Did you experience a slight case of déjà vu today seeing the price soften as the London bullion banking community newly returns from its long-weekend holiday? More to the point, a MTM-minded person can ignore today's trading shenanigans because, more importantly, gold's price remained neatly elevated right through the key year-end revaluation period...
Friday, July 2, 2010... Timing Is Everything:
I'm sure you've all heard it said (usually by puffed-up market players, or especially in old movies featuring that sort of character) "My boy, timing isn't everything... it's the ONLY thing!"
To be sure, timing ISN'T everything, and it most certainly isn't the ONLY thing... but one thing about timing bears saying right here, right now....
Did you notice how gold's little slide yesterday occurred... (hmmmmm... how shall I put this for proper emphasis...) YESTERDAY!!?
I don't mean to say did you notice HOW it occurred, or even so much to emphasize THAT it occurred at all (that's a small matter), but rather, that such an event happened YESTERDAY!
And more precisely to the point, it isn't even so very notable that it happened yesterday (or today, or next week, or even at all) because the very significant fact is that it did NOT happen PRIOR to yesterday!!
"Yesterday", of course, being July 1st, the day AFTER June 30th, a very "special" day in the lives of many young central bankers across the world, when love is in the air and their thoughts turn to unwrapping the presents delivered to them (monthly for some, quarterly for others) on the shoulders of the resolute MTM Giants. After the "snapshots" are taken, who really gives a hoot what happens the day after?
And of course, such volatility quickly shakes loose those outsiders of least conviction, and then the price again moves upward as the giants come around again, picking up crumbs dropped by weak hands, bearing their load, bringing the gift of value...
FOA (06/12/00; 19:48:25MT - usagold.com msg#26)
Put your cards on the table!
The current paper gold world will die (burn) as its value to users erodes, not increases! We have to remember that some 85% (or more) of the long side of our world paper markets will not (perhaps cannot) take delivery of physical gold. If the paper trading price is driven ever lower from new derivative supply, these longs simply "trade out" and take their cash hit. The major banks and players in this arena know this and therefore are not at risk from expanding their positions. Truly, they are only playing behind the real political game today.
Indeed, if the Euro function will ultimately burn the dollar and its paper gold markets and replace it with a physical "free gold" market, then selling paper gold is free money! Right? This is but one segment of the coming currency transition and to date it's progressing right along!
Again, most everyone in the Western Gold bug game is running with the ball in the wrong direction. They are trying to understand just how the Euro zone players are going to get out of our current gold market liabilities when the Euro makes use of the dollar gold market! These same thinkers are looking for some kind of "work out" of our system so its price discovery function will value gold where it should be! My observation from the "Euro Makers" is that one should "forget this notion!" "Nobody" gives a hoot about holding "price discovery" paper contracts as the real thing. Except for those with the real power to trade something for full payment! OIL!
Today, paper gold derivatives are for selling because they will eventually be politically defaulted once their discount to physical drives their value next to nothing.
So who is in danger of being hurt as this unfolds?
That's right, the Western paper gold long! I'm not talking about just the US market! This is about the entire world gold market as we know it today. The real play will be for the ones that get out in front of the move by owning physical.
This stampede out of "paper physical" by the "big boys" will first discount that medium as all the selling comes to play. Then the real buying of physical will ensue. It seems every Gold bug sees only half the trade and has great faith that contract law will favor a short squeeze. Yet, none of them see where it is the long that will be dumping and forcing the discount!
So what did you think of the gold "take down" yesterday? Did July 1st mean anything to you?
Well, if I were a Central Banker who marked my reserve assets to market price (MTM<--MUST READ) like all Central Bankers should...
Then perhaps my quarterly performance "kudos" might reflect my performance. Yes? And then, once the "snapshot" is recorded in the books, it is good for what, another three months?
Ladies and gentlemen, think this through carefully. Because if any of this rings true, then one conclusion we can draw from yesterday's "price action" is that Freegold can't be very far away.
What if yesterday's "dip" was not the result of a coordinated pounding, but from the abrupt and unexpected absence of certain "giant" "longs"?
Why did paper gold hold its own all through June -- at or near its ALL TIME NOMINAL HIGH -- only to drop off a small cliff on July 1st as if one of its main support pillars called in sick for the day?
Were the "commercials" REALLY just waiting to turn the calendar page before pounding the snot out of gold? Or were certain "giant" LONGS propping up PAPER GOLD to book important numbers... on an important day? And if so, what does this imply about the real PHYSICAL prospects for the paper gold market going forward?
As long as the "paper gold" price is imputed widely to all pieces of real physical gold held tightly in vaults, it is fairly important to certain... how shall I say... published reports? Yes?
The timing of yesterday's "attack" on gold is most auspicious for physical gold. Notice I didn't say suspicious, but auspicious!
What do you think about yesterday's gold action? Please tell me in the comments below.
Happy 4th to everyone! Have a great weekend and please be safe and sane!
And from July 7, 2010 5:33 PM:
Eurosystem gold reserves climb by 65.4 billion euros
Jul 7th, 2010 13:30 by RS
In the consolidated financial statement of the Eurosystem released today by the ECB for the week ended Friday July 2nd, the numbers therein capture the latest mark-to-market quarterly revaluation of assets.
With no material transactions by Euro-member central banks during the week, the 65.4 billion euro growth in gold reserves was solely delivered on account of the Eurosystem’s MTM architecture, bringing their total gold reserves to a new record high at €352.092 billion, up from €266.9 billion at the start of the year.
By comparison, the Eurosystem’s net position in foreign currency for the quarter grew by only 18.2 billion euro, of which 18bln was from MTM effects and 0.2bln from CB transactions. Foreign currency reserves now stand at €190.9 billion.
Consequently, the proportion of gold reserves in Eurosystem coffers have grown over the course of the past 6 months from 62% of total reserves to 65%.
Regarding the previous post, don’t think for a second that China is not already keenly aware and tactfully desirous of the counter-cyclical strength, stability and flexibility available in this gold-centric reserve architecture.
For more background on this new paradigm in the reserve management of the international monetary system, see my Jan 8th post.