As we said here last week - "European Central Banks, even though still constrained under the 'Washington Agreement', have markedly upped their Gold sales."
That has now been confirmed. Spain, and to a lesser extent Portugal and Greece, are now confirmed to have sold a LOT of Gold (and foreign reserves) over the past two months to pay for out of control current account deficits. For Spain, the figure is 80 Tonnes of Gold. And while they were at it, they have spent their foreign exchange reserves down to a level which covers only twelve days of their huge current account deficit. The Gold sales figures for Portugal and Spain are somewhat less, but are both far above their "regular" levels. Don't forget that the signatories of the European "Washington Agreement" (Mark II) have a ceiling on cumulative Gold sales of 500 Tonnes a year. What it not known, of course, is who Spain, Portugal and Greece have sold their Gold to. Nor is it known which other members of the Washington Agreement may have curtailed their Gold sales to facilitate the increased selling by these three nations.
What IS known is that Spain has the second highest current account deficit in the world, measured both my the raw numbers and on a per capita basis. The only nation with a higher deficit is, of course, the USA.
Up until two weeks ago, what this accelerated Gold selling by these European nations managed to do was to put a hard CAP on the $US Gold price of $US 690. A cursory glance at the chart above will show that. But physical Gold sales alone are NOT enough to cap the spot future Gold price on the COMEX. What is needed to do that is a massive liquidation of long "paper gold" positions and/or a huge surge in "short" positions on the future markets. And as a cursory glance at the volume data above shows, that is exactly what happened this week on the Comex. The result was that Gold fell further this week, breaking below the $US 670 base which had been formed over the previous two months and falling into the high $US 650s.
Right now, in the establishment and mainstream investment community worldwide, there is no doubt that paper of all descriptions is king. The Yen carry trade is booming, with the Yen still hitting 52-week lows against a US Dollar which has only "recovered" very anaemically over the past two weeks. Capital inflows into Asia (not just China but ALL of Asia) are now at levels which well exceed those which held sway in the mid 1990s in the lead up to the Asian Crisis of 1997-98. Broad money (M-3) supply numbers are increasing in double digit percentage figures in all nations which still report them. The US, of course, no longer reports its broad money numbers. Independent estimates put the rate of growth of US M-3 at 11 to 12.5 percent annualised.
The US, by ever more blatant manipulation of the formulas it uses to derive its data, is officially all but "inflation free" on a producer and consumer price basis. Even more hilarious, the Dollar's comeback (and the $US 13 Gold sell-off) on May 16 was credited to a positive new US housing starts announcement while at the same time, the fact that new building approvals had fallen to ten-year lows was studiously ignored. So was a report that US mortgage defaults rose 62 percent in April.
What we have here is an imploding economy sinking out from under an exploding level of global credit creation the like of which the world has never seen. We analyse this in detail in the Mid May issue of The Privateer (Number 578 - published on May 20). In essence, the US has not yet seen fit to distract its public by means of another war, this time in Iran. In the absence of that, they have fallen back on the second best method of distraction from the REAL state of affairs. They are totally distorting the official reportage of the state of their economy.
Part and parcel of that distortion is, of course, a sell-off in the metals markets in general and in the precious metals markets in particular. What the Europeans were doing by selling physical Gold was keeping a lid on the Gold price. Over the past two weeks, this has been topped up by huge US "fund" activity in the futures markets with the result that the Gold price is down just under $US 30 in two weeks.
How long this can last is anybody's guess. Right now, there is a growing chorus of international bankers who have finally been spooked by the situation and are issuing ever grimmer warnings that it simply cannot go on like this much longer. Globally, physical Gold demand is outstripping supply by levels not seen in many years. But at the same time, the ocean of new paper "money" unleashed by credit creation is still providing upward momentum to paper markets. At the same time, this ocean of paper is still providing the means to "curb" metal and precious metal prices in the futures markets - where paper is the rule and the physical material itself hardly ever changes hands.
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