The UAE's Golden Head-fake

By: Alex Wallenwein | Thu, Jul 6, 2006
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On July 3, 2006, the United Arab Emirate's Bin Nasser Al Suwaidi, governor of the Emirates' central bank, announced officially that the UAE "may buy gold very soon."

This statement has been hailed in the gold investment world as a sure sign that gold will likely climb from here on forward, as the added demand together with the public announcement will drive up the price of gold.

There is no question that this might indeed happen, at least initially. However, there is a very good chance this was only a head-fake designed to trap unwary gold bugs in the near-invisible net of our domestic gang of global planners and financiers.

For example, take this statement from "Mr. Al" as we shall call him here for brevity's sake:

"I don't think it is appropriate to buy gold now - it is too expensive. The appropriate time might come very soon. We could go up to 10 per cent."

Assuming we can take Mr. Al's word for it, the first and most obvious conclusion anyone can draw from this is that he expects gold to fall in the near future. He wants to buy, but not now.

This raises a few questions in the astute gold investor's mind:

  1. How does he know the price will drop to afford him the opportunity he seeks?
  2. How will he know when it has dropped far enough, if it does, so that the time will be "right" for him to buy?

Of course, these are questions any investor would ask himself when trying to maximize his profits. But Mr. Al isn't just any investor. He is a highly placed official of an oil-rich Arab country that commands about 23 billion USD in forex reserves - of which he says he will invest up to ten percent. That's 2.3 billion. Chump change in the world of central banking, but a lot of money in a tight market like that of gold.

Here is another question:

If he wants to buy low, why is he announcing his plans? That can only serve to drive up the price of the metal - like the Bank of England's announcement in 1999 that it would sell half of its gold dropped the price down to the $250s.

Ordinarily, one would assume he would shut the hell up about his plans and start buying gold quietly so his buying won't drive up the price. He said he would do it gradually. When prices rise, subsequent purchases yield less gold for the same money. That just doesn't make any sense.

However, nobody can call him 'stupid', either. He is obviously a well-educated gentleman. His picture looks like somebody took a CEO of a multinational company and slapped a - whatever you call that thing he's got on his head - on him to make him look like an Arab sheik.

I say he looks way more comfortable like this:

Anyway, in keeping with the tenor of the previous essay, the suspicion presents itself to discerning minds that Mr. Al's announcement may be one of the calculated kind.

Calculated to bring him and his country the most advantage, that is. That means, he has good reason to expect that his much desired buying opportunity will come very soon despite (or maybe because?) of his announcement.

So, let's continue our course of speculation, idle though it may be, and assume that he is a well- connected man, which isn't really that difficult. Well connected to the upper echelons of world finance, that is. We also know that those upper echelons are being run by people inside Goldman Sachs, a company that managed to get its top execs appointed as US Secretaries of the Treasury in two successive administrations while also being allowed to orchestrate the first world-wide IPO of a major communist Chinese bank - the Bank of China. (Could it be that GS is also advising China about its gold purchases?)

If our speculations were on point (by some strange confluence of isolated, sheer coincidences), then Goldman Sachs is actively involved in helping such stalwart 'friends' of the United States as communist China and the Muslin bloc buy US treasury gold at fire sale prices while at the same time making inflation appear tamer than it really is (gold is always regarded as a sure-fire inflation indicator, you know).

The announcement which is the subject of this article may be another case of the same thing.

The announcement by Mr. Al will serve to help drive the price of gold up in the short run. In an - according to him - currently 'trendless' market, that can quickly result in an overbought condition which could then, at the right time, be used to sell gold into the ground again by using the added leverage from the artificially over-billed short-term price hike.

That's when he intends to buy.

Who knows? His buying may end up not being that gradual at all. It may well be a quick, massive move at the 'right price.' That would then serve the added purpose of driving the price back up - after he has replenished his country's depleted gold reserves.

How convenient.

The result? Killing a whole flock of birds with one stone.

So, the trick for gold investors lies in knowing when to get in and when to get out again - before the next engineered price drop comes around. That will be very tricky, indeed.

Many will be suckered into this one as well, just as they have on past occasions.

Only the well-informed, with the right allocation of gold investments and the right kind of advance intelligence will profit from this.

In this crazy day and age, only wild, completely baseless, and unsupported speculation (like that exhibited in this article) has any chance of anticipating the schemes of the movers and shakers of the world of finance. And then, you need to have the good judgment to actually move on it.

When a whole string of groundless, wild speculations starts turning out to be accurate, then you know you're on to something.

So, where is this going?

The idea is to turn gold down as much as possible so that it will end up near the bottom of its five-year uptrend. (Any further than that would be too difficult for 'the powers.' After all, these are not the nineties anymore...)

The bottom of that uptrend channel currently lies near $460 per ounce.

If Mr. Al's friends will actually be able to push gold that low or not remains an open question.

This prospect should not scare you. If it does, might just as well get out of gold and go back to the regular stock markets. There, at least, you can be sure that you will lose your money in the long term. (For some people, there's nothing better than a bit of certainty in their lives, even if it's of the negative type.)

For the gutsier souls out there, there's "gold in them thar hills." The right kind of investment decisions can build up a nice stash of cash that can be to turned back into physical gold at the coming, far lower prices.

But, remember, the "bottom" will be a very pointy one. It will be hard to pick, and it will be harder to commit money at the right time for fear of further drops - and then there can always be more head-fakes on the way. You just have to learn how the central planners of the West think. Once you have developed that skill, you can read them like a book.

Fundamentals still rule, but within the trends they impose there is lots of wriggle room for deranged attempts at micro-managing the world economy. It is those attempts that must be anticipated for individual investors to be safe in this nutty environment.

Got gold?

 


 

Author: Alex Wallenwein

Alex Wallenwein
Editor, Publisher
The Euro vs Dollar Monitor

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