Gekko

HOW to characterize the mood in the gold market? It’s much like the tone you would expect from man-in-the-street interviews in the middle of the Black Plague. It’s not just the cynical large speculators who have given up. So have the hard-core small speculators, the kind of people who have three years’ worth of canned food in a bomb shelter and who buy T-shirts with pictures of a 9mm automatic and the words “I don’t call 911.” My people. The “bullish consensus” on gold, if that’s the appropriate phrase these days, has reached an all-time low-less than 30 per cent of traders think it’s a buy. The biggest reason for the pessimism was the threat of continuing sales by European central banks, who, the conventional wisdom goes, won’t need massive reserves in the coming sunny era of European Monetary Union. This thesis was bolstered by an announcement by the Dutch central bank that it had disposed of some 300 tons of gold in recent months.

Late last month, like Pollyanna showing up in a death camp, a report from Jeff Christian’s CPM group came across my fax. Christian and his staff do a lot of the useful, tedious counting that’s necessary to come up with supply and demand numbers in a business where full disclosure not only isn’t a requirement, it’s a mortal sin. The report, called “The Reality of European Central Bank Sales,” consisted of a relatively simple but revealing exercise: it compared the gold reserves of European central banks with the task imposed on their governments by the deficit or net-debt terms of the treaty governing their entry into the EMU. In other words, would selling their gold solve their problems? Or even do them much good at all?

JD

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John Dizard

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European Central Bank

HOW to characterize the mood in the gold market? It’s much like the tone you would expect from man-in-the-street interviews in the middle of the Black Plague. It’s not just the cynical large speculators who have given up. So have the hard-core small speculators, the kind of people who have three years’ worth of canned food in a bomb shelter and who buy T-shirts with pictures of a 9mm automatic and the words “I don’t call 911.” My people. The “bullish consensus” on gold, if that’s the appropriate phrase these days, has reached an all-time low-less than 30 per cent of traders think it’s a buy. The biggest reason for the pessimism was the threat of continuing sales by European central banks, who, the conventional wisdom goes, won’t need massive reserves in the coming sunny era of European Monetary Union. This thesis was bolstered by an announcement by the Dutch central bank that it had disposed of some 300 tons of gold in recent months.

Late last month, like Pollyanna showing up in a death camp, a report from Jeff Christian’s CPM group came across my fax. Christian and his staff do a lot of the useful, tedious counting that’s necessary to come up with supply and demand numbers in a business where full disclosure not only isn’t a requirement, it’s a mortal sin. The report, called “The Reality of European Central Bank Sales,” consisted of a relatively simple but revealing exercise: it compared the gold reserves of European central banks with the task imposed on their governments by the deficit or net-debt terms of the treaty governing their entry into the EMU. In other words, would selling their gold solve their problems? Or even do them much good at all?