by Dave Kranzler, Investment Research Dynamics:
The price of gold has rejected numerous attempts by the banks to hammer the gold price below $1400 using paper gold derivatives on the Comex and the LBMA. I have not seen gold behave with such resiliency in the last 19 years when the Comex banks have an extremely large short position in Comex paper.
The action in the price of gold is signalling that large buyers are accumulating a lot of physical gold. This is preventing the banks from using the Comex as a manipulative tool. Based on historical preferences, I highly doubt the buying is coming from the hedge funds, who have been content playing in the paper gold sandbox of the Comex.
Per the World Gold Council numbers, which are notoriously understated, Central Banks have purchased 374 tonnes of gold in the first half of 2019. This is the highest level of CB gold purchases in over 50 years. Note that western Central Banks – specifically the Fed, ECB, BoE and BoJ have been notably absent from the buying frenzy. The buying has been led by China, Poland and Russia.
“With governments everywhere itching to increase spending without raising taxes and as the global economy sinks into a trade and credit-cycle induced recession, budget deficits will fuel monetary inflation at a faster pace than seen before. Re-learning that gold is sound money is now the most urgent priority for all those charged with responsibility for other peoples’ investments.”
The quote above is from Alasdair Macleod’s must-read essay titled, “The Reasoning Behind Gold’s Breakout.” The article dispels the common “Fake news” myths about gold. It would be a great article to read for Warren Buffet, who believes that gold “just sits there doing nothing.” Of course, students of gold and history know that gold has outperformed the Dow since 1971. Macleod revisits the math behind this fact.