

There are two bullion markets. One is a paper market in New York, Comex, where paper claims to gold are traded. The other is the physical market where personal possession is taken of the metal--coin shops, bullion dealers, jewelry stores.....
....
Since the April 12-15 attack on the gold price, subsequent attacks have occurred at 2pm Hong Kong time and 2 am New York time.....

(well, after friday's news out of hong kong, guess they wont have to worry about them anymore?)


When the dollar goes, Washington’s power goes, which is why the bullion market is rigged. Protect the power. That is the agenda. Is it another Washington over-reach?

http://www.paulcraigroberts.org/

nah - ya think?

[don]

Soros Misdirection Play

No Bear Market In Gold — Paul Craig Roberts


You know that gold bear market that the financial press keeps touting? The one George Soros keeps proclaiming? Well, it is not there. The gold bear market is disinformation that is helping elites acquire the gold.

Certainly, Soros himself doesn’t believe it, as the 13-F release issued by the Securities and Exchange Commission on May 15 proves. George Soros has significantly increased his gold holding by purchasing $25.2 million of call options on the GDXJ Junior Gold Miners Index. http://bullmarketthinking.com/soros-...ns-on-juniors/

In addition the Soros Fund maintains a $32 million stake in individual mines; added 1.1 million shares of GDX (a gold miners ETF) to its holdings which now stand at 2,666,000 shares valued at $70,400,000; has 1,100,000 shares in GDXJ valued at $11,506,000; and 530,000 shares in the GLD gold fund valued at $69,467,000. [values as of May 17]

The 13-F release shows the Soros Fund with $239,200,000 in gold investments. If this is bearish sentiment, what would it take to be bullish?

The misinformation that Soros had sold his gold holdings came from misinterpreting the reason Soros’ holdings in the GLD gold trust declined. Soros did not sell the shares; he redeemed the paper claims for physical gold. Watching the gold ETFs, such as GLD, being looted by banksters, Soros cashed in some of his own paper gold for the real stuff.

The giveaway that Soros is extremely bullish on gold comes not only from his extensive holdings, but also from his $25.2 million call option on junior gold stocks. This is a highly leveraged bet on the weakest gold mines. With high production costs and falling gold price from constant short selling in the paper market, Soros’ bet makes no sense unless he thinks gold is heading up as the short raids concentrate gold in elite possession.

In previous articles I have explained how heavy short-selling triggers stop-loss orders and margin calls on investors in gold ETFs. Scared out of their shares or forced out by margin calls, investors’ add to the downward price pressure caused by the shorts. Bullion banks and prominent investors such as Soros are the only ones who can redeem GLD shares for physical metal. They purchase the shares that are sold in response to the falling gold price, and present the shares for redemption in gold metal.

Insiders familiar with the process describe it as looting the ETFs of their gold basis.

In my last column I described how the orchestration of a falling gold price in the paper market protects the dollar’s value from the Federal Reserve’s policy of printing 1,000 billion new ones annually. The other beneficiary of the operation is the financial elite who buy up at low prices the ETF shares sold into a falling market and redeem them for gold. Like all other forms of wealth in the West, gold is being concentrated in fewer hands, while the elite shout “bear market, get out of gold.”

The orchestrated decline in gold and silver prices is apparent from the fact that the demand for bullion in the physical market has increased while short sales in the paper market imply a flight from bullion. As a hedge fund manager told me, it is a Wall Street axiom that volume follows price. Bull markets are characterized by rising prices on high volume. Conversely bear markets feature declining prices on low volume. The current bear market in gold consists of paper gold declining steadily while demand has escalated rapidly for physical metal. This strongly indicates that demand for physical gold continues to be in a bull market despite the savage attacks on paper gold.

If the orchestration is apparent to me, a person with no experience as a gold trader, it certainly must be apparent to federal regulators. But don’t expect any action from the Commodities Future Trading Corporation. It is headed by a former Goldman Sachs executive.

And don’t expect any investigation from the financial press. The financial press sees a bear market while supplies of bullion decline, premiums over spot rise, and even publicly declared bears such as George Soros make highly leveraged bets that will fail in the absence of a bull market in gold.

[aaron]

Re: Soros Misdirection Play

Where does he know that soros took bullion from gld?

[EJ]

Re: Roberts has yet to get the word

Over the past month there has been a statistically improbable concurrence of events that can only be explained as a conspiracy to protect the dollar from the Federal Reserve’s policy of Quantitative Easing (QE).

Quantitative Easing is the term given to the Federal Reserve’s policy of printing 1,000 billion new dollars annually in order to finance the US budget deficit by purchasing US Treasury bonds and to keep the prices high of debt-related derivatives on the “banks too big to fail” (BTBF) balance sheets by purchasing mortgage-backed derivatives. Without QE, interest rates would be much higher, and values on the banks’ balance sheets would be much lower.

Quantitative Easing has been underway since December 2008. During these 54 months, the Federal Reserve has created several trillion new dollars with which the Fed has monetized the same amount of debt.

One result of this policy is that most real US interest rates are negative. Another result is that the supply of dollars has outstripped the world’s demand for dollars.

These two results are the reason that the Federal Reserve’s policy of printing money with which to purchase Treasury bonds and mortgage backed derivatives threatens the dollar’s exchange value and, thus, the dollar’s role as world reserve currency.

To be the world reserve currency means that the dollar can be used to pay any and every country’s oil bills and trade deficit. The dollar is the medium of international payment.

This is very helpful to the US and is the main source of US power. Because the dollar is the reserve currency, the US can cover its import costs and pay for its cost of operation simply by creating its own paper money.

If the dollar were not the reserve currency, Washington would not be able to finance its wars or continue to run large trade and budget deficits. Therefore, protecting the exchange value of the dollar is Washington’s prime concern if it is to remain a superpower.

The threats to the dollar are alternative monies--currencies that are not being created in enormous quantities, gold and silver, and Bitcoins, a digital currency.

The Bitcoin threat was eliminated on May 17 when the Gestapo Department of Homeland Security seized Bitcoin’s accounts. The excuse was that Bitcoin had failed to register in keeping with the US Treasury’s anti-money laundering requirements.

Washington has stifled the threat from other currencies by convincing other large currencies to out-print the dollar. Japan has complied, and the European Central Bank, though somewhat constrained by Germany, has entered the printing mode in order to bail out the private banks endangered by the “sovereign debt crisis.”

That leaves gold and silver. The enormous increase in the prices of gold and silver over the last decade convinced Washington that there are a number of miscreants who do not trust the dollar and whose numbers must not be permitted to increase.

The price of gold rose from $272 an ounce in December 2000 to $1,917.50 on August 23, 2011. The financial gangsters who own and run America panicked. With the price of the dollar collapsing in relation to historical real money, how could the dollar’s exchange rate to other currencies be valid? If the dollar’s exchange value came under attack, the Federal Reserve would have to stop printing and would lose control over interest rates.

The bond and stock market bubbles would pop, and the interest payments on the federal debt would explode, leaving Washington even more indebted and unable to finance its wars, police state, and bankster bailouts.

Something had to be done about the rising price of gold and silver.

There are two bullion markets. One is a paper market in New York, Comex, where paper claims to gold are traded. The other is the physical market where personal possession is taken of the metal--coin shops, bullion dealers, jewelry stores.

The way the banksters have it set up, the price of bullion is not set in the markets in which people actually take possession of the metals. The price is set in the paper market where speculators gamble.

This bifurcated market gave the Federal Reserve the ability to protect the dollar from its printing press.

On Friday, April 12, 2013, short sales of gold hit the New York market in an amount estimated to have been somewhere between 124 and 400 tons of gold. This enormous and unprecedented sale implies an illegal conspiracy of sellers intent on rigging the market or action by the Federal Reserve through its agents, the BTBF that are the bullion banks.

The enormous sales of naked shorts drove down the gold price, triggering stop-loss orders and margin calls. The attack continued on Monday, April 15, and has continued since.

Before going further, note that there are position limits imposed on the number of contracts that traders can sell at one time. The 124 tons figure would have required 14 traders with no open interest on the exchange to sell all together in the same few minutes 40,000 futures contracts. The likelihood of so many traders deciding to short at the same moment at the maximum permitted is not believable. This was an attack ordered by the Federal Reserve, which is why there is no investigation of the illegality.

Note also that no seller that wanted out of a position would give himself a low price by dumping an enormous amount all at once unless the goal was not profit but to smash the bullion price.

Since the April 12-15 attack on the gold price, subsequent attacks have occurred at 2pm Hong Kong time and 2 am New York time. At this time activity is light, waiting on London to begin operating. As William S.Kaye has observed, no entity concerned about profits would choose this time to sell 20,000 to 30,000 futures contracts, but this is what has been happening.

Who can be unconcerned with losing money in this way? Only a central bank that can print it.

Now we come to the physical market where people take possession of bullion instead of betting on paper instruments. Look at this chart from ZeroHedge. http://www.zerohedge.com/news/2013-0...hysical-vs-etf The demand for physical possession is high, despite the assault on gold that began in 2011, but as the price is set in the non-real paper market, orchestrated short sales, as in the current quarter of 2013, can drive down the price regardless of the fact that the actual demand for gold and silver cannot be met.

While the corrupt Western financial press urges people to abandon bullion, everyone is trying to purchase more, and the premiums above the spot price have risen. Around the world there is a shortage of gold and silver in the forms, such as one-ounce coins and ten-ounce bars, that individuals demand.

That the decline in gold and silver prices is an orchestration is apparent from the fact that the demand for bullion in the physical market has increased while naked short sales in the paper market imply a flight from bullion.

What does this illegal manipulation of markets by the Federal Reserve tell us? It tells us that the Federal Reserve sees no way out of printing money in order to support the federal deficit and the insolvent banks. If the dollar came under attack and the Federal Reserve had to stop printing dollars, interest rates would rise. The bond and stock markets would collapse. The dollar would be abandoned as reserve currency. Washington would no longer be able to pay its bills and would lose its hegemony. The world of hubristic Washington would collapse.

It remains to be seen whether Washington can prevail over the world demand for gold and silver. Can the dollar remain supreme when offshoring has deprived the US of the ability to cover its imports with exports? Can the dollar remain supreme when the Federal reserve is creating 1,000 billion new ones each year, while the BRICS, China and Japan, China and Australia, and China and Russia are making deals to settle their trade balances without the use of the dollar?

If the consumption-based US economy deprived of consumer income by jobs offshoring takes a further dip down in the third or fourth quarter--a downturn that cannot be masked by phony statistical releases--the federal deficit will rise. What will be the effect on the dollar if the Federal Reserve has to increase its Quantitative Easing?

A perfect storm has been prepared for America. Real interest rates are negative, but debt and money are being created hand over foot. The dollar’s demise awaits the world’s decision how to get out of it. The Federal Reserve can print dollars with which to keep the bond and stock markets high, but the Federal Reserve cannot print foreign currencies with which to keep the dollar afloat.

When the dollar goes, Washington’s power goes, which is why the bullion market is rigged. Protect the power. That is the agenda. Is it another Washington over-reach?

http://www.paulcraigroberts.org/

I truly hope PCR stops discrediting himself with such nonsensical and speculative assertions. He is playing into the hands of his detractors. In fact he is in the process of becoming the crackpot they have always said he is.

Bitcoin and gold are a threat to the USD? Really? Bitcoin is irrelevant as international money for reasons I've stated previously, mainly because its exchange rate value is too erratic and there is no way to reliably regulate it. Bitcoin makes the 1980s Argentine peso look stable by comparison. That means no rational person will ever hold bitcoin for longer than it takes to use them to buy items they want to buy over the Internet. Bitcoins' differentiation over other online payment methods is anonymity. Human nature being what it is, the relative anonymity of bitcoin transactions means it will be used for illicit purposes.

Gold, on the other hand, is the reserve currency that central banks agreed upon as the sole USD currency to hedge the currency risk inherent in holding large USD reserves during the PCO era. This agreement, known as Washington Agreement, allowed global central banks to safely accumulate over 10 trillion in paper USD over the past decade as oil prices doubled then doubled again, while the trade deficit and external debt of said USD emitter, the United States, exploded in no small part due to rapid oil price appreciation (oil trade deficit = oil import unit volume * unit price) although financial system corruption and crisis played into it as well. Central banks counted on steady USD gold price appreciation in line with USD oil price increases and the resulting USD reserves accumulation (the USD is the only major "parallel" currency used among nations for trade) to maintain a USD/gold reserve ratio proportionate to the value of oil imports against current account for importers and against capital account for oil exporters. Sales by the UK and other central banks in the early days of PCO in the late 1990s threatened the system. In response, the Washington Agreement was forged. It resulted from undisclosed negotiations to limit sales and support the Gold/Oil Reserves Ratio system at least insofar as major western central banks were no longer to be instrumental in the devaluation of a reserve asset that they need to hedge USD risk as oil prices rise and USD accumulate on reserve accounts of central banks.

This is the reason gold prices went up in line with oil prices from 2001 t0 2011, is similar fashion albeit more gradually than the the 1970s run-up in both oil and gold.

If my explanation sounds complicated that's because it is. In my next article to be published early next week I explain it in plain English as best I can.

The problem for central banks, and for those of us private investors who own gold for the same reason -- to hedge a crisis of the IMS in a PCO world -- is that we are sharing the gold market with private investors who do not understand it, including large funds run by clueless managers. The populists who devise theories like PCR's above may influence retail buyers to some extent, but not as profoundly as thousands of ubiquitous Cash-for-Gold ads that enticed millions of Americans to sell gold jewelry for pennies on the dollar. The true gold market havoc has been caused by funds with more money than brains buying and sell gold in vast quantities into a relatively small and illiquid market for the wrong reasons.

As we just witnessed as in 2011 and 2013, it's not so much fun for us as long-term gold investors
when funds sell for the wrong reasons as when they buy. Net of their activity the gold price tracks the USD oil price.

I hope that the gold price goes nowhere for a year or two, well beyond the attention span of the average conspiracy theorist or fund manager, so that they abandon the gold market and forget about it and leave it to those of us with a serious interest in understanding the relationship between the gold market, the oil market, and the IMS as PCO unfolds. Frankly, as I work through this analysis I get a sick feeling in the pit of my stomach and it's not because I fear gold prices collapsing. It's about oil prices soaring as the mirage of U.S. oil independence fades and the realization that ten years of oil supply has been brought forward and consumed in a few years due to over-investment, and is gone forever. Given the implications for the U.S. economy and society a gold price rising to meet the reality of the oil price -- and resulting trade deficit and external debt -- will be the booby prize for us as U.S. citizens.

[BadJuju]

Re: Roberts has yet to get the word

It's about oil prices soaring as the mirage of U.S. oil independence fades and the realization that ten years of oil supply has been brought forward and consumed in a few years due to over-investment, and is gone forever. Given the implications for the U.S. economy and society a gold price rising to meet the reality of the oil price -- and resulting trade deficit and external debt -- will be the booby prize for us as U.S. citizens.

People are just going to have to deal with it. No more cars or trucks. No more plastic grocery bags. No more stupid BS. They can get off their fat American arses and move for once.

[metalman]

Re: Roberts has yet to get the word

People are just going to have to deal with it. No more cars or trucks. No more plastic grocery bags. No more stupid BS. They can get off their fat American arses and move for once.

ok re plastic grocery bags... how about the other 6000+ items that are made outa oil?
A partial list of products made from Petroleum (144 of 6000 items)

In the U.S. each 42-gallon barrel of oil is used to create 19.4 gallons of gasoline. The rest (over half) is used to make things like:

Solvents	Hair Spray	Motor Oil	Bearing Grease
Ink	Floor Wax	Ballpoint Pens	Football Cleats
Upholstery	Sweaters	Boats	Insecticides
Bicycle Tires	Sports Car Bodies	Nail Polish	Fishing lures
Dresses	Tires	Golf Bags	Perfumes
Cassettes	Dishwasher parts	Tool Boxes	Shoe Polish
Motorcycle Helmet	Caulking	Petroleum Jelly	Transparent Tape
CD Player	Faucet Washers	Antiseptics	Clothesline
Curtains	Food Preservatives	Basketballs	Soap
Vitamin Capsules	Antihistamines	Purses	Shoes
Dashboards	Cortisone	Deodorant	Footballs
Putty	Dyes	Panty Hose	Refrigerant
Percolators	Life Jackets	Rubbing Alcohol	Linings
Skis	TV Cabinets	Shag Rugs	Electrician's Tape
Tool Racks	Car Battery Cases	Epoxy	Paint
Mops	Slacks	Insect Repellent	Oil Filters
Umbrellas	Yarn	Fertilizers	Hair Coloring
Roofing	Toilet Seats	Fishing Rods	Lipstick
Denture Adhesive	Linoleum	Ice Cube Trays	Synthetic Rubber
Speakers	Plastic Wood	Electric Blankets	Glycerin
Tennis Rackets	Rubber Cement	Fishing Boots	Dice
Nylon Rope	Candles	Trash Bags	House Paint
Water Pipes	Hand Lotion	Roller Skates	Surf Boards
Shampoo	Wheels	Paint Rollers	Shower Curtains
Guitar Strings	Luggage	Aspirin	Safety Glasses
Antifreeze	Football Helmets	Awnings	Eyeglasses
Clothes	Toothbrushes	Ice Chests	Footballs
Combs	CD's & DVD's	Paint Brushes	Detergents
Vaporizers	Balloons	Sun Glasses	Tents
Heart Valves	Crayons	Parachutes	Telephones
Enamel	Pillows	Dishes	Cameras
Anesthetics	Artificial Turf	Artificial limbs	Bandages
Dentures	Model Cars	Folding Doors	Hair Curlers
Cold cream	Movie film	Soft Contact lenses	Drinking Cups
Fan Belts	Car Enamel	Shaving Cream	Ammonia
Refrigerators	Golf Balls	Toothpaste	iPhones

[akt]

Re: Roberts has yet to get the word

EJ: "Gold, on the other hand, is the reserve currency that central banks agreed upon as the sole USD currency to hedge the currency risk inherent in holding large USD reserves during the PCO era. This agreement, known as Washington Agreement, allowed global central banks to safely accumulate over 10 trillion in paper USD over the past decade as oil prices doubled then doubled again, while the trade deficit and external debt of said USD emitter, the United States, exploded in no small part due to rapid oil price appreciation (oil trade deficit = oil import unit volume * unit price) although financial system corruption and crisis played into it as well. Central banks counted on steady USD gold price appreciation in line with USD oil price increases and the resulting USD reserves accumulation (the USD is the only major "parallel" currency used among nations for trade) to maintain a USD/gold reserve ratio proportionate to the value of oil imports against current account for importers and against capital account for oil exporters. Sales by the UK and other central banks in the early days of PCO in the late 1990s threatened the system. In response, the Washington Agreement was forged. It resulted from undisclosed negotiations to limit sales and support the Gold/Oil Reserves Ratio system at least insofar as major western central banks were no longer to be instrumental in the devaluation of a reserve asset that they need to hedge USD risk as oil prices rise and USD accumulate on reserve accounts of central banks."



Brilliant and priceless as usual.

Yours is the only analysis that really gets to the bottom of the driving processes. I can see the flailing around in all the other websites coming at the happenings from their ideological bent of mind rather than facts that have withstood the test of time.

Thank you for sharing your invaluable research with us.

[don]

Re: Roberts has yet to get the word

Whew, thought I might have to post PCR forever. Thanks boss . . . .

[BadJuju]

Re: Roberts has yet to get the word

In the U.S. each 42-gallon barrel of oil is used to create 19.4 gallons of gasoline. The rest (over half) is used to make things like:

About 30 gallons of a 42-gallon barrel goes towards transportation fuels in the USA, actually. A lot of those things could be made from other other things.

Here's a good list and a graphic of oil usage! http://alternativeenergy.procon.org/...ourceID=001797

[vinoveri]

Re: Roberts has yet to get the word

Gold, on the other hand, is the reserve currency that central banks agreed upon as the sole USD currency to hedge the currency risk inherent in holding large USD reserves during the PCO era. This agreement, known as Washington Agreement, allowed global central banks to safely accumulate over 10 trillion in paper USD over the past decade as oil prices doubled then doubled again, while the trade deficit and external debt of said USD emitter, the United States, exploded in no small part due to rapid oil price appreciation (oil trade deficit = oil import unit volume * unit price) although financial system corruption and crisis played into it as well. Central banks counted on steady USD gold price appreciation in line with USD oil price increases and the resulting USD reserves accumulation (the USD is the only major "parallel" currency used among nations for trade) to maintain a USD/gold reserve ratio proportionate to the value of oil imports against current account for importers and against capital account for oil exporters. Sales by the UK and other central banks in the early days of PCO in the late 1990s threatened the system. In response, the Washington Agreement was forged. It resulted from undisclosed negotiations to limit sales and support the Gold/Oil Reserves Ratio system at least insofar as major western central banks were no longer to be instrumental in the devaluation of a reserve asset that they need to hedge USD risk as oil prices rise and USD accumulate on reserve accounts of central banks.


If my explanation sounds complicated that's because it is. In my next article to be published early next week I explain it in plain English as best I can.

.

How does the global and coordinated money creation by CBs play into this? Are you suggesting that this is irrelevant to the overall picture of the gold/oil price correlation, i.e., to the extent it will generate commodity inflation, that will be simply reflected by the correlation? Money printing does not appear to be creating commodity inflation at present, but rather equity and real estate appreciation, which provides the "wealth effect" and maintains consumption; So to hedge steady inflation in the service economy (health care, education, etc) does it not make sense to recognize the bubbles in asset markets currently underway and to participate in them - since it appears that gold will not save us, but only allow us to maintain our purchasing power wrt oil and derivatives therefrom (grant this is a lot, but not raw land, art, and the aforementioned services)?
You have mentioned that silver is not relevant to this system since it is not held by CBs. Do you view it as having any monetary/currency role or as simple another commodity? Historically it appears to have a correlation with price of gold, so there appears to be a correlation notwithstanding it not being held by CBs. This relationship and the fact that governments will be unlikely/unable to prevent its use as local currency (as they can and may with gold) is a reason to hold some Ag as a hedge against currency crisis IMO

[vinoveri]

Re: Roberts has yet to get the word

deleted - duplicate post

[cobben]

Re: Roberts has yet to get the word

Oil-Gold and Other Uncorrelated Trades

BY Howard Simons | 09/20/05


A woman without a man is like a fish without a bicycle." -- Gloria Steinem

Neophyte futures traders in the 1970s were told to trade silver off of soybeans, or vice versa, depending on who was doing the mentoring. Both were seen as representatives of the inflationary scourge then upon the land. You certainly would not hear that today. The paths of the two commodities separated long ago, and for good reason: They are completely unrelated.
The subject of the relationship between crude oil and gold arose during a Columnist Conversation last Friday. I offered a number of reasons for why crude oil and gold should be treated separately. One of the most powerful, surely of interest to market technicians, is the long-term ratio of the spread: Its very history provides the best reasons to ignore it.



Laws of Attraction

The chart below depicts the ratio of the weekly average of cash gold expressed in dollars per ounce to the weekly average of cash West Texas intermediate crude oil expressed in dollars per barrel. The history chart begins with the advent of crude oil futures in 1983; this assures us the underlying prices are the result of market-based decisions. Cash prices are used instead of futures prices to avoid the problems associated with rolling contracts and with the convergence between cash and futures. Weekly averages are used to sidestep the anomalies associated with a single price point.

Source: CRB-Infotech

First, let's stipulate the obvious: The ratio clearly is at the low point in its history. But does this argue for a mean-reverting trading strategy, one in which you buy low and sell high, hoping for a regression to the long-term average, here 16.56? No: Mean-reversion implies a normal state, one defined by an underlying economic relationship such as substitution. Without such an "attractor" or natural state of affairs operating, we should expect to see a spread with strong and persistent trends defined by the price action of the more volatile asset.
This appears to be the case. The long-term trend of this relationship, marked with a trendline, clearly is lower. This confirms the presence of an underlying economic process, in this case a long-term bull market in crude oil, a resource that is consumed and depleted. Indeed, the only interruptions in the long-term trend, such as those in 1986, 1993 and 1998, are produced by price declines in crude oil, not price increases in gold.
Two other components argue against a mean-reverting process here. The first is the requirement for stable variance over time in the spread's history. Briefly, unstable variance indicates either a nonrelationship between the two assets or a different response by the two assets in question to external economic factors. We will see evidence of the latter below.
The next chart depicts a rolling one-year standard deviation of the gold/crude oil ratio divided by its one-year mean using daily cash market data. The rolling one-year time frame was selected to obscure any seasonal effects. The ratio hardly appears stable over time.

Source: CRB-Infotech

Spread Distribution

A second and more esoteric argument is the distribution of the spread's values. A series unconstrained by an economic relationship should not be distributed normally under a familiar bell curve or have the "fat tails" observed in most financial time series, but rather in a flattened, or "platykurtotic," curve. In addition, it should be skewed toward values defined by its more volatile component, in this case crude oil. This distribution is visible in the chart below; the present gold/crude oil ratio is on the extreme left of the chart. The bell curve overlaid on the actual number of distributions is what we should expect if the series is in fact distributed normally.

CHART

Source: CRB-Infotech

No Common Response

Gold, as was noted here in May 2003, generally can be modeled well using only two variables: the relationship between expected inflation and expected short-term interest rates and the strength of the dollar.



If inflationary expectations rise, as they have been in the aftermath of Hurricane Katrina, gold prices should rise unless short-term interest rates rise faster. And, all else held equal, a weaker dollar should mean the price of gold will rise in dollar terms. Modeling the price of crude oil is far more complex; it would be correct to say that everyone who has undertaken the endeavor has either been wrong or refuses to admit defeat. But if crude oil prices were in fact related as much in the financial markets as some claim, we should expect to see common responses in the crude oil market to changes in the dollar and inflationary expectations as we do in the gold market.
If we take the daily returns for both crude oil and gold going back to 1983 and make them a function of the daily returns on the dollar index, we see the expected response for gold: a strongly negative coefficient of -.489. The corresponding coefficient for crude oil is statistically indistinguishable from zero, a weakly negative -.0085. Like Lucy Ricardo, proponents of commonality have some "splainin'" to do.

Source: CRB-Infotech

What about inflationary expectations as measured by the TIPS market? Here the answer is a little counterintuitive: The returns on crude oil are more strongly related to returns on inflation expectations than are the returns on gold. But the difference is readily explained: TIPS measure changes in the consumer price index, and refined products are part of the CPI. Gold is not part of the CPI. Neither market has a strong dependency on inflation expectations.

Source: Bloomberg

Will these demonstrable nonrelationships change the mental connections between oil and gold? Not a chance; this is an error so powerfully ingrained in the human mind that no set of facts can dislodge it. As Marc Chandler pointed out in the Columnist Conversation thread, a Google search of "oil + gold" produced 23.7 million responses in less than 15 seconds. By way of comparison, a search of "Paris Hilton" produced 12.7 million responses in less than 0.11 seconds. There's hope yet.

[cobben]

Re: Roberts has yet to get the word

Gold, Crude Oil Correlation of Returns Is Collapsing
By Howard Simons AUG 17, 2011


Expect the relative returns of gold to exceed those of crude oil if global economic growth remains tepid and the propensity to keep the printing presses rolling remains.

There is an old saying in the oil business, “Oil is found in men’s minds.” This is not related to Calouste Gulbenkian’s famous, “Oil partnerships are greasy,” but rather a tribute to the innovative thinking that goes on today and is giving us both crude oil and natural gas production out of previously uneconomic shale formations.

In a similar vein, and without the benefit of new energy sources, correlation is found in traders’ minds. I addressed the non-relationship between crude oil and gold back in May 2010 (see Gold and Crude Oft Misconstrued), but the Earth stayed in its orbit after publication and traders persisted in linking the two markets.

The extreme market volatility of last week knocked crude oil down hard because -- and traders know this to be a fact despite not a single scintilla of evidence supporting it -- West Texas Intermediate crude oil for delivery in September fell for than 17% from the end of August by early last week. That is correct; stocks fall and the short-term supply/demand balance of next-month deliveries shifts 17%. Gold shot higher over the same period for the very solid fundamental reason no one could be sure whether paper money meant anything anymore given the proclivities of governments around the world to print first and ask questions later.

The net result is the correlation of returns between the Dow Jones-UBS crude oil and gold total return indices entered negative territory last week. This is not as unusual as some might think; it had been negative back in May 2009 and it was negative for long stretches during the late 1990s.



Given gold’s status as a superior good and its high income elasticity of demand in parts of the world and crude oil’s negative price elasticity of demand, we have every reason to expect the relative returns of gold to exceed those of crude oil if global economic growth remains tepid and the propensity to keep the printing presses rolling remains.

This can be illustrated by mapping the relative returns for the crude oil and gold indices as a function of the preceding three months’ returns on the Russell 3000 index and the current level of TIPS breakevens. Crude oil outperformance is depicted in blue; gold outperformance in white. The last datum used in highlighted in red, with an arrow drawn to the current value.



We are in a zone of prospective gold outperformance now. It would take a decline in TIPS breakevens or a move higher in the stock market to start pushing us back to crude oil outperformance. Of course, after the volatility seen last week, all predictions have to be taken with a very large grain of salt.

[Fiat Currency]

Re: Roberts has yet to get the word

... a Google search of "oil + gold" produced 23.7 million responses in less than 15 seconds. By way of comparison, a search of "Paris Hilton" produced 12.7 million responses in less than 0.11 seconds. There's hope yet.

Strange way to end an article. My Google search for Kim Kardashian produced 285 million responses in 0.18 seconds. So Paris Hilton must be the old "it" girl ... and the hope cited is an illusion.