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» Gold of $1,000 if it breaks through $900
» Dollar weakness will drive the gold price higher - Peter Major, Cadiz Financial Services
» Investment is the name of the game for gold now - Paul Walker, CEO GFMS
» Gold will be top of investors' minds for another eight months - Jeff Christian, CPM Group


So why isn't the gold price running?
Allan Seccombe
Posted: Mon, 29 Sep 2008

[miningmx.com] -- THERE'S little denying there are big worries for investors in the current markets. Washington is preparing to spend hundreds of billions of dollars to bail banks out of trouble. The contagion of troubled financial institutions has spread to Europe.

The stock markets are volatile, giving an unwelcome white-knuckle ride for investors.

So why hasn't the gold price, traditionally a haven when other markets become stormy seas of uncertainty and volatility, run up harder and faster? It has been mired around the $900 level and battling to sustain any breaks above that level.
they’re going to hit the wall
Bill Murphy, the chairman of the Gold Anti-Trust Action Committee, says it proves the point the alliance has been making for years now. It is being kept artificially in check by central banks and bullion banks.

He also says this control cannot be sustained for much longer and that the gold price could soon be unleashed from artificial restraints.

He points to Monday's gold price fluctuations as an example of the control of its movement. The gold price was fixed at $905/oz in London’s afternoon market only to fall to $894 shortly afterwards.

“It just doesn’t make any sense,” Murphy said.

“The gold cartel goes into the derivatives market and takes the price right down again. They’ve been doing it now for a week,” Murphy told Miningmx. “The gold price should be well over $2,000 now.”

“They’re (the cartel) getting to the point where they’re going to hit the wall, where this physical demand is going to take them out,” he said. “It’s going to be above $900, above $900, above $900 and then the dam’s going to explode. Maybe they’re just trying to hold it together until they get this bailout approved and over with.”

The House of Representatives is to vote on a $700bn bailout plan that gives the Treasury cash to buy debt from banks. The vote should be held early on Monday. The Senate then votes on the plan on Wednesday.

The cartel is made up, Murphy says, of the US government, the Federal Reserve, US Treasury, bullion banks like JP Morgan and Goldman Sachs and other western central banks as allies.

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There are others in the market who are calling the gold price higher, ranging from Paul Walker at precious metals consultancy GFMS, who reckons the price should top $1,000 because of the economic turmoil.

“In this environment, the gold price should be above $1,000/oz,” said Greg Volkwyn, a market commentator in South Africa.

The GATA view that there is a cartel is controlling the gold price is not new. It’s one they’ve espoused for many years, prompting some to dismiss the association as a crack-pot outfit promoting conspiracy theories.

Murphy argues that the way the gold market is reacting and the fact that physical demand, as seen in the demand for gold coins and bars, is so strong should prove Gata’s point that the market is being kept on a firm leash.

“It’s the beginning of the end for the gold cartel. We figure the central banks have less than half the gold they are reporting. The rest is leased out, it’s gone. They are now going to hit the wall and won’t be to prevent the price from going bananas because there’s just no gold left to sell,” Murphy said.

Gold of between $3,000 and $5,000 is not impossible, he said.

Central banks are starting to tighten up on gold sales, with the latest, the German Bundesbank, the second-largest gold holder behind the United States, saying it will not sell any more gold over and above the 6.5 tonnes it had already agreed to, Reuters reported.

The Bundesbank holds 3,400 tonnes of gold, worth about $95 billion at today's prices, the newswire said.

Jeremy Charles, chairman of the London Bullion Market Association (LBMA) said private banks are likely to be the next large buyers of gold to provide their portfolio’s a store of wealth in these turbulent times.

Charles, who is also the global head of precious metals trade at HSBC Bank, is quoted by Reuters as saying the relatively low gold prices had sparked tremendous interest from retail buyers of gold, with premiums to buy physical metal ramping to more than $20/oz in recent weeks.

The US Mint has had to suspend sales of the Eagle and Buffalo coins it produces because of depleted stocks in the face of strong demand.

“We have argued for many, many years, as was the case in the late 1960s and early 1970s, the western central banks, particularly the US painted the tape, so to speak, to convey the image that the US dollar is better than gold,” said Murray Pollitt from Pollitt & Co. in Toronto.

“One way or another, the descendents of those bankers are doing the same thing…. They don’t want gold rallying when there are major bankruptcies. They don’t want people to flee into gold. They want them to flee into treasury bills, which is exactly what’s happening,” Pollitt told Miningmx.

The US government bonds are up two points on the day, he said. “They’ve just taken over Fannie Mae… and are throwing more money at the system. And people are buying bonds. It’s breathtaking. They should be buying gold.”

“There’s a great feeling on the part of central bankers that gold is too good for you and me. That it’s their world and it’s preposterous that the public should care and the public should be very happy to put money into dollar, euro or sterling deposits,” he said.

“They feel the current system has been good for trade and a shakeout of the monetary system signalled by $1,500 gold, for example, could have adverse implications for economic harmony,” he added.

It’s nigh on impossible to prove or disprove these assertions, but one thing is clear, those who watch the gold price are generally unanimous -- the gold price should be a lot higher than it is now. How much higher is not possible to say.

The current turmoil in the markets is nowhere near ending, with fresh insights into the extent of the rot in the financial system coming out nearly every week. Investors will look for safer places to put their money and gold could – and should -- be the beneficiary.