Post by damageinc on May 15, 2007 22:33:03 GMT -5
THE BATTLE FOR $700
by James Turk
We have a battle on our hands. It's the Battle for $700, and it is just
the latest clash in a long war being fought between gold and its
perennial
antagonist - the gold cartel.
I feel like an old soldier, having already endured so many of these
battles. They happen because gold is undervalued, which means that it
is
being exchanged for dollars at too cheap a price. So gold tries to
correct
this imbalance in a normal market response by climbing higher, but is
prevented from doing so by the gold cartel. It is these confrontations
that have led to the recurring battles.
I think we can learn from these head-to-head clashes. There are lessons
from the past that can be disheartening at times like this when gold
gets
repeatedly repelled from $700. It is important to recognize that every
time gold and the cartel have battled in the past, gold eventually won.
For example, back in March 2001, I wrote the following about the Battle
for $272:
"Open interest on Comex calls in the last few days has risen by 16,000
contracts. That's 1.6 million ounces, or nearly 50 tonnes. Who would be
willing to take the risk of selling these calls with gold so cheap?
Probably the same central banks who have been manipulating the price.
They
are still trying to keep the gold price under their thumb. Will they
succeed yet again? There's the rub. No one knows. The markets may be
getting ready to 'throw away the key', but maybe not. While we know
that
gold is unbelievably cheap and eventually going higher, we just don't
know
when.
"Watch the $272 level. Gold probed that level today, but backed off,
though still closed up over $5 on the day. If $272 is hurdled, the long
awaited rally may be finally underway. And it also may be the rally in
which those who have been manipulating the gold price are finally
forced
to throw in the towel, just as they were forced to do so the last time
the
price of gold was being manipulated, which was in 1971."
Gold eventually broke through the lines the gold cartel had mobilized
at
$272, and climbed higher. But the gold cartel staged a retreat, and
eventually we got the War for $325. So significant was $325 that I
wrote
the following in March 2002
"If you are old enough to remember when President Nixon closed the
'Gold
Window' on August 15, 1971, you have an advantage over those who did
not
experience that event and the subsequent rise in the gold price. We are
at, I believe. a similar moment in time. Maybe we are only at the
equivalent of January 1971, or perhaps as close as August 1, 1971. We
just
don't know for sure how close we are to the launch date, but the
important
point is that the launch date is indeed coming."
It took another 6 months, but $325 was indeed hurdled, on December 6,
2002. So important was that battle that I continued to write about $325
for months. For example, I penned the following in February 2003:
"For the past six years of this 20-plus-year consolidation, gold traded
under $325. During this period gold moved out from weak hands into the
strong hands that were accumulating it at those bargain basement
levels.
To make that base even more convincing and technically significant, we
had
a selling climax in the middle of that base when gold was dumped after
the
Bank of England announcement, causing it to reach a low of $252 in July
1999. As the BoE began its dishoarding, those who recognized that gold
was
undervalued (us included) were buying while the BoE was selling.
"Then with the breakout above $325, gold's base was firmly in place.
This
base defines the bottom in gold. Time will tell of course, but I don't
think we'll ever see those prices again. Just as gold never looked back
when it started its final break away from $35 in the early 1970's, gold
is
again not looking back. $325, $330, $340 and probably even $350 - those
prices are history and won't be seen again. Again, only time will tell,
but my scenario from here is quite clear.
"Because gold is moving higher from such historically undervalued
levels
and because so many people have been left standing on the platform when
the gold-train started pulling away from the station with the break
above
$325, it is onward and upward for gold from here."
And so it was. But then came the battles for $420, $450, $500, and
since
last May, we have been fighting the Battle for $700. Gold will win this
time too, but again, we are frustrated and irritated that there is even
a
battle at all.
Who is the gold cartel? And what are they trying to accomplish? The
gold
cartel is an alliance of governments and a few bullion banks. This
group
is led by the U.S. government. Though their aims are different, their
congruent interests put them on the same side. Here's what they are
trying
to do.
The US government wants the US dollar to continue as the world's
reserve
currency. But the dollar is no longer worthy of holding this privileged
position. It is not sound money that can be used reliably in
international
commerce. It is being inflated and debased, which are actions that
erode
its usefulness as currency. It is also being used as a political tool,
which again makes it unreliable money for cross-border commerce.
So the US government has a problem. Gold has always held the position
of
international money, and currencies only became reserve currencies
because
they were "as good as gold", which is what the dollar used to be. Now,
however, gold and the dollar are competitors, with the result that a
rising gold price shows how badly the dollar is being managed. This
reality decreases the demand for the dollar, making it more difficult
for
it to remain unchallenged as the world's reserve currency.
Consequently, the US government wants a low gold price to make the
dollar
look good. Its strategists believe that a low gold price will make
people
think the dollar is being well managed, which obviously is a necessary
precondition for anyone to continue using it. After all, if people
truly
understood how vulnerable the dollar is to a collapse, the demand for
the
dollar would decline even more rapidly than it is already declining.
Most other governments within the US orbit work toward the same
objective.
Though they may be envious of the dollar's privileged position, in the
end
they accept it because these other governments are also fiat money
advocates. By keeping the dollar-monetary system functioning, they can
also perpetuate the myth of fiat money by creating their own currencies
'out of thin air', thereby enabling these governments to do what all
governments want, namely, to use newly created fiat currency to
preserve
their own position of privilege and power.
Their aims are clear, but governments don't directly trade in the gold
market. They enlist the help of the bullion banks, but not all of them
of
course, just the 2 or 3 largest ones in order to keep the cabal as
small
as possible. After all, the bullion banks stand to make fortunes by
working with the government, and they obviously don't want to spread
this
profit around needlessly to other banks that are not needed in the
price
manipulation scheme.
The bullion banks make money in two ways. First, they earn the
contango.
In other words, by being short at all times, they earn the interest
income
available from gold. It works like this.
Because gold is money, its future contracts always trade at a higher
price
than the spot price. This is called contango, and is the opposite of
every
other commodity. Because they are not money, other commodities trade in
backwardation, meaning their future contracts always trade below the
spot
price, except in abnormal circumstances, for example, where supply is
disrupted by an unforeseen event.
So by being short the contango, bullion banks are always selling gold
for
future delivery above the spot price. If the spot price is unchanged or
lower when those future commitments come due, the bullion banks make
money
on the difference between the price at which they sold and the spot
price
on the due date. But if the spot price is higher, they lose money, so
clearly the bullion banks do not want a rising gold price.
The second way bullion banks make money is by what I call "picking the
market's pockets". There are a number of ways they do this. For
example,
because they execute the government's trades, they know when large
amounts
of gold are going to be dumped into the market as part of the gold's
cabal's price manipulation scheme. So the bullion banks "front run"
those
trades by selling first, and then profit from the price slide that
occurs
when the big government order is dumped on the market. So in essence
the
bullion banks are strapping on a feed-bag by working with the
government.
It can be discouraging when viewing this state of affairs. However, we
should instead focus on the important parts, which are that gold is in
a
bull market that is now more than six years old and that
notwithstanding
this fact, gold remains undervalued. Or to put it another way, the
dollar
is overvalued.
Sell the dollar and buy gold because the Battle for $700 will end the
same
way the other battles have ended; gold will win the battle. The gold
cartel is losing the war. In the end, the market is bigger than the
government.
Regards,
James Turk
for The Daily Reckoning
;D The smiley face in the middle is me, the two with the sun glasses on are my body guards. CUZ I'M SOOOO RICH$$$ CUZ I GOT BLING!! PEACE!!
by James Turk
We have a battle on our hands. It's the Battle for $700, and it is just
the latest clash in a long war being fought between gold and its
perennial
antagonist - the gold cartel.
I feel like an old soldier, having already endured so many of these
battles. They happen because gold is undervalued, which means that it
is
being exchanged for dollars at too cheap a price. So gold tries to
correct
this imbalance in a normal market response by climbing higher, but is
prevented from doing so by the gold cartel. It is these confrontations
that have led to the recurring battles.
I think we can learn from these head-to-head clashes. There are lessons
from the past that can be disheartening at times like this when gold
gets
repeatedly repelled from $700. It is important to recognize that every
time gold and the cartel have battled in the past, gold eventually won.
For example, back in March 2001, I wrote the following about the Battle
for $272:
"Open interest on Comex calls in the last few days has risen by 16,000
contracts. That's 1.6 million ounces, or nearly 50 tonnes. Who would be
willing to take the risk of selling these calls with gold so cheap?
Probably the same central banks who have been manipulating the price.
They
are still trying to keep the gold price under their thumb. Will they
succeed yet again? There's the rub. No one knows. The markets may be
getting ready to 'throw away the key', but maybe not. While we know
that
gold is unbelievably cheap and eventually going higher, we just don't
know
when.
"Watch the $272 level. Gold probed that level today, but backed off,
though still closed up over $5 on the day. If $272 is hurdled, the long
awaited rally may be finally underway. And it also may be the rally in
which those who have been manipulating the gold price are finally
forced
to throw in the towel, just as they were forced to do so the last time
the
price of gold was being manipulated, which was in 1971."
Gold eventually broke through the lines the gold cartel had mobilized
at
$272, and climbed higher. But the gold cartel staged a retreat, and
eventually we got the War for $325. So significant was $325 that I
wrote
the following in March 2002
"If you are old enough to remember when President Nixon closed the
'Gold
Window' on August 15, 1971, you have an advantage over those who did
not
experience that event and the subsequent rise in the gold price. We are
at, I believe. a similar moment in time. Maybe we are only at the
equivalent of January 1971, or perhaps as close as August 1, 1971. We
just
don't know for sure how close we are to the launch date, but the
important
point is that the launch date is indeed coming."
It took another 6 months, but $325 was indeed hurdled, on December 6,
2002. So important was that battle that I continued to write about $325
for months. For example, I penned the following in February 2003:
"For the past six years of this 20-plus-year consolidation, gold traded
under $325. During this period gold moved out from weak hands into the
strong hands that were accumulating it at those bargain basement
levels.
To make that base even more convincing and technically significant, we
had
a selling climax in the middle of that base when gold was dumped after
the
Bank of England announcement, causing it to reach a low of $252 in July
1999. As the BoE began its dishoarding, those who recognized that gold
was
undervalued (us included) were buying while the BoE was selling.
"Then with the breakout above $325, gold's base was firmly in place.
This
base defines the bottom in gold. Time will tell of course, but I don't
think we'll ever see those prices again. Just as gold never looked back
when it started its final break away from $35 in the early 1970's, gold
is
again not looking back. $325, $330, $340 and probably even $350 - those
prices are history and won't be seen again. Again, only time will tell,
but my scenario from here is quite clear.
"Because gold is moving higher from such historically undervalued
levels
and because so many people have been left standing on the platform when
the gold-train started pulling away from the station with the break
above
$325, it is onward and upward for gold from here."
And so it was. But then came the battles for $420, $450, $500, and
since
last May, we have been fighting the Battle for $700. Gold will win this
time too, but again, we are frustrated and irritated that there is even
a
battle at all.
Who is the gold cartel? And what are they trying to accomplish? The
gold
cartel is an alliance of governments and a few bullion banks. This
group
is led by the U.S. government. Though their aims are different, their
congruent interests put them on the same side. Here's what they are
trying
to do.
The US government wants the US dollar to continue as the world's
reserve
currency. But the dollar is no longer worthy of holding this privileged
position. It is not sound money that can be used reliably in
international
commerce. It is being inflated and debased, which are actions that
erode
its usefulness as currency. It is also being used as a political tool,
which again makes it unreliable money for cross-border commerce.
So the US government has a problem. Gold has always held the position
of
international money, and currencies only became reserve currencies
because
they were "as good as gold", which is what the dollar used to be. Now,
however, gold and the dollar are competitors, with the result that a
rising gold price shows how badly the dollar is being managed. This
reality decreases the demand for the dollar, making it more difficult
for
it to remain unchallenged as the world's reserve currency.
Consequently, the US government wants a low gold price to make the
dollar
look good. Its strategists believe that a low gold price will make
people
think the dollar is being well managed, which obviously is a necessary
precondition for anyone to continue using it. After all, if people
truly
understood how vulnerable the dollar is to a collapse, the demand for
the
dollar would decline even more rapidly than it is already declining.
Most other governments within the US orbit work toward the same
objective.
Though they may be envious of the dollar's privileged position, in the
end
they accept it because these other governments are also fiat money
advocates. By keeping the dollar-monetary system functioning, they can
also perpetuate the myth of fiat money by creating their own currencies
'out of thin air', thereby enabling these governments to do what all
governments want, namely, to use newly created fiat currency to
preserve
their own position of privilege and power.
Their aims are clear, but governments don't directly trade in the gold
market. They enlist the help of the bullion banks, but not all of them
of
course, just the 2 or 3 largest ones in order to keep the cabal as
small
as possible. After all, the bullion banks stand to make fortunes by
working with the government, and they obviously don't want to spread
this
profit around needlessly to other banks that are not needed in the
price
manipulation scheme.
The bullion banks make money in two ways. First, they earn the
contango.
In other words, by being short at all times, they earn the interest
income
available from gold. It works like this.
Because gold is money, its future contracts always trade at a higher
price
than the spot price. This is called contango, and is the opposite of
every
other commodity. Because they are not money, other commodities trade in
backwardation, meaning their future contracts always trade below the
spot
price, except in abnormal circumstances, for example, where supply is
disrupted by an unforeseen event.
So by being short the contango, bullion banks are always selling gold
for
future delivery above the spot price. If the spot price is unchanged or
lower when those future commitments come due, the bullion banks make
money
on the difference between the price at which they sold and the spot
price
on the due date. But if the spot price is higher, they lose money, so
clearly the bullion banks do not want a rising gold price.
The second way bullion banks make money is by what I call "picking the
market's pockets". There are a number of ways they do this. For
example,
because they execute the government's trades, they know when large
amounts
of gold are going to be dumped into the market as part of the gold's
cabal's price manipulation scheme. So the bullion banks "front run"
those
trades by selling first, and then profit from the price slide that
occurs
when the big government order is dumped on the market. So in essence
the
bullion banks are strapping on a feed-bag by working with the
government.
It can be discouraging when viewing this state of affairs. However, we
should instead focus on the important parts, which are that gold is in
a
bull market that is now more than six years old and that
notwithstanding
this fact, gold remains undervalued. Or to put it another way, the
dollar
is overvalued.
Sell the dollar and buy gold because the Battle for $700 will end the
same
way the other battles have ended; gold will win the battle. The gold
cartel is losing the war. In the end, the market is bigger than the
government.
Regards,
James Turk
for The Daily Reckoning
;D The smiley face in the middle is me, the two with the sun glasses on are my body guards. CUZ I'M SOOOO RICH$$$ CUZ I GOT BLING!! PEACE!!
