Gold Producers Poised Like ‘Coiled Spring’ to Rally: Commodities

http://mobile.bloomberg.com/news/2011-11-30/gold-shares-cheapest-since-2002-are-coiled-spring-for-rally-commodities?category=%2Fnews%2Fmostread

GDX vs. GDXJ

A few have invested in GDX, the ETF tracking major gold producers, in an effort to gain more leverage and upside for the increasing price of gold. Here's a synopsis of the differences between GDX and GDXJ, the newest entrant in gold mining shares.

http://www.hardassetsinvestor.com/features-and-interviews/1870-rethinking-gold-miner-etfs.html

Central banks stepping up to the gold window

India's central bank purchase of 200 tons of IMF gold grabbed the biggest headlines, but central banks from other countries are also buying gold. More are inevitably considering increasing their gold reserves in diversifying away from the USDollar.

http://www.reuters.com/article/businessNews/idUSTRE5AF0CP20091116?pageNumber=1&virtualBrandChannel=0

China, now the world's largest gold producer, has been stealthily increasing its gold reserves, doubling its tonnage since 2003.

Of particular interest is this note in the article:

The Royal Bank of Australia has not bought any gold since selling two-thirds of its reserve in 1997.

Australia is a huge exporter of natural resources, including gold. It would not surprise me if they keep more of their output for domestic use going forward. Selling gold in the latest 90's was classic selling at the bottom, much like Great Britain's Gordon Brown did.

In an amusing sequence of press releases, the Russia State Depository announced they would sell 50 tons of gold on the open market. A day iater, the Russian central bank denounced the planned gold sale (in light of gold's rising prices). The day after that, the State Depository announced any gold sales would end up in Russia's central bank. One has to appreciate totalitarianism.

Net purchasing--instead of selling, by central bankers worldwide infers gold's surge in price won't end any time soon.

Barrick, the last of the gold hedgers

Barrick Gold Corporation (symbol "ABX"), the world's largest gold producer, finally removed their hedges against gold spot prices. For over a decade, ABX was one of many gold mining producers who put hedges on gold to lock in future deliveries, and in the process, protect themselves from a decline in the price of gold. In that duration, the hedges have not been profitable, as the price of gold has climbed from $250/oz. to over $1000/oz. today.

Other gold producers have slowly abandoned their hedges over the years, with ABX being the last one to participate in this elaborate gold suppression scheme between the triumvirate of central banks, bullion banks, and gold producers. With news that ABX has unwound its short positions last week, gold bugs are having their day in the sun, as ABX has finally "thrown in the towel". The days of permanent short positions on gold are over--at least for ABX and other gold mining companies. The fortunes of ABX now are completely correlated to its mining operations--and the price of gold, not a derivative financial instrument (a losing one, at that). In other words, ABX anticipates the price of gold to continue to increase going forward.

To gold bugs, this is a seminal event, a confirmation that central banks, bullion banks, and gold mining companies have conspired to suppress gold and silver prices through elaborate gold leasing schemes. I have blogged about it many times, more recently on September 4 and September 5:


http://gregnguyen.blogspot.com/2009/09/ed-steers-take-on-gold.html

http://gregnguyen.blogspot.com/2009/09/silver-futures.html

It's been a running theme, and deservedly so, as illustrated in this lawsuit against JP Morgan and Barrick:

http://www.gata.org/files/BarrickConfessionMotionToDismiss.pdf

These latest findings, along with renewed investor demand for precious metals (including new demand from the Chinese), have caused prices to soar recently.

So the predators are now the prey--the Fed and bullion banks will now attempt to short gold and silver futures contracts on their own, without the veil of gold producers protecting them. The bullion banks will continue to attempt to manipulate prices lower by increasing the number of (naked) short positions, and they will continue to have the blessing of the Federal Reserve, but the cat is out of the bag. At some point, these short positions in New York's COMEX and the London Metals Exchange will need some backing of real, physical gold bullion. A flood of demand for physical delivery in lieu of settlement via cash, will cause a run on gold and silver.

When a failure to deliver occurs, investors worldwide will discover that the Emperor has no clothes.