When writing this article, gold has closed at $1,060 per ounce, on the back of four consecutive weeks of gains. Many pundits have declared that gold is in a bubble that is about to burst and that because the recession has been declared ‘as over’ that there is no reason to hold such a safe-haven asset anymore. At Hollingsworth, we strongly disagree and see very strong opportunities in the years ahead for the precious metal for the following reasons.
Firstly, gold is a unique substance. It is about the only thing on the planet that is bought and stored and never consumed. Almost all the gold ever mined still exists above ground. The purpose of gold is to act as a store of wealth. This singularity of gold makes it susceptible to a scam that was first perpetrated by goldsmiths in the 16th century. The goldsmiths realized that customers would buy gold and leave it for safekeeping in their vault. This meant that they could show the same gold bar to many customers and sell it many times over.
This scam is at the centre of modern gold market manipulation. Paper substitutes for gold are sold, instead of real gold, through derivatives, futures, exchange-traded funds, gold certificates, etc. It is estimated that each ounce of gold has been effectively sold 20 times over or more. To maintain this Ponzi scheme, some real gold is required, because some investors or jewellers demand to take possession of real gold. For the scam to be sustained there must always be plentiful physical gold for those who want it.
This physical supply has been met from mine supply and central bank leasing and selling. The market is in effect a giant inverted pyramid with a huge paper gold market being supported above a small amount of physical gold at the tip of the inverted pyramid. The scam can continue until there are indications of a shortage of physical gold. If the 20 or so claimants of each ounce of real gold demand their gold, there is the potential for a squeeze such as never been seen before.
The price discovery of gold has been achieved almost exclusively through the shuffling of paper gold promises between investors and bullion banks on the New York Commodities Exchange with very little real gold ever changing hands. But the situation is changing. Some big entities are now demanding physical gold. These include countries such as China, Russia, India, Iran and the Gulf States. This demand for real gold, instead of paper substitutes, is now putting a strain on the gold market. It is suggested that Germany has asked that its sovereign gold held by the New York Federal Reserve Bank be returned to Germany. Hong Kong has requested the same of the Bank of England, which stores Hong Kong's gold.
The supply that feeds the bottom of the inverted pyramid to support the gold price suppression via a paper market is now drying up. Mine supply has been declining for almost a decade and this year, central banks became net buyers of gold for the first time in 20 years. The stress in the physical market is starting to show to those who are paying attention.
What is important is that the world's stockpile of 140,000 tonnes of gold may have been sold several times over. In all likelihood half of the supposed 30,000 tonnes of central bank stockpiles have been sold at least 20 times over. The gold short position could well be 300,000 tonnes (15,000 times 20) against a total world inventory of only 140,000 tonnes, much of which is not available to the market.
Could there be a more bullish scenario for gold? Whilst there may be a short term pull back from the $1,000 + level, it is very possible that we could see gold going above $1,500 in the next year. Regular readers of my column will recall my recommendation back in March to buy gold when it was $940 – 13 per cent below what it is today !
(Source/Research : Gold Anti-Trust Action Committee)
Firstly, gold is a unique substance. It is about the only thing on the planet that is bought and stored and never consumed. Almost all the gold ever mined still exists above ground. The purpose of gold is to act as a store of wealth. This singularity of gold makes it susceptible to a scam that was first perpetrated by goldsmiths in the 16th century. The goldsmiths realized that customers would buy gold and leave it for safekeeping in their vault. This meant that they could show the same gold bar to many customers and sell it many times over.
This scam is at the centre of modern gold market manipulation. Paper substitutes for gold are sold, instead of real gold, through derivatives, futures, exchange-traded funds, gold certificates, etc. It is estimated that each ounce of gold has been effectively sold 20 times over or more. To maintain this Ponzi scheme, some real gold is required, because some investors or jewellers demand to take possession of real gold. For the scam to be sustained there must always be plentiful physical gold for those who want it.
This physical supply has been met from mine supply and central bank leasing and selling. The market is in effect a giant inverted pyramid with a huge paper gold market being supported above a small amount of physical gold at the tip of the inverted pyramid. The scam can continue until there are indications of a shortage of physical gold. If the 20 or so claimants of each ounce of real gold demand their gold, there is the potential for a squeeze such as never been seen before.
The price discovery of gold has been achieved almost exclusively through the shuffling of paper gold promises between investors and bullion banks on the New York Commodities Exchange with very little real gold ever changing hands. But the situation is changing. Some big entities are now demanding physical gold. These include countries such as China, Russia, India, Iran and the Gulf States. This demand for real gold, instead of paper substitutes, is now putting a strain on the gold market. It is suggested that Germany has asked that its sovereign gold held by the New York Federal Reserve Bank be returned to Germany. Hong Kong has requested the same of the Bank of England, which stores Hong Kong's gold.
The supply that feeds the bottom of the inverted pyramid to support the gold price suppression via a paper market is now drying up. Mine supply has been declining for almost a decade and this year, central banks became net buyers of gold for the first time in 20 years. The stress in the physical market is starting to show to those who are paying attention.
What is important is that the world's stockpile of 140,000 tonnes of gold may have been sold several times over. In all likelihood half of the supposed 30,000 tonnes of central bank stockpiles have been sold at least 20 times over. The gold short position could well be 300,000 tonnes (15,000 times 20) against a total world inventory of only 140,000 tonnes, much of which is not available to the market.
Could there be a more bullish scenario for gold? Whilst there may be a short term pull back from the $1,000 + level, it is very possible that we could see gold going above $1,500 in the next year. Regular readers of my column will recall my recommendation back in March to buy gold when it was $940 – 13 per cent below what it is today !
(Source/Research : Gold Anti-Trust Action Committee)
Mark Hollingsworth, Director, Hollingsworth International Financial Services Ltd
Telephone in Malta: +356 99842614, +356 21316298
Telephone in Cyprus: +357 99066840
Telephone in Malta: +356 99842614, +356 21316298
Telephone in Cyprus: +357 99066840
e-mail: info@hollingsworth-int.com; Website: http://www.hollingsworth.eu.com/
Authorised by the Malta Financial Services Authority to provide investment services, license IS/32457
Mark - "as good as gold" has never been truer. But how to invest in the stuff without incurring hefty charges?
ReplyDeleteDavid C