|1999 Volume||Early May Issue||Number 373|
The Global Report | Inside The U.S.A. | Inside The European Union
Inside Japan - And China | Australian Report | The Global Market Report
In 1717, 23 years after the founding of the first modern "Central Bank" (the Bank of England), Sir Isaac Newton, newly-appointed Master of the Mint, defined one Guinea (21 shillings) as being 129.4 grains of Gold. On May 7, 1999, the Bank of England (for the first time since 1972) announced plans to "auction" off 58% (415 Tonnes) of its Gold reserves over the next few years.
The British were the originators of the modern Gold Standard, which they maintained for 214 years, until 1931. During that period, they established two empires, the dividing line between the two being the period between the American Revolution in 1776 and the end of the Napoleonic Wars in 1815. After WW II, the U.S. maintained a quasi Gold Standard for 27 years (1944-1971). There has been no Gold Standard at all for 28 years (since 1971). And now, the Bank Of England (B of E), under which Isaac Newton established the British Currency on Gold nearly three hundred years ago, has spoken.
The announcement by the B of E of its Gold auction plans (to a short list of carefully selected "buyers" only) is hugely significant, as will become apparent as we continue.
"In any discussion of the future of Gold, or of the price of
Gold, the first thing that must be realized is that Gold is a
political metal. In the true meaning of the word, its price is
"governed". This is true for the very simple reason that Gold
in its historical role as a currency is fundamentally
incompatible with the modern worldwide financial system."
(Introduction to the "Gold Commentary" - Privateer Website)
That statement was first posted in January 1996, when the "Gold Pages" was added to The Privateer website. At the time, Gold was hovering around the $US 400 level while the Dow had recently broken through 5000 and stood at about 5200. Today, the Dow has more than doubled, while Gold has lost almost 30% of its value in $US terms.
When the "Gold Commentary" page was begun in 1996, we considered the introduction to be unremarkable, merely a condensation of an obvious fact. The overt "governing" of the Gold price had been a fixture of the 1960s and 1970s (the London Gold Pool and the IMF/Treasury auctions). But the "governing" of the Gold price in more recent years has been a COVERT process. The means (in no particular order) have been forward selling by mining companies, Gold leasing and lending by Central Banks, a whole new universe of Gold derivatives, and - on occasion - the threat of actual Gold sales by Central Banks.
In early 1996, there was still quite a bit of interest in Gold. In February, Gold hit $US 414, its highest level for seven years. The U.S. stock market was doing very well, but the Dow was still only about 30% above the level it had reached in 1994, two years earlier. Within a year, Gold was at 12 year lows, having lost nearly $US 135 while the stock market continued to rise. Now, Gold has spent 18 months at or below the $US 300 level, while the Dow has more than doubled from its levels of early 1996.
Most investors have had little if any interest in Gold since 1996. Most have seen little point in examining or questioning the unending refrain from financial analysts and Central Bankers that Gold is merely a commodity, and totally obsolete as any integral part or even component in the financial system. "Who cares anyway, just buy stocks, you can't lose."
Since 1996, the only people who have paid close attention to Gold have been Central Bankers themselves, as witness their unending threats to sell Gold. But in the past month, that began to change.
On May 6, the Balkans Air War had been going for just over six weeks. Here's what else had happened:
On May 7, the B of E announced its plans to auction Gold. The US Gold index lost 12.7% on the day, while the Toronto Gold index lost 10.8%. On May 7 in Australia, before the B of E announcement, the local Gold index had soared by 8.5%, its biggest one-day rise in six years. Even more noteworthy, it had done so in the face of a market that was slumping - the All Ordinaries lost 51 points or 1.7% on May 7.
No, this does not refer to the crash dive in North American Gold stocks on May 7 (or whatever happens to Aussie Gold stocks when the market re-opens on May 10). It refers to the simple fact that a big rise in Gold stocks is always the precursor to a big rise in Gold itself. Can you think of any other sector of the stock market that the financial "powers that be" would go all out to deliberately crash? Look at the XAU chart that accompanies this issue. Look at the comparison charts of the Aussie All Ords and Gold indexes. Consider the fact that Gold itself had jumped $US 9 in the eight trading days up to May 6.
Gold stocks were in imminent danger of becoming the next "hot sector" on the stock market. The sudden quantum leap in Aussie gold stocks (up 15% over May 6-7) made this danger acute. Something had to be done before this newfound interest in Gold stocks began to spill over into an interest in Gold. Trotting out the threat of IMF sales one more time or pointing at the Swiss plans to sell Gold would not suffice.
So the Bank of England announced actual Gold Auctions!
The timing of this announcement is indeed "blatant". But it is far more than that. In the first place, this detailed announcement of the Gold auctions is not something that the B of E has cooked up over the past week or month. This is a contingency plan that has long been formulated, and has waited for the "right time" to be brought forward.
But there is a still more important consideration. These Auctions are to be held in the open. The bids will be known, the bidders will be known, their choice as to whether to hold the Gold with the B of E or to actually take delivery of it (in 400 oz. "good delivery bars) will be known. In short, these projected auctions differ in no major respect from the IMF/Treasury Gold auctions of the late 1970s.
After almost 20 years of "covert" Gold price manipulation (forward selling, lending. leasing, short selling etc.), what his happening here is a reversion to the OVERT selling of Gold (not paper claims to Gold). The Privateer has maintained for the past three months that the pressure under the Gold price is growing.
Just before the Balkans War began, Gold fell from $US 296 to just below $US 280 - the trigger being an announcement by the NYMEX (New York Mercantile Exchange) that they were halving their margin requirements on Gold option writing (issue #369). Since the Balkans War began, one after another, all the Heads of the G-7 nations have made statements approving IMF plans to sell Gold. And, of course, there was the alteration of the Swiss Constitution to make the sale of Gold reserves possible. Through all this, Gold stocks were inexorably rising. And in recent days, Gold itself had begun to do likewise.