Consolidation Over? Is Gold at the Turning Point?


"I do get the feeling in my bones that the yellow metal’s flat performance of the past 15 months or so may be coming to an end–not in a collapse, but in an upwards surge."

turning point gold
Maybe I'm reading too much into the latest utterances on likely gold price performance this year and going forward but I do get the feeling in my bones that the yellow metal's flat performance of the past 15 months or so may be coming to an end – not in a collapse, but in an upwards surge.

There do seem to be some fundamental moves which could suggest a bit of a sea change in sentiment towards precious metals, and gold in particular.

The first of these is the German decision to repatriate half its gold, from vaults in the U.S. and France, over the next seven year. Now while the Bundesbank seems to deem this a satisfactory programme, the German in the street must be asking why can this not be achieved this year, or this month even.

Alright, there are security issues in transporting this amount of gold, but given that one can transport a big army unit, together with all its equipment including tanks and artillery – hardly small items- to a global flashpoint in a matter of days, why should it take so long to transport a mere 300 tonnes of the metal from New York?

No explanation from the Bundesbank, or the Fed can possibly alleviate the suspicion, long expressed by organisations like GATA, that all the German gold is not, at this time, actually available to be moved.

Back to the logistics of moving the gold. The Boeing 747-8F freighter, of which a number are in service with commercial operators, can carry a payload of 140 tonnes over a 4,000 mile plus range so the gold from the Fed, and more, could be delivered by air comfortably in three plane loads which really does beg the question why seven years? Something the Bundesbank may well be called upon to answer by the German people.

When Venezuela took possession of its 160 tonnes of gold from the Bank of England a year ago, the process was achieved inside two months, but then perhaps the Bank of England's gold is seen as more easily available than the Fed's which may be why the Bundesbank is not repatriating any of the around 440 tonnes it holds in London, (although reports have suggested that Germany did pull over 900 tonnes of its gold out of the UK in 2000/2001 at the time that then Chancellor, Gordon Brown, was selling half the UK's own gold at the bottom of the market.)

But it's not so much the German move on its own which may partly set the scene for gold over the next year or so, but the mutterings that other countries may well do the same. If this does start to happen it will demonstrate that the world's Central Banks may just not be trusting each other to actually hold what they say they hold. The suspicion is that the gold has been loaned to the bullion banks, who have in turn sold it on, and while the bullion banks are liable to return the gold to the Central Banks this may not be something they can do except over an extended period of time. And if they are having to do this, the scramble for physical metal on the markets is bound to affect the price positively.

And, exacerbating all of this is the continued purchase of gold by other Central Banks, particularly in Asia and the Middle East, that are worried about the degradation of the main global currencies through Quantitative Easing programmes.

According to specialist consultancy GFMS, Central Banks purchased a cumulative 536 tonnes of gold last year – and these are the banks which are, supposedly at least, transparent in reporting their purchases. There are others which many feel are building up their own gold holdings but not reporting the increases - the finger is primarily pointed at China on this - and if correct the increase in Central Bank holdings may be well above the GFMS estimate.

Now, if some Central Banks are buying gold, and others insisting on repatriation of their own gold holdings, the investment world should at least start taking notice and perhaps follow suit in terms of the buying part of this at least.

Why then has gold not already started its major move from its current consolidation position? The answer appears to be dastardly dealings on COMEX in particular where the pattern of price movements demonstrates big take-downs in the gold price every time it appears to be gaining again. Even London's Financial Times is at last recognising that indeed the gold price may be being manipulated by central banks and their big financial institution allies. Why? Purely to prevent gold taking off to new highs.

Gold has a particular perception in the eyes of a significant sector of the financial world in that it represents stability, and a rapidly rising gold price is a sign of severe global economic difficulties. Those who buy gold as an investment, or just as financial insurance, recognise that we are already in such a period with most Western nations having built up massive accumulated debts which the debtors have no way of repaying except perhaps by inflating themselves out of the problem, with all the instability that would bring.

The general public prefers to let things slide by burying their collective heads in the sand. The people may not have confidence in their governments - they don't even want to recognise the problem even exists except where perhaps it impacts on them directly (unemployment, higher taxes, reduced benefits etc.) and the majority of the middle class would seem to prefer to grin and bear it rather than take action to protect their futures. That would be recognition that the problem exists and they don't want to believe that. It's all about perception.

But gradually this perception is beginning to change. In the U.S. the regular battles over raising the debt ceiling between Republicans and Democrats and continuing high levels of unemployment, and an unacceptable level of poverty in such a rich society, will gradually be impinging on the general public's consciousness.

In Europe, enormously high unemployment levels, particularly among the under-24s, is already taking its toll and austerity measures imposed in many countries are only serving to exacerbate this problem and bring home the seriousness of the overall economic situation. Japan has been stuck in an economic quagmire for over a decade.

These problems can't go on, and increase even, without eventually those who have any wealth left recognising that the same problems are heading their way and those with any financial nous at all will be seeking some way of protecting themselves and their families against ever increasing decline.

Gold and silver will ever more play a part in their thoughts and eventually the flood of investment into precious metals will overcome any attempts by the powers that be to control the price.

Gold's latest upwards price move, as the U.S. public is once again presented with figures showing that everything in the garden is not rosy, despite politicians' ever present attempts to try and reassure them that the economy is at last picking up, has pushed the gold price back above its 200-day moving average.

Whether this will prove to be the trigger for another growth surge remains to be seen. But the day has to be approaching when the public belatedly cottons on to politicians' deviousness and statistical manipulations and gold and silver prices will surge as more as more people recognise that investment in entities which have stood the test of time is the best way of protecting whatever wealth they may have left.

Lawrence Williams

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