(OT) WALL STREET Journal Asks Why Gold Isnt Higher?greenspun.com : LUSENET : TB2K spinoff uncensored : One Thread
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[Fair Use: For Educational/Research Purposes Only] Wall Street Journal asks why gold isn't higher
Dear Friend of GATA and Gold:
The Wall Street Journal noticed gold and GATA today, and in the process suggested that the price of gold should be higher. This is largely because of GATA's hectoring the newspaper in recent weeks. We hope the paper will stay interested and begin pressing the U.S. Treasury Department for answers to our questions about the Exchange Stabilization Fund and surreptitious government intervention in the precious metals and equities markets.
Please post this as seems useful.
CHRIS POWELL, Secretary/Treasurer Gold Anti-Trust Action Committee Inc.
DESPITE JITTERY MARKET, GOLD ISN'T SHINING
By Peter A. McKay The Wall Street Journal March 8, 2000
By most measures, gold ought to be golden again.
Demand for the metal surged 21 percent last year, economists are worried about rising inflation, and other commodity prices -- especially oil -- are increasing, all of which have been bullish signs for gold in the past. Volatile stock markets such as the current one have also historically sent some investors to the haven of gold.
But after a run-up to above $300 an ounce a few weeks ago that had many analysts predicting gold finally had recovered from its long slump, gold prices have fallen and stalled near $290 an ounce.
Why isn't this a golden age?
Two reasons emerge, one having to do with fundamentals, the other with perception. Concerns that there is too much supply in the gold market has hamstrung prices. Meanwhile, psychologically, investors just have been finding other places to put their money, shying away from gold as a haven.
Since the summer, when prices surged from 20-year lows caused by over-supply worries, especially the Bank of England's plan to dump a large amount of gold on the market, the metal has been boosted several times by one-time events. But invariably gold has then given back most of the gains.
As usual in the gold market some conspiracy theories, especially of price manipulation by governments and gold borrowers, are gaining popularity among a portion of investors to explain the moribund gold price. Many industry analysts and traders, on the other hand, explain the price stagnation as simply further evidence of the metal's ever-weakening role as a refuge from inflation.
"Basically, we're right back where we started," says George Gero, a veteran gold trader at Prudential Securities Inc., New York. "There's been some good news (for prices), but we still don't have all the ingredients in place to call this a true bull market" for gold.
That much is clear. The latest rally began Feb. 4 after Canadian mining firm Placer Dome announced that it would halt its gold hedging program, and then several other major producers followed. That meant there would be less metal on the market, since gold producers' hedging usually involves selling the commodity "forward" to lock in the current price in case it takes a downturn later.
Gold futures immediately jumped $22.62 to $310 an ounce. But prices have steadily inched down since, closing at $292.20 yesterday on the Comex division of the New York Mercantile Exchange, up $4.30 for the day, but down $19 from the peak so far this year of $312.70, on Feb. 7.
An even more extreme "false top" occurred in September, when 15 European government banks announced they would cap their gold sales. The metal leapt $42.25 or 15 percent, climbing to $324.50 in the next few weeks.
No one is expecting the metal to fall back to the $250 levels seen this summer, although some analysts have been forecasting the gold price to increase since at least the European banks' announcement.
The metal is "hitting ascending bottoms right now," said gold-fund manager Harry Bingham, of Van Eck Global in New York. "What it's going to take to really bring up gold is time and a fundamental perception change among investors. Everybody can't get rich by buying stocks, retiring, and becoming a day trader."
So far, though, just the opposite conclusion has been built into gold prices, much to the chagrin of bullish gold bugs.
Traders and analysts mostly shrugged off last month's hedging cutoffs as a industry-specific phenomenon, and then took heart in the dollar's strength overseas and the Federal Reserve's recent interest-rate increases as ample protection against inflation.
The conspiracy theorists are seizing on the time of gold's plateaus as evidence of foul play in the market. Such theorists are given a bit of credence in the gold market, which is less transparent than the stock market.
"Historically, people would tell you that any time gold is trading at a price less than 12-to-1 to the price of oil, it's a bargain," says Bill Murphy, chairman of the Gold Anti-Trust Action Committee, an investor group that communicates online and gets some funding from gold companies. "Right now we're at less than 10-to-1, and no one's saying anything" about the phenomenon.
Mr. Murphy's organization has been lobbying the federal government to investigate whether major gold borrowers, including some gold companies, are manipulating the metal's price so they can use leased gold to make other investments, then repay their loans with cheap metal later.
Most Wall Street gold-industry analysts don't buy into the theory outright, although many say the metal's fundamentals are more positive than its current price might suggest.
World gold demand increased 21 percent to a record 3,278.4 tons in 1999, according to a recent report by the World Gold Council trade group.
And World Gold Council analyst George Milling- Stanley says the industry organization doesn't expect any major production increases in the near future, which would indicate that gold's price should eventually increase.
However, he said recent episodes of producer hedging and central-bank sales cannot entirely explain the latest trends in the metal's price. Rather, he said gold's very identity is undergoing a seismic shift perhaps not seen since the 1970s when the United States stopped pegging the dollar to gold and began allowing private ownership of it.
Mr. Milling-Stanley said the metal's value now is more affected by speculative trading, increasingly complex hedging programs, and foreign-exchange rates in the newly global, electronic economy.
He characterized the fall announcement by the central banks as a step toward eliminating just one specter hanging over the gold market, albeit an important one.
"You have to look at this as a whole set of circumstances," Mr. Milling-Stanley said. "The market had believed that there was going to be a major series of central-bank gold sales, but with that fear eliminated by the September agreement, gold is no longer a one-way bet."
-- Zdude (firstname.lastname@example.org), March 09, 2000