Gold Waiting to Pounce On Summit's Failures

By Rick Ackerman Sep 10 2009 10:37AM www.rickackerman.com

With the G-20 meeting in Pittsburgh just two weeks off, we didn’t expect gold’s widely anticipated push past $1000 to be a piece of cake. Indeed, Bernanke & Friends are probably throwing everything they’ve got at gold right now to suppress its price. And for all we know, Uncle Sam has loaned every ingot (supposedly) in Fort Knox to carry-traders at J.P. Morgan and Goldman Sachs. The ability of these well-connected bullion bankers to borrow more or less unlimited quantities of physical gold is for them even better than a license to print money, since money itself is most surely not what it used to be. The feather merchants have repaid the government’s kindness by sitting on gold futures prices. This price-fixing operation is all the more impressive because its perpetrators have managed so far to peg bullion to $1000 even though the U.S. dollar has broken some key technical supports in recent days.

This is quite a trick, but there are some powerful reasons why the bankers are not likely to prevail in the end. For one, strong and persistent global demand for gold has been feeding on mounting fears concerning the dollar’s integrity. Those fears are not about to abate any time soon. Consider who is in G-20 besides the U.S.: South Korea, United Kingdom, Russia, Canada, France, Germany, Japan, Mexico, Italy, Brazil, China, Turkey, Vietnam, Iran, Indonesia, India, Egypt, Philippines, Nigeria, Pakistan and Bangladesh. How many of those countries do you think are comfortable sitting on a growing pile of U.S. dollar reserves? The answer, even including such Friends of Bernanke as Japan and Britain is: zero.

Bernanke’s Cronies

Bernanke may be working behind-the scenes with a couple of G-20 cronies to keep a lid on gold, but all of them (except Great Britain, perhaps, which has shown a penchant for selling official stocks of gold at horrendous prices) would probably leap at the chance to buy a significant quantity of gold were it available. Moreover, it is safe to assume that some of the nations who will be represented in Pittsburgh – most notably Brazil, Russia, India and China (BRIC) -- are among gold’s most gung-ho sovereign buyers.

Under the circumstances, we should view bullion’s nervous price action as a case of irresistible-force-meets-immovable-object. Something will have to give, but unless you expect G-20 to recess with a consensus favoring a return to hard money, don’t bet that it will be gold.

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Rick Ackerman