By John S. Kim, SmartKnowledgeU

The recently announced IMF sale of 191.3 tonnes of their gold reserves, though it caused an immediate sharp knee-jerk reaction in gold futures markets, will have a negligible effect on the long-term price of gold. Here’s why.

In December, 2009 the commercial bullion banks that serve as agents for the leading Western Central Banks were net short 303,791 contracts of gold. Each COMEX gold futures contract represents 100 troy ounces, so the Commercials were net short 30,379,100 troy ounces of gold. With the average price of gold $1,134.72 per troy ounce in December 2009, this net short commercial position represented $34.47 billion worth of gold. There are 32,150.74533 troy ounces in one metric tonne. So 30,379,100 troy ounces/ 32,150.74533 troy ounces = 944.90 metric tonnes of gold. Since gold contracts are supposed to be good for physical delivery, the commercial bullion banks that were short nearly 38% of annual world production of gold this past December should have had 944.90 physical metric tonnes of gold in their vaults to back up their short position at that time. In reality, this situation never exists.

The amount of physical gold that bullion banks deliver through COMEX on a daily basis is negligible compared to the often massive historical short positions that they have maintained for decades. For example, during a two-week span across January and February, COMEX arranged for the physical delivery of 543,500 troy ounces of gold with their contracted warehouse depositories, a figure that represents an average of just 38,786 troy ounces of gold per day or 0.18% of the current net short position. At this rate of delivery, it would take the COMEX more than two years to deliver all the gold represented by the current net commercial short position should the holders of long contracts ask for settlement in physical delivery.

Through the use of futures markets, the Commodities Futures Trading Commission (CFTC) has granted bankers a mechanism to perform alchemy and turn paper into gold on the COMEX by allowing them to establish obscene short positions that represent 25% to nearly 40% of annual gold production at times while simultaneously allowing them to renege on their fiduciary responsibility to actually physically possess the gold represented by their short positions. In other words, the CFTC has allowed gold to operate under the principles of the fractional reserve banking system on the COMEX futures markets. As I stated above, the net short position of the commercials in gold represented more than 30 million troy ounces yet for the past few months they almost never exceeded delivery of 0.2% of their short position on a daily basis. Many people would refute this argument by stating that COMEX only delivered a minute fraction of physical gold represented by this obscene short position because no institution asked for substantial physical delivery of their long contracts. While it is true that less than 1% of most commodity futures contracts are ever settled by physical delivery, futures markets should not exist to serve the purpose of distorting the underlying reality of supply-demand fundamentals of the actual physical commodity. With gold and silver, this has been the case for decades.

Read more….

Bullion Vault

Who pushes the Gold Futures market around…?

A CERTAIN NUMBER of market observers have long believed that the Gold Futures market is actively manipulated downwards by a cabal of US banks, writes Brad Zigler at Hard Assets Investor.

Their contentions have been based upon data published by the Commodity Futures Trading Commission (CFTC) showing a small number of domestic financial institutions holding lopsided short exposure. This has been taken as prima facie evidence of the banks’ attempt to cap the metal’s price.

We’ve looked into this issue more than once at Hard Assets Investor, but despite gold’s climb to record nominal price highs, the notion of bank manipulation hasn’t yet died. One reader retorts:

“The record short positions held by the relatively few players of the bullion banks is key, in their effort to cap the price of gold and keep the price from breaking out. They are having a difficult time of it because of the Chinese position of buying any dips.” 

“Keep the price from breaking out”? But, it did break out! Was it because the Chinese were buyers? Not unless they were trading in US Gold Futures.

Read more….

New York gold futures ended lower Tuesday for the fourth straight day as the US dollar advanced on news of a decline in consumer confidence. Silver was hit exceptionally hard for the second straight day, falling more than 3 percent. Platinum declined as well. In other markets, crude oil finished 1 percent higher and US stocks ended mixed.

New York precious metals figures follow:

• Silver for December delivery plummeted 55.5 cents, or 3.2 percent, to $16.540 an ounce. It ranged from $17.250 to $16.500.

• Gold for December delivery declined $7.40, or 0.7 percent, to $1,035.40 an ounce. The yellow metal ranged from $1,044.30 to $1,032.90, which was the lowest level since Oct. 6.

• January platinum fell $26.80, or 2.0 percent, to $1,319.00 an ounce.

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Read the rest of Gold Drops for Fourth Day, Silver Plunges, Stocks Mixed (2,493 words)

The Daily Reckoning

With gold at about $1,060 an ounce, and numerous forecasts of much higher prices, it logically follows that investors would consider a wide variety of avenues for claiming a stake.

Of course the options range from buying gold bling to speculative gold-related alternative investments, and today, The Money Game picks 11 top strategies worth reviewing and shows them in a convenient slideshow. The options include…

1. Enter As A Newbie With Gold Jewelry
2. Gold Coins
3. Cash4Gold
4. Gold ETFs
5. Gold Mining Companies
6. Paper Gold
7. Gold Futures
8. Gold Bars
9. Gold Stored Remotely
10. Gold Traded In Far-Flung Markets
11. Gold-Plated Firearms

Visit The Money Game for more details on 11 ways to get into gold in a picture slideshow.

Slideshow: 11 Ways to Invest in Gold originally appeared in the Daily Reckoning. The Daily Reckoning, a FREE daily e-letter, offers a “uniquely refreshing” perspective on the global economy, investing, and today’s markets.

More articles from The Daily Reckoning….

New York gold futures climbed Tuesday, although the yellow metal lost a portion of earlier gains following a lifted US dollar which also pulled down oil prices for the first time in nine days. Silver, platinum and US stocks edged slightly lower.

New York precious metals figures follow:

• Silver for December delivery fell 6.7 cents, or 0.4 percent, to $17.558 an ounce. It ranged from $17.420 to $17.955.

• Gold for December delivery rose 50 cents to $1,058.60 an ounce. The yellow metal ranged from $1,052.60 to $1,069.

• January platinum declined $7.90, or 0.6 percent, to $1,356.30 an ounce.

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Read the rest of Gold Rises Despite Higher Dollar, Stocks Retreat (2,238 words)

By Moming Zhou, MarketWatch

NEW YORK (MarketWatch) — Gold futures rose on Monday, as investors
embraced more risk, pressuring the dollar, lifting stocks and helping
crude-oil futures test new highs for the year above $79 a barrel.

Copper also gained more than 4% before giving back some gains after
China estimated that its economy grew 9% in the third quarter.

Gold for December delivery, the most actively traded contract, rose
$2.60, or 0.2%, to $1,054.10 an ounce on the Comex division of the New
York Mercantile Exchange. The thinly traded October contract also
gained 0.3% to $1,053.50. . . .

The dollar, which has been used as a safe-haven currency, sank further, while the euro rose 0.2% to $1.4942. The dollar index
/quotes/comstock/11j!i:dxy0
(DXY
75.34,
-0.30,
-0.40%)
lost 0.3% to 75.409. See Currencies.

A weaker dollar lifts the price of dollar-denominated commodities and heightens gold’s appeal as a safe asset.

Crude-oil futures rose as much as $79.05 a barrel, a new high for the year.
See Futures Movers.

Gold rose “with oil reaching a new high for the year above $79 a
barrel, and the Federal Reserve signaling interest rates will stay near
record lows for the foreseeable future, the beleaguered greenback fell
to a 14-month low on the dollar index,” said analysts at GoldCore in a
note.

The dollar came under further pressure after the Federal Reserve Bank
of New York clarified it has been testing reverse repurchase agreements
for technical reasons, and that the tests should not be seen as hints
of a tighter monetary policy. See full story.

Separately, Fed Chairman Ben Bernanke called for policy makers to watch
for the restrengthening of unsustainable global imbalances driven by
high levels of Asian exports and low U.S. savings rates as the global
economy rebounds. See full story.

Read more….

By Pham-Duy Nguyen

Oct. 19 (Bloomberg) — Gold’s rally to a record means
prices are still 53 percent below the 1980 inflation-adjusted
peak.

While gold rose 19 percent this year to $1,072 an ounce on
Oct. 14, consumer prices almost tripled in the past three
decades, eroding the metal’s value. Bullion hasn’t kept pace
with the cost of bread, fuel or medical care. In 1980, gold hit
a then-record $873 an ounce. In today’s dollars, that would be
$2,287, according to the U.S. Labor Department’s inflation
calculator.

Record government debt and interest rates close to zero
percent are pushing gold higher for a ninth straight year, and
options show investors expect the rally to continue. When prices
reached all-time highs, the contract with the most open interest
was the December call to buy the metal at $1,200. The contract
to purchase at $1,500 an ounce was the third biggest.

“Gold is not at any peak,” said Martin Murenbeeld, the
chief economist at Toronto-based DundeeWealth Inc., which
manages $58.5 billion in mutual funds and brokerage accounts.
“The world’s money supply has increased and gold hasn’t kept
pace,” he said. “We’re now in a period where gold is catching
up.”

The U.S. Dollar Index, which measures the currency against
those of six major trading partners, fell on Oct. 15 to the
lowest level in 14 months, and has dropped about 7 percent this
year. President Barack Obama has increased the nation’s
marketable debt 22 percent to $7.01 trillion to revive growth.

Preserving Value

Gold bulls say today’s record borrowing and low interest
rates mean the government will have to accept faster inflation
as the economy recovers. Investors buy bullion to preserve value
during times of turmoil and economic stress.

Financial institutions worldwide have reported credit
losses and writedowns of about $1.62 trillion since the start of
2007, when the credit crisis began. Group of 20 governments have
pledged about $11.9 trillion to ease credit and revive economic
growth, according to the International Monetary Fund.

“Gold is the hedge against currency devaluation,” John
Brynjolfsson, of hedge fund Armored Wolf LLC, said in a
Bloomberg Television interview from Aliso Viejo, California, on
Oct. 7. He predicted bullion will top $2,000.

Banks have raised their gold estimates. On Oct. 9, JPMorgan
Chase & Co. said the metal will average $1,006 an ounce next
year, compared with an earlier projection of $950. Deutsche Bank
AG forecast an average of $1,150, up 32 percent from its
estimate in July. Barclays Capital said Oct. 12 that “prospects
for a run at $1,500 should not be underestimated” next year.

Understated CPI

Gold would need to rise more than sixfold to top the 1980
record, using a more accurate inflation-adjustment, said John
Williams, an economist and the editor of Berkeley, California-
based Shadowstats.com. He said the government has understated
the cost of living over the past two decades with adjustments in
the way it measures the basket of goods and services monitored
by the U.S. consumer price index, or CPI.

Gold futures for December delivery closed Oct. 16 at
$1,051.50 an ounce on the New York Mercantile Exchange’s Comex
division, gaining for a third straight week.

“If the methodologies of measuring inflation in 1980 had
been kept intact, gold would have to hit $7,150 to be the
equivalent of the 1980 record,” Williams said.

The cost of living in the U.S. rose 0.2 percent last month,
the Labor Department said on Oct. 16. Compared with a year
earlier, consumer prices fell 1.3 percent. The CPI will drop 0.5
percent this year, before rising 1.9 percent in 2010, reflected
by the median estimates of 61 economists in a Bloomberg survey.
Annual increases averaged 2.8 percent a year in the past decade.

Purchasing-Power Adjustment

In March 1980, inflation surged to a 14.8 percent annual
rate, two months after gold capped a four-year rally. Adjusted
for the decline in the dollar’s purchasing power since then,
gold’s Oct. 14 record of $1,072 represents the equivalent of
$409 in 1980 dollars, the Labor Department calculator shows.

Since January 1980, the average price of a pound of white
bread has risen almost threefold, from about 50 cents to $1.38
in August, and medical care has surged more than fivefold, Labor
Department figures show. Gasoline and electricity prices have
more than doubled.

Today, the gap between gold’s spot price and its CPI-
adjusted equivalent is the widest ever.

Gold hasn’t been as effective a hedge against inflation as
oil since the 1980s, said Matt Zeman, of LaSalle Futures Group
LLC in Chicago.

Oil Beats Gold

Crude passed its 1981 inflation-adjusted record two years
ago. The cost of imported oil averaged $39 a barrel in February
1981, after Iran cut exports, according to the Energy
Department. That’s $89 in 2007 dollars, the Labor Department
calculator shows. Oil reached a record $147.27 on July 11, 2008,
and closed at $78.53 on Oct. 16 in New York trading.

“If you bought gold in the 1980s, you’re still losing
money today,” said Zeman, a metals trader. Gold prices in New
York languished for two decades after declining from the 1980
record, dropping to a 20-year low of $253.20 on July 20, 1999.

While bulls say gold is cheap, the inflation-adjusted price
is 15 percent above its 30-year average, Bloomberg data show.

The Federal Reserve may limit gains by raising interest
rates before inflation balloons, analysts said. Fed Chairman Ben
S. Bernanke said on Oct. 8 that policy makers will need to raise
interest rates “at some point” to control inflation.

‘Prepared to Tighten’

“When the economic outlook has improved sufficiently, we
will be prepared to tighten,” Bernanke said in remarks prepared
for an Oct. 8 conference in Washington.

Fed moves to cool inflation and the government’s revenue
needs will stop gold, according to Jon Nadler, a senior analyst
for Montreal metals dealer and refiner Kitco Inc.

“These wild calls for several-thousand-dollar gold are
typical of times when gold goes into uncharted territory,”
Nadler said. “The Fed will pull the interest-rate trigger and
the Obama administration will, in addition, pull the tax-hike
trigger before we get into any serious inflation. Once the man
on the street gets in, the gold rally is likely over.”

Gold held in exchange-traded funds climbed to records this
month at Zuercher Kantonalbank and ETF Securities Ltd. Holdings
in the SPDR Gold Trust, the biggest exchange-traded fund backed
by bullion, are up 42 percent this year. Hedge funds and other
large speculators hold their most-bullish position ever in gold
futures. So-called net-long positions, or bets prices will rise,
increased by 6 percent to 253,955 contracts in the week ended
Oct. 13, according to the Commodity Futures Trading Commission.

Gold Producers

The Philadelphia Stock Exchange Gold & Silver Index jumped
43 percent this year, as Phoenix-based Freeport-McMoRan Copper &
Gold Inc. tripled. Toronto-based Barrick Gold Corp., the world’s
largest producer, fell 10 percent. Barrick said Sept. 8 it will
record $5.6 billion in third-quarter costs to eliminate fixed-
price contracts as the company bets gold’s value will climb.

At Jersey, Channel Islands-based GoldMoney.com, which held
$759 million of gold and silver for investors as of Sept. 30,
founder James Turk said bullion can climb eightfold based on the
historical relationship between the metal and the Dow Jones
Industrial Average. The Dow is up 10-fold since January 1980.

Gold and the Dow, which has gained 14 percent this year to
9,995.91, were at about the same level during the Great
Depression and the early 1980s, he said. On Jan. 21, 1980, as
gold futures surged to $873, the Dow slipped to 946.25.

“The dollar is constantly being debased and inflated,”
Turk said. “By 2013, gold is going to be at $8,000 and the Dow
will be at 8,000.”

Gold-Dollar Link

Deutsche Bank said early this month that the dollar will
fall to $1.60 per euro next year, a drop of 7.3 percent from
last week, because of “rising fiscal deficits and loose
monetary policy.”

Gold has moved in the opposite direction of the dollar over
most of the past decade. The metal’s correlation coefficient to
the U.S. Dollar Index is minus 0.8539, Bloomberg data show. A
correlation of minus 1 indicates two assets move inversely to
each other, while a 1 would show they move in tandem. A reading
of zero shows no correlation.

Philip Gotthelf, the president of Equidex Brokerage Group
Inc. in Closter, New Jersey, says he expects gold to trade at
$1,250 by year-end.

“Gold has been pushing higher because it’s no longer just
a hedge against commodity inflation, it’s also a hedge against a
change in world-monetary standards.”

Read more….

New York gold futures lost ground Thursday as the yellow metal moved further away from an all-time high as the US dollar rebounded. Silver and platinum also declined. In other markets, crude oil rallied to a one-year high on news of a decline in gasoline inventories and US stocks rose modestly.

New York precious metals figures follow:

• Silver for December delivery fell 49.3 cents, or 2.8 percent, to $17.415 an ounce. It ranged from $17.360 to $18.000.

• Gold for December delivery declined $14.10, or 1.3 percent, to $1,050.60 an ounce. The yellow metal ranged from $1,047.40 to $1,066.80.

• January platinum lost $11.10, or 0.8 percent, to $1,355.50 an ounce.

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Read the rest of Gold, Silver Decline; Stocks Slightly Higher (2,008 words)

New York gold futures declined slightly Wednesday after two days of advances, and despite a weakened US dollar and oil prices that pushed above $75 a barrel for the first time in a year. Silver and platinum both climbed 0.4 percent. US stocks gained with the Dow closing above 10,000 for the first time since Oct. 3, 2008.

New York precious metals figures follow:

• Silver for December delivery gained 6.8 cents to $17.908 an ounce. It ranged from $17.720 to $18.175, which was the highest price since Aug. 2008.

• Gold for December delivery fell 30 cents to $1,064.70 an ounce. The yellow metal ranged from $1,056.50 to $1,072.

• January platinum rose $5.90 to $1,366.60 an ounce.

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Read the rest of Gold Drops Slightly, Silver Rises, Dow Tops 10,000 (2,662 words)

New York gold futures jumped to a new all-time high Tuesday as the US dollar continued to weaken against other world currencies and oil drove to a seven-week high. Silver briefly topped $18 an ounce before retreating under the level, but still gained 2 cents on the day. US stocks ended mixed, with narrow changes.

New York precious metals figures follow:

• Silver for December delivery rose 0.1 percent to $17.84 an ounce. It ranged from $17.565 to $18.075, which was the highest price since Aug. 2008.

• Gold for December delivery rose $7.50, or 0.7 percent, to $1,065.00 an ounce. The yellow metal ranged from $1,052.20 to $1,069.70.

• October platinum advanced $13.40, or 1.0 percent, to $1,352.80 an ounce.

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Read the rest of Gold Strikes All-Time High at $1,065, Silver Touches $18 (2,174 words)