Hocus – Pocus Scheme To Cause Dramatic Gold Surge

According to Basel III, the bullion banks (in rest of Europe from June 30 and December 31 for UK) can only count physical gold owned by them as a Tier 1 asset. In theory that would force them to either acquire major amounts of physical at a high cost or sell their paper gold. Since we are talking about substantial amounts of paper gold, this would lead to panic in the gold market.

But it is clear that the market is not expecting panic since this news is already known by market participants and investors. Also, it is not in central banks’ interest to cause panic.

The former Governor of the Bank of England, Eddie George, described such a moment back in 1999:

“We looked into the abyss if the gold price rose further. A further rise would have taken down one or several trading houses, which might have taken down all the rest in their wake. Therefore at any price, at any cost, the central banks had to quell the gold price, manage it. It was very difficult to get the gold price under control but we have now succeeded. The US Fed was very active in getting the gold price down. So was the U.K.”

Since the central banks control and own the BIS (Bank of International Settlement) which is behind Basel III, they are not going to allow the gold market to get out of hand, IF THEY CAN STOP IT.

So in my view there will initially be some fudging of the rules and a transition period to prevent such panic.

Even if it doesn’t happen today, I do believe that the central banks will lose control of the gold market in the not too distant future.

GOLD AT THE CREST OF A MAJOR BULL MARKET

Gold began this bull market in 2000. But it is really a bear market in currencies and in paper assets which we are facing.

As the chart below shows, gold went up for 12 years in a row from 2000 to 2012. After a 3 year correction, this bull market is now resuming.

I expect gold to do as least as well in the coming years as the 2000 to 2012 run which was a compound annual growth rate of over 20% for 12 years.

Also, the short-term picture for gold looks very favorable. On March 31st when gold was $1,707, I said that the gold bottom was in. The price is up almost $200 since then but that is just the beginning. A strong and sustained move is starting very soon.

There is no better asset than gold to protect against the systemic and currency risk which the world is facing. But it is not just a matter of wealth preservation as I expect gold to also generate substantial wealth enhancement in coming years.

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