Major Insider: Time
to Buy Gold; The Chinese Want to Make the Yuan Gold Backed Posted by Robert
Wenzel at 7:45 AM | June 4, 2013
I have mentioned Philippa Malmgren
before Philippa Malmgren is an insider's insider. She was
Special Assistant to the President for Economic Policy on
the National Economic Council. She was also a member of
the President's Working Group on Financial Markets, aka,
the Plunge Protection Team. Her client list includes every
elite corporate firm in the world (Take a minute to look
at the list, its mind boggling, the list is here.). You
don't get much more insider than this.
She is out with a new comment
on gold. In it she seems to hint that there might have been
a conspiracy to push gold down (Remember this is coming
from a major insider, who travels in the circles she is
Why Won't Gold Go Up? After all, gold should
be rising given that every major central bank is expanding
the monetary base by historic magnitudes. Japan is doubling
the monetary base. The UK is about to print until they reach
what the new Governor calls "escape velocity"
which is as yet undefined. The US has open-ended Quantitative
Easing that will last at least until nearly full employment
is reached at 6.5% to 5.5%. The ECB has not even started
to monetize the debt but hopes to as soon as the Germans
give in. So, why did the gold crash of 2013 happen on April
12th? Gold lost an almost unprecedented 84 USD an ounce
Conspiracy theories abound. It seems the
Japanese bond market and gold are highly correlated. As
the JGB market sells off, due to their effort to create
inflation, every bank starts hitting it's VAR driven risk
limits and has to raise cash.
Maybe the Fed did it? Like all central bankers
who are pursuing QE, Chairman Bernanke, is bound to hate
it if the market puts more trust and faith in gold than
in government. Some observers are now going crazy with the
possibility that the Federal Reserve and other central banks
might somehow have encouraged the sudden sell pressure.
Central banks are either selling or exchanging gold for
credit. Cyprus sold 75% of it's gold, though that does not
begin to provide enough cash for them. The IMF is selling
too. Euro zone banks are all pledging their gold as collateral
against the generous and probably repayable loans the ECB
is extending to them.
Is it materially important that JP Morgan
and other investment banks are net beneficiaries of money
printing but also maintain massive short positions? Why
did several banks all issue "sell gold" notes
just before or in the months before the record price drop?
Were they prescient or forcing a desired outcome?
Note her comment on who has been buying
gold during the recent selloff and what it means (my bold):
The most interesting piece of the puzzle
is that the Chinese have emerged as the biggest buyer of
gold, mainly in large off market. They want the Yuan to
emerge as a hard, gold-backed currency in a world where
everyone else has chosen to inflate and devalue. The recent
bilateral currency deals with Australia, France Russia and
Singapore, and many others, reflect this desire to displace
the USD as the world's reserve currency. It may be an interesting
and long race between the Chinese reaching for convertibility
and the Western central banks straining credibility.
So what is her advice to investors:
Gold bulls have a rare chance to double
up now. Gold bears will have a hard time doubling down from
a record profit. Meanwhile, apparently the Indians and everybody
else in the emerging markets recognizes a good deal when
they see it. As inflation pain continues to make headlines
from high tomato prices in Brazil to the same for onions
in India, no emerging market investors have any illusions.
Inflation for them is here for the duration. A gold backed
Yuan is increasingly sounding like a sensible idea.