The Daily Bell Issue 455 • Thursday, October 29, 2009

Russia will sell no gold?

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The Russian government said on Tuesday it had postponed its plans to sell up to 50 tonnes of gold this year, after information about the sale was leaked to the market, but the gold market failed to react. "Due to the leak of the information the sale in the reported period and in the reported form will not take place," deputy head of the government agent for precious metals sales, Sergei Gorny, told Reuters. He declined to say when the sale may take place. On Friday, sources told Reuters the government planned to sell 20-50 tonnes of gold -- worth up to $1.7 billion at current prices -- to help plug a budget deficit in the first major sale since the fall of the Soviet Union. The sales from Russia's State Precious Metals and Gems Repository (Gokhran) could account for 0.5 to 1.25 percent of global consumption of the metal, which soared in price to a record of $1,070.40 per ounce on Oct. 14. Gokhran, which traces its history to a decree by Tsar Peter the Great in 1719, holds the Russian state's stocks of precious metals such as gold and palladium and gems such as diamonds. Gold prices were practically unmoved by the postponement, hovering around $1040 per ounce on Tuesday. - Reuters

Dominant Social Theme: Sell it while it's hot?

Free-Market Analysis: In the 1990s, Western central banks played at selling gold to "talk" the price of gold down. One after the other they lined up to microphones with mainstream media logos brandishing their stems to announce their respective central bank sales of gold. It was of course very difficult to tell if these sales were actually intended to occur but they seemed to have the desired effect of keeping gold on the ropes. The price was then in the low US$400s, and it continued to move lower, as we recall. Then some wise leaders in the lineup actually believed in their scripts - Gordon Brown comes to mind - and foolishly sold their nations wealth.

This is one of the reasons that we are sure the price of gold is manipulated - or managed - because we have seen it with our own eyes. We are also aware that the management continues and we are suspicious of the augmentation of the management. We figure what happened with Russia is that greed won out over the instinct to control the price of gold. It is evident even to central bankers these days that if they simply wait they will get a better price.

We think China and Russia may be in on the game because of their behavior recently and also because of the way their central banks have been acting. Is there an alternative to the Western central banking system? We'd like to think so, but both Japan and China - two of the world's biggest economies - have significant dollar assets so we wonder how fast the monetary world is going to change. (We think it will, but not so fast as some do.)

Conclusion: We have no doubt the games will continue as gold and silver rise in price over the next few years and we believe they may well. But as money metals get more expensive, the attacks on them become more difficult to prosecute as well. Not only that but the precious metals sector is becoming more powerful as prices rise - and fiat money remains very weak because it has been so badly managed. We are sure the attacks on gold and silver, too, will continue. We don't anticipate they will be very effective, at least not in the short run.