Reg Howe's BIS Gold Shocker - and what it means to You

By: Alex Wallenwein | Mon, Mar 27, 2006
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Reg Howe's most recent commentary about the BIS' admission that it was involved in the rigging of gold prices (and regards such as "good policy") has a number of implications which Reg briefly touched, but did not expand on (it's not that he doesn't know. It just wasn't part of his purpose for writing the commentary).

A. Gold Miners Vulnerability to Shareholder Actions:

Reg stated that now, going forward, gold miners can no longer hide behind the general assumption that the gold market is free from rigging efforts and that only kooks would suspect such efforts. This is only half of the truth, though. Although miners certainly have future exposure, the very fact that they were willing to cooperate in the central banks' schemes by voluntarily engaging in forward sales activity and blocking any efforts by GATA and others to bring the truth to light shows that they may even be vulnerable to shareholder derivative lawsuits for their past behavior as well.

This can have serious implications on their future profitability, and thereby their share prices, which affects, well, you. You need to know which mining companies are least vulnerable to this threat, and shift your investment focus over to those.

You also need to realize that even the most pro-GATA miners can be adversely affected by this. Any such lawsuits - by affecting the concerned mining companies' future bottom lines and therefore projected share price valuations - will adversely affect the major indexes (XAU and HUI), and so may turn general investor sentiment negative towards gold mining shares in general.

Only the most well-informed gold buffs will know which way to turn in such an environment. The general public is only now slowly regaining consciousness from a deep, deep, media-induced sleeping-beauty type slumber that has bewitched them over the past two and a half decades. Once they see the indexes drop again, they will back out of gold shares altogether, which will also affect even the most savvy gold stock investors.

Any wide-spread exodus of the gold investing public from gold shares and mutual funds will adversely impact the miners' ability to continue further exploration, or to continue to operate profitably with known deposits. Further consolidations are likely in the pipeline, and so are closures of less profitable mines, which will further reduce world wide gold production.

That, in turn, will make gold even dearer than it already is. Continued rising demand and falling supply from production, coupled with now dwindling gold-price suppression efforts (the CBs know they can't afford to give up more of their metal in this current environment) will have its inevitable effect. Especially now, that the Gold ETFs (which must "hoard" metal to support their claims of being good gold-price proxies) are all the rage, and with incipient but growing central bank buying at the fringes, demand for physical will sky-rocket.

People who have focused their past investment efforts on acquiring the real stuff rather than the share-price proxies derived from it, will see their efforts and their foresight and apparent sacrifice pay off handsomely.

B. What This Means to Gold Miners

Comments under the previous heading have set the stage for this topic already. The main points to make here are that prudent gold miners will make damn sure they put appropriate disclosures of their knowledge of gold price rigging efforts into their footnotes from now on. But it doesn't stop there.

Many of them will get hit with lawsuits from angry shareholders. Class action trial lawyers will have a field day and will start advertising their services on TV commercials. ("Ripped off by gold miners? Call 1-800-WESCREW-YOU") Duped investors will smell blood and call their 800 numbers in droves. Only those who most aggressively denounce what the central banks via their bullion-bank henchmen "did to them" in the nineties will survive. They will need to get way out front with their PR efforts at convincing the public that (a) they didn't know that was going on at the time, and (b) they only engaged in forward selling 'because they had to."

C. What this Means to Future Gold Price Rigging Efforts

Big-time gold price riggers are literally screwed.

In future, pulling off similar efforts, even on a much more limited scale in both time and scope, will become more and more difficult. Gold (physical) will rise and rise in its fiat-valuation. Whether or not the euro will rise against the dollar, or vice versa, will become even more of a moot point (but that does not mean the euro is irrelevant. Not by a long shot). All eyes will turn to gold - and to who has any and who doesn't. That "who" includes governments as well as private individuals.

It may well be that any future efforts at controlling the gold price will be attempted through falsifying data concerning the true holdings of the gold ETFs, should they really become as popular as is widely expected. So, despite their ease of use, they may well become traps for the unwary investor.

That makes an old Bible verse come to mind: "The first will be the last, and the last will be first."

People who made their fortunes in fiat will see the value of their holdings dwindle. Governments who staked their futures on their ability to spin as many fiat-plates in the air at the same time as possible will find their power positions seriously undermined. Those who hoped to make their fortunes in gold stocks and ETFs may end up holding the bag. Conversely, those die-hard "conspiracy buffs" who were smart and tenacious enough to hang on to their metal and increase their holdings over time will come out smelling like entire fields of roses.

D. What All Of This Means To You

What it means to you is best expressed in a series of questions:

The answers to these will determine whether you will enjoy your life from now on, or get bogged down in regrets over past mistakes.

Got gold?



Author: Alex Wallenwein

Alex Wallenwein
Editor, Publisher
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