The Goldwatcher

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Eric Sprott and the IMF:

Well known for the fierce case he makes against reckless central bank money printing Eric Sprott is one of the world’s most successful gold fund managers and investors.

When Sprott offered to buy gold directly from the IMF recently he encountered a rebuff. Commentators touted the rebuff as proof of something sinister in the declared gold holdings of the IMF or its members. A direct enquiry to the IMF yesterday made by an unemotional journalist has cleared the air.  Here is his report:  

‘We spoke with Alistair Thomson of the IMF and he clearly explained his reasonings behind not being able to sell Mr. Sprott gold.  Among them:

• The IFM only goes through a specific broker.
• It only sells gold to sovereigns.
• Thus, Sprott’s desire to purchase IMF gold did not comply with ‘protocol’. 

The sting appears be out of charges suggesting the IMF was engaged in a cover up.  But Sprott’s warnings on the money printing outcomes are alarming.  Two of his recent articles  ‘Is It All a Ponzi Scheme’ and ‘Dead Government Walking’ pull  no punches. Many readers will find the conclusions unthinkable.

Unintended revelations at a CFTC Hearing:

Commentators in the gold community suggested market manipulation again at a March 25th meeting of the US Commodities and Futures Trading Comission concerning precious metals. Surprisingly the most telling revelation at the meeting  came from an ambiguous comment by Jeffrey Christian, one of the world’s foremost authorities on markets for precious metals.

In a nutshell, in response to a question on multiple gold trades based on London Bullion Market Association (LBMA) physical stocks,  he declared: ‘People say, and you heard it today, there is not that much physical metal out there, and there isn’t. But in the “physical market,” as the market uses that term, there is much more metal than that. There is a hundred times what there is.’ This is a link to a video of the testimony and this article gives a useful account of the CFTC meeting, Jeffrey Christian’s revelation and its implications. 

You should be on your guard if you own gold via an Exchange Traded Fund or other custodial or paper structure.  Imagine the consequences if anything goes wrong when you have been holding gold as a physical store of value to protect against risks associated with paper assets and you find you have an asset that’s 99% paper and 1% real.  Like the worthless  fraudulent securitized debt securities that tipped the world economy into the mire a few years ago -  but with your Government now broke and unable to bale you out!  

Is gold poised to spike?

 

Chart courtesy Kitco www.kitco.com 

While The Goldwatcher book was never intended as a source for gold price prediction, assessing a reasonable price for gold,  based on supply and demand fundamentals,  is key to the analytical framework outlined in Chapters 1 to 9, this blog and the following recent postings: 

September 8th 2009: $1000 Gold - Here to stay or here to play? 

November 5th 2009 : Are Goldrush Prices Making Sense?

December 18th 2009 : Gold : Motivation & Strategy (Investors Chronicle Article)

January 4th 2010:  Gold: Afghanistan and Obama’s multi trillion $ ‘naughties’ legacy

January 12th 2010 : Gold Prices, a Weak $ and a Strong China

The above chart reflects the gold price settling down over the months since the ‘Are Goldrush Prices Making Sense’ blog was posted.  Technical analysts are now pointing to signs of a breakout  - well supported by increased gold holdings in Exchange Traded Funds and with central bank support.

There may be an innocent explanation for Mr. Christian’s remark: ’But in the “physical market,” as the market uses that term….there is a hundred times what there is.’ But I have not seen him, the LBMA, the World Gold Council or any responsible custodian in the gold industry come forward with the explanation. 

A gold price spike won’t come as a surprise to me unless I have seen a satisfactory explanation on what he meant. And, if and when an explanation comes, keep these two points in mind. First  the case for holding gold as insurance against the unthinkable is compelling. Second Eric Sprott’s track record as a forecaster is formidable. It would be dumb to dismiss his warnings as a sprott of bother. 

Opinions and advice:

Readers, particluarly those who have not yet read The Goldwatcher,  are reminded that this blog is not an advisory service. Opinions expressed are not intended as investment advice and should not be treated or used as investment advice