Gold bears: Youve been Punk'd

You’ve got to love how big money can manipulate the market to create favourable entry and exit points for themselves, in the process confusing nearly the entire market.

Top callers in gold market – who missed the entire rally from $200/oz in 2001 to $1200/oz in 2009 – made a big fuss early this year when George Soros said in an interview that “the ultimate asset bubble is gold.” The discerning listener would have picked up that he didn’t say gold is in the ultimate bubble, he said gold is the ultimate asset bubble. He was talking about the asset class gold in general and the frenzy that’ll grip the gold market the closer paper money gets to worthlessness – it’s intrinsic value – zero.

Gold bulls were skeptical of Soros’ comments, saying he most likely wanted the price to decline so that he can buy more gold on the cheap. This morning Bloomberg revealed Soros doubled his gold holdings in the fourth quarter of 2009. The gold bulls were right. Clearly Soros doesn’t believe gold is in the ultimate bubble at present.

The Chinese did exactly the same in December last year.  Or, maybe we should say, the media interpreted PBOC comments in the same way as they did Soros’ comments, running the gold bubble stories around the web and financial TV like wildfire. But China has said before it intends increasing its gold reserves from the current 1054 tonnes to 10,000 tonnes over the next ten years. So basically they’re talking gold down and buying the dips.

Russia in October 2009 announced it planned to sell $1.7 billion worth of gold, which led to some downward pressure in gold, and guess what?! Russia transfers gold to the value of $1 billion from Gokhran, the state repository, to its central bank.

So when you hear stories of gold being in the ultimate bubble, or that gold is ‘frothy’, look where these comments are coming from. Assess that person or institution’s likely goals. More often than not you’ll find they’re giving the exact opposite opinion in order to manipulate markets to create favourable entry points for themselves. As for the reason why the gold bears are so happily paraded at every opportunity, bear in mind gold is the ultimate reserve currency and store of value. Gold competes with the dollar, euro and all other paper currencies as money. Which means gold bulls are in direct conflict with the objectives of governments and their central bankers and their efforts to maintain credibility while destroying the value of their paper currencies through the printing press.

But as far as the gold bubble goes, we are still far off the ultimate mania and bubble top. Until infomercials are selling Krugerrands and gold collectables on morning TV, and dinner time conversations are dominated by the topic, gold remains a buy. Those days are far off, and if you’re selling on rants about a ficticious gold bubble up till then, you’re getting Punk’d.