By James Corbett
We've been watching carefully over the past few months as gold has been hammered down from it's $1700 trading range of last fall down to as low as $1200 at the end of June. Many a gallon of printer's ink (and even more of the digital equivalent) has been spilled mulling over this trend and speculating on where gold is heading from here. Many of the gold bears have used this as an opportunity to crow about the end of the bull market. After 13 years of steadily rising prices, these traders are loudly proclaiming that the gold “bubble” has popped and the market is returning back to pre-2009 sub-$1000 levels. The goldbugs, on the other hand, are trying to rally the troops, bracing them for potential setbacks along the way, but reminding them that gold always wins in the end versus fiat currencies.
But perhaps the real question is not what the traders are thinking, but what the banksters are doing. As always, we have to fall back on the old dictum: watch what they're doing, not what they're saying. In previous appearances on Radio Liberty with Dr. Stan Monteith I've talked about how the world's central banks continue adding gold to their vaults at a blistering pace. Data released in May showed that in the first quarter of the year, even as gold entered its bear market, central banks added over 100 tonnes of the shiny yellow metal to their holdings for the seventh straight quarter in a row. This is on top of the fact that in 2012 central banks around the world bought the most gold of any year since 1964. Clearly the central banks know something about the long-term value of precious metals that the talking heads don't feel like sharing with the average investor.
Now a new piece of the golden puzzle falls into place. Last fall the US banks were net short gold by an extraordinary 106,000 contracts (40,625 gross long and 146,809 gross short). But now the gold bear market has helped them to cover those positions and switch long. From the stunningly net short positions of last fall, the latest Bank Participation Report shows that US banks have switched to a combined net long position of 45,000 contracts (69,565 gross long and 24,939 gross short). Once again, the question has to be asked: are these Fed insider banks and bullion bank manipulators off their rockers, or do they know something that we don't? Because it is hard to look at these figures without concluding that we are due for a gold market rally the likes of which have not been seen in a long time.
This is just one more data point in a much bigger puzzle. One of the most intriguing pieces of this puzzle fell into place last week when 6800 ounces of gold were withdrawn from JP Morgan's vault at 1 Chase Manhattan Plaza (the largest private gold vault in the world, conveniently located across the street from the New York Fed), sending the vault's gold inventory to a record low. Also of interest, earlier this month Brink's saw nearly one quarter of its entire holdings (133,000 ounces) quietly withdrawn overnight. Where on earth is this gold going?
The answer is almost certainly eastward. Physical demand for gold remains strong in India and especially in China. The numbers coming in from the Shanghai Gold Exchange are staggering. If year-to-date gold delivery figures were annualized, fully one-half of global gold mine production would be passing through the SGE this year. This on top of figures showing that Chinese gold imports for 2013 are up year-on-year from 2012 despite whatever is happening to the manipulated spot price.
Literally every signal from the banksters themselves show that not only is physical gold still a good investment, it is THE investment to have at the moment. Whether the market turns around this quarter, next quarter, or next year, it seems the banks are positioned for one heck of a rocket ride upward. It's never a bad idea to follow the smart money.