Golden prices from falling
supply By The Mogambo Guru
From the newsletter of Swiss Asia Capital
(Singapore), the message in "The Gold Market"
section is contained in the headline, "Buy", which
is self-explanatory to those of us paying
attention.
Then they put up a chart of the
inflation-adjusted gold price that they got from
shadowstats.com, and gold is, right now, in
January 2008, at the same real
(inflation-adjusted) price as it was in 1971! Talk
about holding its value! Wow!
As I recall,
in 1971 gold was still less than $40 an ounce,
too, just before Nixon severed the last of the
convertibility of dollars into gold. "So," you
might ask, "isn't gold at $900 an ounce today
about right?"
Wrong!
In fact, the newsletter says, "Using today's CPI
basket, the inflation adjusted high is US$2,200
per ounce of gold. Applying the pre-Clinton CPI
basket, the inflation adjusted high is US$5,000
per ounce."
The more suspicious of us
wonder, "Oh, yeah? Who says so, and why should I
believe you when I don't believe anything anybody
says, like when the doctor tells you that 'this
may be a little uncomfortable' and it hurts like
hell, which is not even in the same damned LEAGUE
as 'uncomfortable', but then when you helpfully
inform the moron doctor of that, he gets all bent
out of shape and loses all of his supposed bedside
manner, which I also tell him makes him look like
the sadistic medical quack he is!"
Well,
fortunately, we don't have to wonder any longer,
as the rise in the price of gold is almost
guaranteed by the unstoppable supply/demand
dynamic, as the demand will soar as people always
rush to buy gold when economic crises like this
come around, but now supply will be falling, as
they report that "Barrick believes that global
gold production will decline 15% in the coming 5
years. Peru, the 5th largest gold mining country,
has reported a 28% year-on-year fall in gold
production as well as 11.4% y-o-y fall in silver
production. South Africa experienced a 40%,
Australia a 10% and America a 20% fall in
production."
Ergo, the price of gold must
equilibrate lower supply versus higher demand at a
higher price! To those who own gold, or plan to
own gold before things get kicked into high gear,
this means, "Wheee! Now I will be rich enough to
pack my stuff and get the hell out of this sleepy
little burg, out to someplace where the right to
make creepy, lewd suggestions to cute Hollywood
starlets is still in the constitution!"
And it gets even better, as they go on
that, "increased outstanding derivatives are
pointing to manipulation". They report that the
evidence is that, "The lease rate in gold has
hardly moved above 3/8%, whilst the silver lease
rate was during some days negative last month,
despite a large increase in outstanding
contracts."
Since I have no idea what this
means, I continued reading, hoping to have it made
clear, or maybe somebody would stop by my desk and
I could ask them what it means, and then (in
perfect karma-leveling reciprocity) I would let
them ask me a question in return that they have
been wanting to ask me (eg, "Have you been
stealing food out of our lunches again, you
thieving little bastard?").
Fortunately,
this was not needed, as the article clears it up
with, "The present outstanding contracts are
backed by less and less available physical
ounces." Again, I'm not sure what he is driving
at, but apparently silver has disappeared from
commodity warehouses or something. Then it becomes
a little more clear when he says, "Despite recent
market volatility, contracts have not been reduced
and are pointing to significant pressures on the
short side."
Aha! As a guy who has been on
the wrong side of a short squeeze more times than
was heretofore thought statistically possible, as
market insiders and specialists ganged up on me
and screwed me every freaking chance they got, it
is nice to finally be on the right side of a
coming squeeze!
Now, if my family life and
career were not such total disasters, life could
be sweet again! And if silver goes up enough, then
who would care about my career or family? Not me!
Wheee!
But that, alas, is then, and this
is now. Ugh.
Richard Daughty is
general partner and COO for Smith Consultant
Group, serving the financial and medical
communities, and the editor of The Mogambo Guru
economic newsletter - an avocational exercise to
heap disrespect on those who desperately deserve
it.
Republished with permission from The Daily Reckoning.
Copyright 2008, The Daily
Reckoning.
Head
Office: Unit B, 16/F, Li Dong Building, No. 9 Li Yuen Street East,
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