The other market that has been out for the count is gold. Demand for the physical metal is very strong, witness the doubling of sales of Golden Eagle coins by the US mint in July alone. The paper or futures market is a different story. Here there have been some very large sellers of gold futures contracts ($1bn on 20th July, for example) in the normally quiet night-time markets, which have bludgeoned the price of gold down. Whoever is doing the selling is quite obviously not price sensitive and we suspect the hand of governments and central banks although their motives are unclear.
So the futures market is in ‘backwardation’ – that is, when the spot or cash price of a commodity is higher than the forward price – and yet the paper market keeps getting smashed while short positions are at a record high. The sums involved are breath-taking. Is gold the canary in the coal mine? Maybe the following passage will give pause for thought:
“In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. If there were, the government would have to make its holding illegal, as was done in the case of gold. If everyone decided, for example, to convert all his bank deposits to silver or copper or any other good, and thereafter declined to accept checks as payment for goods, bank deposits would lose their purchasing power and government-created bank credit would be worthless as a claim on goods.
“The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves. This is the shabby secret of the welfare statists’ tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists’ antagonism toward the gold standard.”
The author of this passage? Alan Greenspan in 1966. With China accumulating gold as fast as possible and with Shanghai fast becoming the global trading centre for the barbarous relic the “statists” option of making it illegal to hold gold is receding just as fast. As history has repeatedly shown, gold remains the only sensible currency. At some stage the law of supply and demand will return and with it a change in the fortunes.
