With gold closing at an all-time high, silver hitting new 31 year highs this week and the US dollar continuing its plunge, the Godfather of newsletter writers, Richard Russell had this to say in his latest commentary,
“One of the questions that I'm most frequently asked is this:
‘Russell, do you think the US government will call in all the privately-held gold, just as Roosevelt did in 1933?’
I've thought about this at length, and I've arrived at what I believe to be the correct answer. The answer is -- No, the government will definitely not call in the gold. The simple reason is that a tremendous amount of gold is held in very powerful hands. Gold (GLD) and gold bullion is held by pension funds, university endowment funds, large powerful hedge funds, corporate reserves, and state treasuries. Note the two paragraphs below.
‘Fearing unstable international financial markets and the possibility of high inflation, Texas' higher education investment managers have bought more than $500 million in gold. "The gold purchases represent only 3 percent of the University of Texas Investment Management Co.'s $22.3 billion in investment funds, but it indicates how deeply the fund managers are concerned about the global financial future."
In other words, my thesis is that gold is now in such powerful hands (much of it even political) that there's no way that the US government would call in gold. Furthermore, what purpose would it serve if the US did call in the gold? In 1933 Roosevelt called in privately-held gold and then raised the price of gold from $20.22 to $35 an ounce, this in an effort to reinflate the depression-laden economy.’
Gold Note -- China has reserves of $3 trillion, of which almost half is in dollar denominated items. China is now the world's biggest producer of gold. And the Chinese government is going all out to increase its production of gold. China also is encouraging its people to buy and accumulate gold.
Against it's huge ($3 trillion) reserves, only 1.7% of China's reserves are in gold. China is on a diversification program to increase its tiny reserves of gold. It is thought that China wants at least 10% of its reserves in gold. This means that China is on a massive gold accumulation program.
My thought is that there is a "Chinese put" under gold. When ever gold corrects a bit, China is there loading up on what ever is available. Other central banks are doing the same thing.
Gold is held in strong hands, big money buyers, central banks, large pension funds. This is not true of silver, which I believe is held in many speculators and quick-trade operators. Thus, silver is in weaker hands than is gold, and that's an important difference.
With its huge cache of reserves, China is also buying all the energy supplies that are available. If it's a natural resource, China is out there waiting to buy it.”
Russell is correct, there is a Chinese put under the gold market and Jim Rickards discusses this in his just released KWN interview. Gold may correct, but gold is heading higher. What will be interesting to see is just how high gold will travel on this leg. Keep in mind bull markets tend to surprise on the upside.
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