gold propoganda

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    I like to think I have an open mind on the debate of the future of Gold pricing but the following article from todays AFR is without doubt one of the most illogical peices of pap I have seen printed in recent times and confirms the status of the journo as out of his depth.

    Quite aside from the obvious propoganda line and not being able to come to terms with the rise in the Gold Price, the article is built on a glaring contradiction.

    It states that gold demand is falling (which may be true) but that somehow this is resulting in selling drying up (why?) and that as a result of reduced selling pressure the price is going up (Well, Hello!!)

    Maybe the selling is drying up because those who have been so aggressively shorting the market are in a bit of strife? Why not investigate in a shade more depth just who all these sellers were before demand declined (if indeed it is).


    This from todays Australian Financial Review

    A lack of interest in gold is pushing the price up
    Dec 20
    Stephen Wyatt

    Once gold broke through six-month-old resistance at $US330 an ounce this month, it shot to a five-year high of $US342/oz. But now it is likely to mark time as bouts of profit-taking keep a lid on the rally.

    Analysts remain gold-friendly, pointing to its solid technical picture, the constant fear of a terrorist attack, the feast of global political and economic uncertainties, the weak US dollar and shaky global equity markets.

    These, historically, are the perfect conditions for a strong rally in the gold price. And gold has rallied from near its lowest level for 20 years in April last year, to over $US340/oz this month - a 33 per cent rise.

    But there is something strange about this gold market.

    It is not rallying because of enthusiastic buying. It is rallying because the selling has dried up. These days, it takes only a modicum of buying interest to force the price higher.

    This lack of interest, if you like, in the gold market is evidenced by the collapse of volumes traded on the London Bullion Market. Data from the London Bullion Market Association showed record low trading volumes. Clearing activity is now 26 per cent less than before September 11, 2001 - and 66 per cent below its peak in 1997.

    As well, the relatively tepid buying interest in gold is evident in the collapse in gold jewellery demand and investment demand.

    The gold bulls might not like the facts, but gold jewellery demand (the main demand source for gold) slumped by 13 per cent year-on-year in the first nine months of this year, according to the World Gold Council.

    As well, investment demand fell by 8 per cent. Of particular concern was the 35 per cent collapse in jewellery demand in India and the 46 per cent drop in Indian investment demand.

    India is the largest consumer of gold in the world.

    And this slump in demand has occurred over a year packed with gold-friendly fears.

    This makes a mockery of the claim that investors today are rushing to gold as a safe-haven investment. They are not.

    No, this is no normal bull market; a market driven by frenzied buying. It is more of a non-bear market. The speculative sellers have been kept on the sidelines by rising fears of terrorism, of economic contraction, of political uncertainty and of war.

    Over the past three years, the most dangerous sellers of them all, the central banks - were quarantined. Back in September 1999, Europe's central banks set up a cartel that capped their annual gold sales at 400 tonnes a year for five years, and capped gold lending.

    The central banks of the world hold about 30,000 tonnes of gold - about a third of the gold ever mined. The rub is they don't want it, or at least not this much of it.

    It was a historical accident that this much sits in their vaults. When gold was seen as an alternative currency, effectively before 1970, the world's central banks were the largest buyers of gold. Gold's steady demonetisation led central banks into a gold selling spree in the 1990s.

    This demonetisation process began with the end of the gold standard in England in 1931, then the end of convertibility in the United States in 1972 then finally with the mobilisation of capital globally, the floating of most currencies and the growth of derivative markets. The central banks realised they held a bit too much of the yellow, heavy metal. Hence the selling.

    Some analysts still think gold has some way to go down its demonetisation path.

    Andy Smith, precious metals analyst with Mitsui in London, argued that gold can go silver's way from currency to commodity. Where would that put the gold price? Below $US150/oz?

    As central banks cut back the liquidation of their gold holdings, so too gold producers reduced their heavy forward selling programs. Throughout the 1980s and 1990s, bullion banks offered attractive forward gold prices and products, such as gold loans, triggering a wave of forward selling by gold producers.

    Together, central bank selling and gold-producer selling, knocked the gold price down over the past 20 years from over $US500/oz to its 20-year low of $US252/oz in August 1999 - one month before the European central banks agreed to cap their selling. They had to stop rapidly devaluing their own assets.

    So where does this leave gold? In the short term, given the dearth of selling and the very bright technical picture, the price can go higher - $US350 to $US370/oz, perhaps.

    But in the longer term, gold has got some real warts.

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