Gold’s Friends Now Outflank Its Foes

By: Rick Ackerman
Rick’s Picks
Monday, November 23, 2009

In the Rick’s Picks chat room, where the focus is sometimes obsessively on gold, the meaning of “long-term” can range anywhere from 90 minutes to about three hours. Small wonder, then, that whenever Comex precious-metal futures hit an air pocket and briefly plunge, the shock waves wash over the room like a tsunami. In fact, these fleeting episodes mean nothing, considering that the larger, bullish environment for gold contains more testosterone than a Chicago stockyard. Who needs to worry about what those nasty, retrograde bullion bankers, commercial traders and by-now impotent central banks are doing when you know for certain that the likes of China and India are size buyers?



And they are, along with Russia, Indonesia, Arabia and every other sovereign entity that is not afraid to offend the U.S. with a defensive leap out of dollars. Under the circumstances, now that its fan club has grown to encompass the entire non-English-speaking world, gold can barely sell off any more. China is naturally gold’s biggest supporter, since the country supposedly holds three quarters of its $2 trillion cash hoard in dollar-denominated instruments, among them an Everest of U.S. Treasury paper. Since we know the Chinese didn’t get that rich by being stupid, we can be fairly certain they are not content to merely “hope” that the U.S. economy turns around, taking the dollar along with it. This scenario is as implausible as a credit-financed auto-and-housing boom in the U.S., and they know it. And so we shouldn’t be surprised to find them quietly buying bullion whenever a large quantity is offered for sale.

Subversive Ideas

This type of buying does not typically drive gold quotes into a bullish frenzy; rather, it supports the market whenever prices turn soft. (There will always be big sellers around to make this happen -- Great Britain, for instance, which treats sovereign gold as though it were radioactive. And why should they not, since, as long as a government stores the stuff as though it were valuable, the citizenry is bound to harbor the subversive notion that gold is itself money.)

For our part, we can only look upon the mood swings that roil the chat room from time to time with bemused detachment. In the room, even when gold is rallying, the fear persists that THEY are going to pull the plug one day, sending quotes into one of those horrific tailspins that make gold bugs wish they’d stuck with stamps, coins or some other investable whose prices is governed by staid investors who clip coupons, tie flies and train carrier pigeons when they are not tuned to Prairie Home Companion.

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