Central Banking: A Blight On Humanity

[Peter Presland]

This is a good article on the increasingly unstable markets in all things gold.

I think the guy is perhaps a little too smug about the amount of physical gold ever mined being containable inside a 19 Metre cube that grows at a mere 2% per annum. Nonetheless it is an informative trot through the extraordinary developments of the past 18 months or so.

What is really scary about gold breaking the $1000 barrier is that it happened in the face of a flood short selling in US futures markets. So while gold was being driven up by Hong Kong buying, it has also been getting killed by unrelenting selling during COMEX hours. As can be seen in the chart below, the quantity of COMEX gold futures contracts has begun spiraling out of control since the end of August.

I have now stopped trading the GLD futures contract because its intra-day volatility has become astronomic with no tools that I am aware of capable of providing a trading edge no matter how steady one's nerves.

As the author states, the paper gold market has effectively become a fractional reserve system with the amount of physical gold available to support outstanding claims on it (ie options and futures contracts open interest) sitting at an unprecedented 4% or so. In addition there is considerable and very legitimate doubt about the security of so called 'allocated' gold deposits in that the temptation to use it too as a sort of fractional reserve deposit (albeit probably - hopefully?? - with rather greater than 4% backing) has undoubtedly been overwhelming through the past decade or more, meaning more than the assumed single owner/claim per bar.

The problem with the article (IMHO) is that it appears oblivious to the likely existence of vast quantities of gold outside of the 19 Metre cube. I personally believe that it is the people who control the bulk of that stuff who are likely to become the arbiters of just how this whole thing plays out.

So who are they? Is control totally fragmented? - unlikely IMO - or is it in the hands of those who define their interests as synonymous with the existing Bankster Cartel? - more likely IMO. If so the denouement could turn out rather differently to the prayers of the 'Gold Bugs' even if still a good hedge against Armagedon.

Interesting times indeed.