Big Al Talks Gold Reval

In America, there is a lot of talk about higher interest rates, and I would argue that most of those fears are already factored into the current price of gold.  Janet Yellen has not given any indication that she’s going to embark on a cycle of raising interest rates.

The gold-bearish economists said gold would crash, when the taper began.  Instead, it rallied, as I predicted it would.  If Janet does raise rates, I think gold will rally again, and global stock market will suffer a massive correction at best, and a full crash at worst. 

That’s the monthly chart of the Dow.  While there are great similarities between the current price action and the action just before the crash of 2008, there are also significant differences.

The market had decent public participation in 2007.  In contrast, the public appears to have only started to buy this market in recent weeks. 

Also, most trading is now done by machines.  The machines buy tiny price dips, regardless of what the news is.  For example, the pending home price sales report released yesterday, showed prices falling again, but the machines bought US stocks anyways, and the market rallied.

The US stock market is being carried higher by corporations borrowing money and using it for stock buybacks.  That lowers price/earnings per share ratios, and the machines buy those lower ratios, but trading volume keeps shrinking. 

It almost feels like clockwork; a few hours before sunrise in New York, the sellers begin to overwhelm buyers on the COMEX, and the calm and steady gold price action in Asia is replaced with declining prices, price volatility, and a new round of bearish analysis appears in the mainstream media.  

Regardless, the hedgers have been enormous buyers of gold into this decline, and they have built a record-size short position in the dollar.  Watch my price stoker (14,7,7 Stochastics series) for a breakout above the 20 line.  Call option enthusiasts can gamble with buy orders at that point, for a move towards $1240.  That should also make long term accumulators feel more comfortable than they have felt for the past few weeks.

The banks are enormous buyers of silver now, as well as gold.  I’m a steady buyer too, albeit in “somewhat” less size than these commercial titans.  I’ll be a light seller at $18.75.  Investors won’t have anything to sell there if they are not buyers into this decline.  I’m not interested in “calling the turn”.  I’m interested in being invested when it happens. 

The banks are aggressive buyers of silver now, as shown by the latest COT report.  Hedge funds are still net long, but barely.  My suggestion to the Western silver community is to buy alongside the banks rather than sell alongside the funds, to get richer!

That’s the latest COT report for the US dollar.  Commercial hedgers (aka the “banksters”) are building what appears to be a historic short position in the dollar, and I think I know why they’re doing that.

I never believed a single one of the rumours about covert Chinese central bank gold accumulation, but I have predicted that the bank will soon embark on a major buy program, one that takes their reserves from the current 1000 tons area, to 5,000 – 10,000 tons.

I think the program will begin in 2015 – 2016, and it will be relentless.  As that happens, the world’s top bank economists are probably going to turn very bullish on the price of gold.

The gold bears, who often make overly-dramatic downside price projections for the greatest asset in the world, could be permanently destroyed.

Interestingly, I’m not alone this morning, in casting my analytical eye on the Chinese central bank.  In 2014, the most important statement made about gold prices is probably this one, “If the dollar or any other fiat currency were universally acceptable at all times, central banks would see no need to hold any gold. The fact that they do indicates that such currencies are not a universal substitute.” – Alan “Big Al” Greenspan, Sep 29, 2014.

Writing in what is almost certainly the most influential policy-shaping magazine in the world, Foreign Affairs, the former Fed chairman discusses the very real possibility that China may embark on an enormous gold buying program. 

His statement that fiat is not a universal substitute for gold shows his brilliance.  Gold is the ultimate asset, in part because there is no fiat substitute for it, and Alan Greenspan, one of the most influential men on the planet, is clearly aware of this key fact.

To view Greenspan’s entire Foreign Affairs essay, please click here now.

The Chinese central bank buy program would create immense strength in the yuan, and according to Greenspan it could raise Chinese central bank holdings to beyond the 8000 tons held by the US central bank. 

That would create an unprecedented rally in gold prices, which I predict would go down in history as the most significant and relentless of all time.

Greenspan argues that the price of gold would decline when the Chinese central bank accumulation ended, but he’s assuming that the Indian central bank and the citizens of India would be on the sidelines, and that’s a big assumption to make.

The industrialization of India is proceeding at a fast pace, with black market demand for gold skyrocketing.  On a percentage basis, the average Indian spends vastly more of their income on gold than the average Chinese citizen does, and the Chinese spend a lot. 

Malabar Gold just opened its 120^th gold jewellery outlet.  The paint is barely dry on number 119, and now the 120^th store is open.  I expect gold jewellery demand from onshore and offshore India to accelerate its already-enormous pace of growth.  Over the next decade, I think it will be even bigger than demand from the Chinese central bank.

A Chinese central bank gold buy program would make the US government and central bank very happy, because it would significantly devalue the dollar against the yuan, helping to reduce the gargantuan US trade deficit with China.  The Fed would save face, because as the business cycle turned down, it wouldn’t have to bring back QE.  Gold revaluation would do a better job of stimulating US trade with the lower dollar, and confiscation in America would not be necessary, since few citizens own any gold.

Revaluation could also benefit Europe, which is battling deflation by devaluing the euro against the dollar.  That policy is not working.  In contrast, higher gold prices created by Chinese gold revaluation means higher commodity and retail goods prices, in both dollars and euros.

Revaluation in this manner is a win-win for all parties, but most of all for the Western gold community that owns so much gold, and rightly so!

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