V O T E D T H E W O R L D ’ S B E S T I N V E S T M E N T A D V I S O RY
November 27, 2009 Vol. 41, No. 21
Financial front: the
Four Horsemen are riding
T
he gold market the U.S. dollar is forcibly evidence concerning gold-market flects growing concern that the
has become propped up, and stocks, manipulation is both repetitive gold being held on the behalf of
more fascinat- commodities and pre- and compelling and should be others in both the U.S. and Eng-
ing by the day as cious metals are taken addressed forthwith. land might not all be there.
we move through the fall downwith the express Fortunately, it may not have to A recent study by Paul
season. In mid-October purpose of getting a sol- come to that because the physical Mylchreest of Thunder Road, a
gold surged to new all id bid into the bond gold market may be in the process consultancy in London, lends
time highs approaching market on the eve of the of overwhelming the chicanery in credence to this concern. In his
US$1070 an ounce de- John Embry auctions. As preposter- the paper-gold market, thus mak- report, he examined the gold
spite a massive buildup in ous as this sounds, it is ing it less relevant. There have turnover on the London Bullion
short positions by the commer- unfortunately a reality. The great been numerous developments Market Association, by far the
cials (bullion banks, etc.) on the news, in this instance, was that, recently that suggest the physical world’s largest gold-trading ex-
Comex and widespread, main- within a week of this travesty, markets are getting increasingly change, and concluded that the
stream commentary that it was gold was away to the races again, tight. Indian ex-duty premiums staggering volume transacted
overpriced and in a bubble phase. posting new highs in the wake of have held up remarkably well in raised serious questions about
Nothing could be further from the a stunning Indian purchase of the face of the recent, sharp price how many paper claims there
truth, but the failing currency mar- 203 tonnes of IMF gold. rise in gold, indicating that Indian were on each London Good De-
kets require the dissemination of However, what I find particu- demand remains firm despite the livery bar.
considerable disinformation on larly objectionable is the blatant higher price. This is somewhat An even more fascinating story
gold to keep the public in line. manipulation of the gold price unusual in that Indian demand making the rounds in the upper
In the face of another option prior to option expiries. In my traditionally takes time to adjust echelons of the gold business
expiry, gold was then subjected to mind, under any reasonable in- to a higher price level. However, claims that at the end of Septem-
its usual vertiginous drop with the terpretation of the law concern- the Indians are now in competi- ber, a number of well-heeled in-
price being driven down nearly ing market interference or re- tion with the Chinese for the vestors in London with a large po-
$30 an ounce in less than 24 hours straint of trade, it should be seen shrinking amount of physical sition on the LBMA called for phys-
early in the last week of October. as highly illegal. gold available and, thus, they can ical delivery. Their counterparties,
Ostensibly, this was caused by Legitimate call-option holders no longer afford to be as circum- which apparently included J.P.
dollar strength, but the true ex- are essentially being defrauded by spect. Similarly, the premiums to Morgan Chase, could not deliver
planation was another bear raid big banks as the gold price is in- import gold into the increasingly and offered a huge premium for
related to the option expiry and tentionally driven down to ensure important market in Vietnam cash settlement. The investors re-
the approach of yet another mas- that the options expire out of the have dramatically widened, sug- fused and demanded physical,
sive U.S. Treasury auction. money. The Commodities Fu- gesting that demand in all of Asia which sent the bullion banks, hat
I believe that it is absolutely tures Trading Commission bears is on the rise. in hand, to their central-bank con-
essential that investors realize the responsibility for monitoring Of perhaps greater import, freres to get actual gold bars in or-
that the U.S. government is be- the Comex, but I feel it has been there are strong rumors that the der to make delivery.
coming ever more panic stricken derelict it its duties by ignoring a Germans have requested that the The tightness in the physical
as its financial condition deterio- battery of complaints on the issue gold held for their account in the market in London was further
rates. Its fear of a failed auction by aggrieved investors. In reality, U.S. be repatriated, while Hong confirmed by one of London’s
(in spite of the Fed buying a sig- how does this differ from the Kong has announced that it is go- largest gold traders who has re-
nificant amount of the bonds) is SEC.ís SEC’s failure to seriously ing to have its own depository cently picked up two major new
now so ingrained that it feels the investigate Bernie Madoff despite near the airport to hold Asian American accounts with a vora-
need to aggressively groom mar- 10 years of well-documented gold, thus removing it from the cious appetite for physical gold.
kets to create the impression that complaints from Harry increasingly suspect London He apparently is having consider-
all is well in the debt world. Ergo, Markopolous. In my opinion, the market. In both instances, this re- able difficulty obtaining the gold
and observed that physical gold is our financial leaders in the west- “There is no means of avoid- this time are occurring in the fi-
becoming extremely hard to ac- ern world who are enthusiastical- ing a final collapse of a boom nancial and commodity markets.
quire in size. ly promoting and aggressively im- brought about by credit expan- The real economy continues to
It is my strong feeling that a plementing quantitative easing in sion. The alternative is only stagnate and, if left to its own de-
dramatic inflexion point in the an attempt to sustain an obvious- whether the crisis should come vices, would undoubtedly im-
gold market is rapidly approach- ly failed system and to bail out sooner as the result of a volun- plode. Thus, the suggestion of
ing and it will reflect the growing their banking cronies. They would tary abandonment of further any serious attempt to remove
realization by investors that hold include the atavistic Lawrence credit expansion, or later as a fi- the excessive monetary and fiscal
substantial amounts of paper- Summers, President Obama’s nal and total catastrophe of the stimulus currently in effect seems
gold vehicles that they may not economic guru and a key figure in currency system.” bogus to me.
actually have the protection they the gold-suppression scheme, the I have always believed in the
think they have. A flood out of extremely naive Fed chairman, immutable economic law which
paper gold into physical will ob- Ben Bernanke; the truly feckless Any serious attempt to postulates that what goes before
viously increase the demand for U.S. Treasury Secretary, Timothy withdraw the stimulus at dictates what comes afterward.
the latter dramatically and Geithner and Bernanke’s British We experienced the most abusive
should have a very salutary im- equivalent, the hapless Mervyn
this point will trigger a credit cycle in history, fuelled by
pact on the price. King, head of the Bank of Eng- deflationary depression former Fed chairman Alan
Switching themes, it has now land. To be fair to the latter, he and a continuation of the Greenspan’s wildly expansionary
been 85 years since the renowned has partially redeemed himself in current policies will put us monetary policy, which created
U.S. sportswriter Grantland Rice my eyes by recently calling for a firmly on the road to serial bubbles and amplified by
penned what is arguably the most breakup of the largest British hyperinflation. the creation of unfathomable
compelling lead in the history of banks, a move that drew a frosty quantities of unregulated OTC
American sports. Following Notre response from British Prime Min- derivatives that increased lever-
Dame’s stirring football upset of a ister Gordon Brown. I’m on the Mr. Bernanke and his fellow age to ridiculous levels. The whole
vaunted Army side, Rice opened side of anybody opposing Brown, travellers have clearly chosen the exercise was then masked by a
his account of the game with the who is the true villain in the second option, and as a result, the continuing litany of doctored eco-
following classic: British saga and one of the strong probability is that we will nomic statistics in order to con-
“Outlined against a blue-grey world’s great hypocrites. ultimately see the worst of all ceal the true state of affairs.
October sky, the Four Horsemen There is absolutely no doubt worlds, hyperinflationary mone- As a result, should there really
rode again. In dramatic lore, their in my mind that what these gen- tary conditions in conjunction be any wonder that we are now
names are Death, Destruction, tlemen are trying to engineer is with very depressed economic ac- confronted with a situation that
Pestilence and Famine. But those going to end in an utter debacle. tivity. The Fed chairman fore- appears to have no reasonable
are only aliases. Their real names Any serious attempt to withdraw shadowed all of this with his infa- outcome? I continue to believe
are Stuhldreher, Crowley, Miller the stimulus at this point will trig- mous speech some seven years that gold and silver remain the
and Leyden. They formed the ger a deflationary depression and ago in which he claimed that he preferred refuges in what I sus-
crest of the South Bend cyclone a continuation of the current poli- could combat deflation by the use pect is going to remain an ex-
before which another fighting cies will put us firmly on the road of a printing press or, if need be, tremely difficult financial and
Army team was swept over the to hyperinflation. by dropping money from heli- economic environment for the
precipice at the Polo Grounds this The futility of this was foreseen copters to sustain demand. The foreseeable future.
afternoon.” in the middle of the last century by whole concept was ludicrous at
In my opinion, the current the father of Austrian economics, the time and remains so today. John Embry is chief investment
equivalent of the mythical Four the brilliant Ludwig Von Mises, In reality, the only significant strategist at Sprott Asset
Horsemen of the Apocalypse are who correctly observed that: recoveries in the western world at Management.
© Copyright 2009 by MPL Communications Inc., Reproduced by permission of Investor's Digest of Canada, 133 Richmond St. W., Toronto, ON M5H 3M8