 Centennial Precious Metals Gold coins & bullion since 1973 Denver, Colorado 80246-0009 We educate first-time investors! |
for quotes and purchase information.
|
ARCHIVED DISCUSSION FROM 12/30/1998
All times are U.S. Mountain Time
Critical Mass
(12/30/98; 22:52:13MDT - Msg ID:1559)
ET
Some very good points. I, too, am hopeful that utilities will function properly within the US. In other countries, however, it is highly doubtful, and Y2K problems there could certainly have a very big impact here (in an indirect, as opposed to a direct, way).
Credit cards may or may not work properly (depending on the power grid and telecommunications grid being used) We should also consider the unexpected (and unexplainable) effect on gas pumps across the country which suddenly stopped working when a satelite for pagers malfunctioned) I believe we can be hopful regarding our utilities. If they do go offline they will certainly be given the highest priority to get them corrected. If credit cards do function properly for everyone, everywhere in the US, it could certainly be an excellent event to propel us toward a "cashless society."
Consider, though, that even if ALL the Y2K bugs are fixed (which won't be the case), many testing proceedures are being ignored so time can be spent on "fixing" more code. This has some experts predicting Y2A (aftermath) in which there will be new problems CAUSED by the very Y2K fixes themselves which won't be identified until actually in use.
The bigger concern, as I see it, is not what may or may not work properly come Y2K (not to suggest this isn't important because it is VERY important) but, rather, how people will REACT as the clock ticks ever closer to 00. Will people be willing to risk their savings to an electronic account which may or may not work properly after Y2K or will they be tempted to withdraw them (be it all or a portion thereof) and keep them close at hand? And, should there be mass withdrawls, what effect could THAT have on the US economy, the global economy, the stock market and house prices (equity) regardless of what pain the Y2K bugs actually deliver.
Consider, too, that many of "our" banks in the US are international comglomorates. Problems in other countries, including panic withdrawls there, could have a negative impact on the availability of cash in the US. Other countries are considerably less prepared than the US because they aren't taking the threat seriously (and because we are paying big bucks to import their computer programmers to solve OUR Y2K problems).
Consider, too, that there are both software and hardware problems. There are numerous different computer languages that need to be rewritten (and many of these languages are no longer used or written in). There are computer chips embedded with the Y2K bug that also must be identified, removed and replaced. And all of this is very time consuming and laborous. It's not something Bill Gates can fix.
Consider, also, that computer programmers themselves are the largest segment buying remote "vacation" property, drilling water wells, learning how to use guns and wood burning stoves. If the experts are this concerned about the problem, I think it's safe to assume we should be at the very least somewhat concerned.
Will some things of importance get fixed? Yes, I believe so.
Will all things of importance get fixed? I rather doubt it.
Will there be unexpected, unpredicted problems arrising out of human nature? I think this is a very real threat -- a self fulfilling prophacy, potentially more dangerous than the Y2k bug itself.
Will there be unexpected, unpredicted problems arrising from Y2K bugs and / or Y2A? I believe the answer is "yes."
The good news? Only 370 days till we all get to find out.
Submitted again for your comments and consideration.
Critical Mass
bmacd
(12/30/98; 20:35:49MDT - Msg ID:1558)
STEVEH-Alan Greenspan Manipulating the Gold Market
Well, absolutely, there's no doubt that this market is manipulated. As a goldbug and investor I (along with many others) have found this frustrating and infuriating. At times , I've often felt like giving up, figuring, like the article said, that the manipulation can go on a long long time. Then I shake my head, and realize that at some point the manipualtion will cease to work to keep the price of gold down. As the article clearly states, many countries, are openly buying the yellow metal, and so certainly absorbing any market surplus. Posts from USA Gold will tell us all that demand for gold coins is way up. This only tells me that at some point, manipulated or not, supply and demand will take over. My wish (and if I sound a little vengeful, so be it) is that demand kicks into the gold price, well before all of these ridiculous short positions are covered, and the time to pay the piper arrives so to speak. Smart a man as Alan Greenspan is, he can't control everything and everybody.
USAGOLD
(12/30/98; 19:27:04MDT - Msg ID:1557)
Critical Mass....
I wanted to thank you for your most recent post. I too worry about Y2K and reaching critical mass. It is extemely difficult to sort out what's most important in terms of preparation. Perhaps we can find our way together by posting what we learn here at the FORUM. My best to you and your family for a happy, prosperous and prepared 1999.
USAGOLD
(12/30/98; 18:30:45MDT - Msg ID:1556)
Tom Rose.......
Tom Rose's highly important essay on the Asian Flu and whether its impact on the U.S. economy will be inflationary or deflationary is up at the Gilded Opinion now. It can also be accessed through the Daily Report page. This question has been one of sometimes heated debate in financial/economic circles. Professor Rose combines a strong Christian ethic with Austrian School economic principles to offer one of the better insights into the Asian problem that I have seen. I know you are going to be challenged by his essay. A sample:
"Readers should be aware of this official duplicity and act accordingly, that is, to accumulate gold and silver as a means of protecting their savings from being debauched by the official money manipulators. This is a prudent precautionary measure to take because it is very likely that the combined collusive efforts of the central banks and involved governments to stop the "Asian flu" from impacting Western economies will fail. If so, green cash will be king; but gold and silver bullion will even overrule "king cash" as a haven of safety."
ET
(12/30/98; 16:10:37MDT - Msg ID:1555)
Critical Mass
Thanks for your post. I've been studying the y2k problem for several years. I'd like to tell you and others my opinions concerning this issue.
You mentioned some problems In Lubbock, TX, when they tested their systems. They found many problems but the point is they tested their systems. Those same systems are now being repaired and I have no reason to believe they will not be successful. Where I live, they tested the electric generation plant and found no problems. They rolled the dates forward and it kept putting out electricity. Utilities are testing their systems as we write and any problems are being addressed. My point is this; in my view, by the time we get to 2000, the y2k utilities issue should be a non-issue. I've always found it difficult to believe that the people who work in this industry will suddenly lose their ability to successfully perform their job. That is why they test. There could still be some problems that they miss, but in general, I would expect most customers will not notice any difference in the delivery of electricity, natural gas, water and sewer, etc. Now whether they can bill you correctly for these services is another question.
I further expect to have a dialtone when 2000 comes. This is based on evidence from those in the telecommunications industry who have and still are testing their systems. Again, some problems will be missed, but overall, a high level of service can probably be expected.
Given what I said, y2k is still a very serious issue. It will have economic impacts and coupled with the other issues you mentioned will not help the situation. We are experiencing a deflation and y2k has deflationary aspects to it. I'm convinced things are going to change quite a bit and I'm at a loss to predict any outcomes. But with change comes opportunity. Some planning now could go a long way in the near future for those looking to take advantage of the coming changes.
As far as yanking money out of the bank, I don't think this will matter. I expect my debit/credit cards will work for the most part, just like they do today. The banks have quite a vested interest in making sure transactions can be processed and I don't expect many failures in this area either. What is at issue is the purchasing power of this money but I don't see big y2k problems affecting the ability for individuals to conduct general commerce.
I have made some plans in case I'm personally affected by these problems but I consider it a form of insurance. I don't expect to have to use much of this insurance, but it is prudent to make whatever preparations one deems necessary based on the situation at hand. Much of what I've read over the last few years has been opinion. There has been until very recently very little in the way of facts. However, after the first of 1999, you will likely get a taste of what the rollover will be like for many businesses as their systems start to look forward a year. If we don't see major problems, I would expect the rollover to be something of a non event compared to some of the predictions. If we do see major problems in the next few months, then you will have some facts in which to work.
In any event, I consider the other issues you mentioned to be of greater concern than y2k at this time. My opinion is subject to change given some facts.
ET
Critical Mass
(12/30/98; 14:33:13MDT - Msg ID:1554)
Y2K -- disaster looms even if the bug doesn't bite
We're only 5 days from the Euro's first business day.
370 days remain until the switch from (19)99 to (20)00
We can begin to feel momentum picking up like a mild breeze off the Atlantic. Unlike the rest of the beach goers, however, there's something about this breeze we find unsettling. Something that tells us it's time we make plans to take cover because a storm of biblical proportions is fast approaching.
There are 4 different "storm fronts" which threaten the stability of the US and global economy. Much has been written by others about the introduction of the Euro and how it can unseat the US dollar as the reserve currency of choice. We'll begin to get a good idea of the Euro's impact over the next few months.
Another storm front, the "asian contagion," many would contend, has already hit US shores. This is a slow, unrelentless rain. Not too dramatic. But the type that causes mudslides, eroding our economic foundation. Cheap asian goods flooding into the US market make it more difficult for US companies to make a profit which causes US companies to lay off employees, causing a reduction in spending and further deflationary pressures. There have already been almost 650,000 layoffs anounced this year as a result of corporations having to adjust to no longer being ablt to sell to the Pacific rim and having to compete with foreign goods being sold in the US at firesale prices -- this number is greater than in 1993 when "downsizing" became a buzz word.
A third storm front is represented by the overvalued stock market which, by any sane person's perspective, in complete denial of reality. Internet stocks trade at incredible levels, even though most have never posted a profit, all because speculators move in one direction. Is this really a running of the bulls (or a running of the lemmings). The stock market bubble continues to inflate and it won't be a pretty sight when it goes "pop" (or Ka-BOOM).
The final storm front, the so-called Y2K bug, is an amazingly unpredictable wild card. There's been much already written in the forum about the above, but very little about Y2K, probably because there is so much info available in the mainstream media. I want to touch on some ideas which I believe you'll find, at the very least, interesting.
The first point I want to make is -- Y2K is a very grave threat to the US and world economies even if NOTHING breaks down directly due computer failures. Why? Because of the panic that will begin to set in as time continues marching into the great tripple 0 abyss.
According to an AOL poll, approximately 20% of those polled intend to remove one weeks paycheck from their account just before Jan 1. Another 24% plans to remove a months worth of income just prior to Jan 1. 20% plan to remove ALL THEIR MONEY prior to Jan 1. The remaining 36% are the optimists who will watch the storm coming in and run into the surf with their surfboards only never to be seen again. Consider the impact of this number of withdrawls prior to Jan 1! The Fed has.
The US treasury is in the process of printing $50 billion to have on hand for those who make withdrawls prior to Jan 1. Based on the above percentages -- this won't be enough. Imagine the effects of bank "holidays" and failures on the general public. The percentages from the AOL poll could quickly swell, causing too much stress on a relatively weak banking system. Weak in the sense that less than 10% of deposits is required by the Fed to be kept onhand for withdrawl. (This means if you withdraw $10,000, there's another $90,000 of deposits that is unavailable because the bank invested it.)
There will be a much smaller percentage of bank customers who will pull their money out early, in an attempt to avoid the banking chaos which is likely to occur in late 99. This means stress on the banking sector is likely to become obvious before the end of December, 99 -- possibly as early as October/November. What effect might this have on consumer spending, on the stock market and on businesses?
A report is supposed to be issued soon regarding the safety rating of various countries based on Y2K preparedness. Many economists are concerned that poor ratings among "emerging markets" (sounds so much better than "third world countries" doesn't it?) will again cause massive capital flight. What effect might this have on the stock market?
There are some interesting things likely to occur as Jan 1 2000 approaches. There are already some advisory committees recommending consumers fill up their gas tanks just before the new millenium because gas pumps are computer controlled and may not function come Jan 1. The likely result? Anyone remember the gas lines from the 70's oil crisis? Think BIGGER.
And to make matters that much better, the Year 2000 Panel in congress is recommending a Y2K Watch, similar to a tornado watch, to begin 17 hours before the US time change hits. This will truely be an amazing thing to experience. Basically, what they are proposing is reporting to the US public what is happening in other countries which have gone through the time change before us. This is when the gail winds of the storm will become obvious. Imagine watching on the news as black outs and other computer related failures are reported -- for 17 hours before it hits HERE! Reassuring? Hardly. The likely result -- complete and utter chaos before the ball falls on time square.
And this could all happen BEFORE Y2K.
Our country, indeed the world, has become so computer dependent there is no way to truely prepare for massive computer failure. The US is, by far, the most prepared of all countries for Y2K. Only 25% of government systems are expected to crash during the date change. But consider that many countries haven't even begun to take Y2K seriously yet. Germany receives 40% of its power from Russia? What effect might this have on world markets and the introduction of the Euro?
Consider, too, if US citizens withdraw all their bank accounts, what will their cash actually be worth if the Euro introduction does survive Y2K?
Consider what would happen to the prices of stocks if there is no longer a stock market where you can trade them.
Consider what would happen to the prices of automobiles if there was no gasoline available to run them and their owners needed food! (And no one was buying them). What effect would this have on auto makers and those employed by them?
Consider what would happen to the prices of realestate. People without money won't be able to pay their mortgages and they won't be able to eat their houses. People without money wiould rather have food than shelter (which would eventually be taken away from them anyway). And there will be few people who will have funds to actually buy real estate with. Consider what effect this might have on banks which would no longer hold depositors money, only a nice portfolio of real estate.
This will truly be one of the most amazing times in the history of modern civilization.
And it's only 370 days away.
Believe it or not, I don't consider myself an alarmist. However, I would much rather err on the side of caution in this situation. At the risk of sounding like a survivalist you may want to consider the following
-- begin assembling your food reserves.
-- If you have a gun make sure it works and you have ammo. If you don't have a gun, get one (I just received my concealed and carry permit yesterday). People are likely to become pretty ugly if these situations do present themselves. The "have nots" won't be too friendly to the "haves."
-- Consider stockpiling gasoline. It's been proven the pumps won't work in a Y2K test in Lubok TX.
--Get yourself a propane gas grill so you'll be guaranteed to be able to cook your food and water.
-- Begin a plan to withdraw your funds well in advance of the masses and make sure you have a secure location for them. Consider what effect it will have on crime when many people will have their lifes savings in a place considerably less protected than the banks which used to hold them.
-- Trade dollars for silver junk coins and pre-1933 gold coins. You may not get this chance again after Y2K. There could be significant deflation caused by Y2K which could create great buying opportunities for those with dollars, but this may be short lived, too, and prices could go in the opposite direction for food and gasoline -- be prepared for both scenerios.
As the four storm fronts converge over the course of the next 370 days, momentum will continue untill it reaches critical mass -- at which point you'll either be prepared -- or you won't.
For your consideration and comments.
Critical Mass
SteveH
(12/30/98; 08:41:31MDT - Msg ID:1553)
Feb gold now 289.00!
yawsah!
SteveH
(12/30/98; 08:37:45MDT - Msg ID:1552)
Feb gold moving higher...now $288.70...
This is good, as was TYOUNG's post.
TYoung
(12/30/98; 08:08:33MDT - Msg ID:1551)
Another...hmmmmmm
A re-post of my re-post. We shall see if gold is brought into the $320-$360 range for the Euro and if Another and FOA are absent for reasons unknown or for reasons of not wanting to face unanswerable questions. This is not meant to be negative. Just a reminder that the next few weeks hold answers to many THOUGHTS.
We wait and watch....Another, tis time to return to either praise or...well...questions. Hope you are well and life is kind.
************************************************************
Date: Sat Apr 25 1998 22:55
ANOTHER (THOUGHTS!) ID#60253:
Copyright © 1998 ANOTHER/Kitco Inc. All rights reserved
Mr TYoung:
Please read and consider this thinking person, as many do read your thoughts!
One must take this thought into consideration when deciding weather to hold dollars or the Euro. "The United States Government does not hold any reserves against it's currency". Truly, this can only be the case of the world reserve money. Indeed, all other currencies have reserves of US$ to back them, yet only the dollar has nothing! Yes, the USA does hold many billions in foreign exchange, to use in the defense of maintaining exchange rates against the dollar. However, these holdings are not reserves.
When the US government does not take in enough taxes to meet expenses, it sells treasury debt to make up the difference. When no one bids for this debt at an "acceptable" interest rate, the Federal Reserve bank buys the debt, outright! It gives printed cash to Washington and then, "holds the new treasury debt ( bond ) as backing for the issued cash!
Everyone understands the implications of this. Or do they? In reality, when the US government needs money, it doesn't sell debt! It "TRANSFERS" the obligation of it's citizens to pay future real production ( taxes ) as a "backing" for it's newly printed currency! As this process has been going on for decades, it has built up a debt of "real production payments" that it's citizens can never pay. Further, as the world reserve, this currency is held thru proxy "by every single person on this planet" that uses paper to trade anything!
It is true, that in times past when a currency is inflated ( over printed ) to a point of only 10% real gold backing, the government could revalue gold 90% upward and the currency was 100% backed again! A terrible blow to the holders of this paper, but at least the money system survived! Today, the worlds currency, the US$, by default, would require a gold price of many, many thousands to back it without using it's citizens as collateral! The only problem with this is the US gold stock is so small, that even at $10,000/oz, a large deflation would be necessary to decrease the outstanding US currency to this gold backing level!
Now, consider the Euro. It will have much real gold backing from the beginning. Even at 10% to 30%, the Euro will be the equivalent of a 100% gold backed dollar, when the world comes off the dollar standard! The selling of old dollar reserves, alone will reprice gold in US$ terms of at least $6,000/oz! It's present interbank reserve value.
Read the BONN report again:
""BT 1 APR 1998 BONN
Buba seen transferring gold to new Euro central bank
THE Bundesbank, which must provide about one-third of reserves of the new European Central Bank ( ECB ) , may decide to transfer most of its share in gold, providing a windfall for the German budget, analysts said.
Such a move would raise public confidence by backing the new currency with gold, and would support gold prices by reassuring investors the Bundesbank won't sell excess reserves on the market, an analyst said.
In addition, the transfer would be recorded at market prices, whereas the gold is now valued at less than one-third its market value. That would mean a multibillion-mark paper gain the government could book against debt.
"It would be a neat move," said Alison Cottrell, economist at PaineWebber International in London. "There's the psychology factor of the ECB holding gold, the government would benefit from a revaluation and it should, at the very least, put a floor under the gold price."
The European Central Bank will go into operation on Jan 1, the same day the euro becomes the currency for an expected 11 nations. Germany, because it's the European Union's largest economy and most populous country, will have to provide about one-third of the 50 billion Ecus ( S$86.5 billion ) the new bank will need in its role to set monetary policy.
The Bundesbank, Europe's largest holder of gold, has around 95 million ounces, valued on its books at 13.7 billion marks ( S$11.9 billion ) . The market value is about 55 billion marks.
A Bundesbank spokesman wouldn't comment on what the central bank's plans are, saying that won't happen until the member states for monetary union are named and the members of the European Central Bank are appointed. -- Bloomberg""
Mr. Young,
The German CB will not be selling gold to the new ECB for dollars! This "TRANSFER" will be in terms of "German Mark reserve requirements" that will soon be the "German Euro currency reserves"! Soon, European oil purchases will be made in, partial gold backed Euro's that "in US dollar terms", will be the same as 100% gold backed currency! As Another would say: Gold and oil will never flow in the same direction!
Sir,
you think long and hard on this: in USA , this paper currency, it show not the true wealth of persons assets!
Another
Thank You
************************************************************
Soon we will see what Germany transfers to the ECB for reserves. Interesting!
Tom
SteveH
(12/30/98; 06:01:39MDT - Msg ID:1550)
Feb. gold now $288.20
...and the beat goes on. How 'bout that reprint below on manipulation, definitely a good read?
SteveH
(12/30/98; 00:37:58MDT - Msg ID:1549)
Feb gold now $287.50 working its way from NY dumping...
http://www.iionline.com/tbd/anfdt_frm.asp?ff_id=786
Date: Wed Dec 30 1998 01:45
crazytimes (Well worth a read......) ID#344326:
Copyright © 1998 crazytimes/Kitco Inc. All rights reserved
Is Alan Greenspan Manipulating the Gold Market?
Almost to the day, the second great manipulation of the gold market began 132 years after the first.
On September 24, 1869, a pair of rascals named Jim Fisk and Jay Gould cornered the New York gold market, forcing short sellers to cover at any price. Around the same week of 1998, a man named Alan Greenspan began controlling the price of gold by lending the metal to investment bankers who sold it short each day to keep the market price from rising above $300 a share.
Fisk and Gould were out to make millions squeezing the short sellers. Greenspan's objective is to protect our economy. When the Fed head organized the bailout of the Long Term Capital Management hedge fund, a part of the problem was the fund's surprisingly big short position in gold.
Then it turned out that other hedge funds and institutional speculators were--and many still are--short of 8,000 to as much as 14,000 metric tons of gold, many times annual production. If even a few of these shorts were forced to cover their frantic buying, it would send gold skyrocketing by hundreds of dollars an ounce.
Can we prove this? No. But Fed Chairman Greenspan said that he would control the gold market if he had to. He spelled it out on July 24 in little-noticed testimony before the House Banking Committee. The chairman was trying to downplay the risk that some derivative contracts might produce a squeeze on short sellers.
He explained that there was no danger that the supply of oil to fulfill derivative contracts could be restricted. Then, he added, 'Nor can private counterparts restrict supplies of gold, another commodity whose derivatives are often traded over-the-counter, where central banks stand ready to lease gold in increasing quantities should the price rise.'
You can hardly get clearer than that. We should never have wondered why gold couldn't seem to break through the 300 level. The answer was right there in the Banking Committee hearings. It was buried in pages of boring testimony, but we have missed it. In other words, Greenspan told us two months in advance what the Federal Reserve would do to keep gold from going to the moon.
The market performance of the yellow metal shows clearly that it was controlled in a narrow band from 300 to about 305 from the last week of September--the 132nd anniversary of the 1869 gold corner--to the third week of October. Since then, control has kept gold bouncing from 292 to 300 and back again. And in the last three weeks the selling pressure has created a slight downtrend.
The possibility of manipulation of the gold market first hit us in the spring. We'd been predicting that gold would eventually recover from its long bear market, but every time it rallied the rally was aborted by sales of central bank gold.
It wasn't just the sales themselves that kept gold down, it was the way the central banks sold. Instead of carefully metering out their sales to get the best price and not disturb the market, they carelessly dumped their bullion and usually denied they were doing it.
At first we thought this was deliberate. Eventually we realized it simply reflected the attitude of the present generation of central bank bureaucrats. They hate markets, don't know how to deal with them and don't want to know.
As gold waterfalled down, producers continued to hedge the price of their future output and put further pressure on the market. Gloom reigned. It seemed to some of us that with inflation dead the naysayers might be right and gold was just another commodity. And then, in a move that rarely happens in any market all of the negative factors keeping the yellow metal down seemed to evaporate so abruptly that gold gained an amazing $20-an-ounce in only a couple of trading sessions, a $35 jump from the lows.
It rocketed straight up in a way not seen since the great gold bubble of the early 1980s. Gold rose as far as $315 and then settled back around $308. To traders and portfolio managers the question was: is the move for real or only another fake out?
The spring rally wound up going nowhere. It spent the summer trending down, down, down--until September, when it came back to life again with a sudden runup from its 18-year low of 277.90 to 300 in 10 days of heavy trading.
The buying was enthusiastic enough to shrug off the Czech central bank sale of 31 metric tons of gold thrown at the market right in the face of its upward surge. At the same time, the central bank of Luxembourg said it had sold most of its reserve, perhaps 10 metric tons.
The market ignored both sales. The problem for gold bears was that world currencies and its stock markets were all tanking, banks were reporting huge trading losses and Russia was coming apart.
Why was the barbarous relic moving up? Because people all over the world were beginning to worry whether the money in their pockets and purses was really as sound as all the central bankers claimed.
Without admitting any danger, the European Parliament backed calls for the creation of a 100-Euro gold coin as legal tender once the European Union's single currency becomes widely circulated. Sales of gold coins around the world were surging. U.S. bullion coin demand reached an 11-year high.
There were rumors that an Asian-type International Monetary Fund might be launched based on a gold-backed Japanese Yen. Indian gold demand was 19% higher for the first three quarters of the year over the same period of 1997. Demand for gold was up in Southeast Asia and in South Korea.
None of these factors was crucial; but they indicated that gold was sneaking its way back into fashion. And this was bad news for Greenspan & Company. So, it's reported that Washington got on the horn and asked Asian governments not to be aggressive buyers of the yellow metal while the Fed was trying to engineer a soft landing for the short sellers.
The Swiss government cooperated by asking its Parliament to approve sale of 1,300 metric tons of gold. The lawmakers cooperated but the people will get to vote on it in 2000.
It's reported that the countryside Swiss are not in favor of lessening the strength of the world's hardest currency. Even worse for the Fed, it's rumored that the gold backing of the Euro may be raised from the currently planned 15% to 30-35%. France has strongly pushed for this to make sure that the Euro will be strong enough to rival the dollar.
It's intriguing that half a dozen of the biggest investment banks have issued reports on gold in the past couple of weeks. Bear Stearns weighed in with a handsomely printed 86-pager announcing that precious metals are 'back on the radar screen,' and gold is a 'disappointing metal showing signs of life.'
Chief among the reasons given for this is that there has been less exploration and development, which has reduced supply, mining company costs have been cut, and gold is underowned and underrepresented in investment portfolios. The report also suggests that it may no longer be easy for speculators to lease gold and sell it.
Prudential Securities' study says 'we are warming up to gold' because there is more upside than downside in the next year. It forecasts an average price of $320 an ounce for 1999 compared with $297 this year. The Pru will not be surprised to see short covering rallies as hedge funds unwind their positions. It also notes the possibility that the European Central Bank will increase the percentage of gold in its foreign reserves.
Salomon Smith Barney says it's positive toward the gold sector and expects the metal will breech the $300 an ounce resistance level and average $350 next year as fears of central bank sales subside and short pressure eases.
Morgan Stanley Dean Witter's gold analyst, Douglas M. Cohen, comes down on the bear side of the fence. No crisis seems able to trigger a rise in gold and continued central bank lending are his principal negatives. Indeed, he says that Venezuela, Germany, Portugal, Austria, and Switzerland are new entrants into the gold lending market.
Old friend Bill Murphy, a veteran gold trader, who writes on the metal under the name 'Midas' [www.lemetropolecafe.com] says there's a cabal of investment banks who are leasing and shorting in cooperation with the Fed and others to cap gold at $300 an ounce. e believes that Goldman Sachs is a leader of the group which includes J.P. Morgan. Perhaps that's the reason, says Bill, that Morgan issued a report predicting that the price of gold will fall in early 1999 before steadying up later in the year.
If being negative on gold is an indication of membership in the short selling gang, then Lehman Brothers must be a suspect. A week ago, Lehman issued a flash meeting report titled 'Reiterating our Bearish View of Gold Equities.' In somewhat snotty tones, the report says, 'gold equities continue to discount a significant and sustainable rise in gold prices as if it were inevitable. It isn't.' Lehman maintains its long-term average gold price forecast of $290 an ounce, ending the note by pointing out proudly that this price forecast is 'the lowest on the Street.'
Though there's a ceiling on the price of gold created by Fed-facilitated borrowing and short selling, there appears to be a floor under the metal that keeps its price from collapsing below the $295 area. Each time gold hits the floor, it bounces just a little and then hits the ceiling. We assume that the floor consists of official buying by central banks. Poland and Russia have bought openly; China and Japan are believed to be buying and it's likely there are others. In addition there's growing private demand for gold in Asia as a shield against currency devaluation.
With gold unable to climb, it may seem strange that the gold-oriented mutual funds have recently performed so well. According to CDA/Wiesenberger Editor Stephanie Kendall, the month of September was truly golden for these funds with eight of the top 10 jumping over 50% in total return for the month. The reason: bullion did relatively well during the month and gold equities historically move three times as much as the price of gold. The move can be up or down. For September, Fidelity Select Gold posted a hefty return of 54.93%. But its year-to-date return is a minus 9.1%.
No one knows when gold will trade in a free market. The amount of the metal sold short by speculators is huge and the Fed and its associates may work at the unwinding for some time. And even when all shorts have been covered, the Fed may find itself riding a tiger wondering how to get off without being eaten.
The gold corner in 1869 only lasted days. Fisk and Gould had bribed the brother-in-law of President Grant to use his influence to keep the Treasury from releasing any of its reserves. But, the game was lost when Washington changed its mind and overwhelmed the corner with Federal gold.
We don't see a quick and easy end to the present control.
John Tompkins, a frequent contributor to Reader's Digest and former regional business correspondent for Time
Permission to reprint is hereby granted where the USAGOLD name is cited along with our web address, mailing address and phone number. For electronic reproductions, citing the post heading and the http://www.usagold.com/cpmforum/ website address as the source is sufficient.
|
Centennial Precious Metals Gold coins & bullion since 1973 Denver, Colorado 80246-0009 We educate first-time investors! |
for quotes and purchase information.
|
