Saville says gold’s flow doesn’t matter to price; U.S. and China disagree

by Chris Powell, GATA.org Dear Friend of GATA and Gold: Who is buying gold and who is selling it mean nothing to the metal’s price trend, nor does it matter where the metal is coming from, financial letter writer Steve Saville maintains this week in commentary headlined “Looking for (Gold Price) Clues in All the Wrong Places,” posted at his Internet site, the Speculator Investor, here: http://tsi-blog.com/2015/01/looking-for-gold-price-clues-in-all-the-wron… That’s not how the U.S. government sees it. To the contrary, the U.S. government considers gold’s location to be of supreme importance to its price and the price of the U.S. dollar, the primary mechanism of U.S. power in the world. The U.S. government’s outlook is described in detail by the minutes of a meeting at the State Department in April 1974 attended by Secretary of State Henry Kissinger and his assistant undersecretary of state for economic and business affairs, Thomas O. Enders, minutes archived by the State Department’s historian here — http://history.state.gov/historicaldocuments/frus1969-76v31/d63 — and copied at GATA’s Internet site here: http://www.gata.org/files/StateDeptKissingerEnders1974.txt The meeting addressed what the State Department saw as the growing desire among Western European countries to revalue their gold reserves upward, thereby increasing gold’s role in the international financial system, while U.S. policy was to demonetize gold so as to leave the dollar unchallenged as the world reserve currency. Secretary Kissinger asked: “Why is it against our interest to have gold in the system?” Mr. Enders: It’s against our interest to have gold in the system because for it to remain there it would result in it being evaluated periodically. Although we have still some substantial gold holdings — about $11 billion — a larger part of the official gold in the world is concentrated in Western Europe. This gives them the dominant position in world reserves and the dominant means of creating reserves. We’ve been trying to get away from that into a system in which we can control … Secretary Kissinger: But that’s a balance-of-payments problem. Mr. Enders: Yes, but it’s a question of who has the most leverage internationally. If they have the reserve-creating instrument, by having the largest amount of gold and the ability to change its price periodically, they have a position relative to ours of considerable power. For a long time we had a position relative to theirs of considerable power because we could change gold almost at will. This is no longer possible — no longer acceptable. Therefore, we have gone to Special Drawing Rights, which is also equitable and could take account of some of the less-developed-country interests and which spreads the power away from Europe. And it’s more rational in … Secretary Kissinger: “More rational” being defined as being more in our interests or what? Mr. Enders: More rational in the sense of more responsive to worldwide needs — but also more in our interest. … That is: Whoever has the most gold can control its valuation, and, implicitly, can control the valuation of all currencies, and thereby create the most “reserves,” the most money — money being power. The interest of the United States, as perceived at that meeting at the State Department, was to dominate the world through the power of money creation, a power disproportionately held then by the United States, as it is now. Saville writes: “The amount of gold shifting into or out of exchange-traded fund inventories could be of interest, but the shift in location from an ETF inventory to somewhere else or from somewhere else to an ETF inventory is not a driver of the gold price.” Saville’s assertion that transfer between inventories can’t drive gold’s price is contradicted by the history of the London Gold Pool, which collapsed in March 1968: http://en.wikipedia.org/wiki/London_Gold_Pool As always, in 1968 gold was merely changing vaults. But that it was coming out of central bank vaults, whose supplies were announced and finite, surely did drive price, as it gave buyers confidence that central bank inventories could be exhausted. If central bank inventories had been considered infinite, of course no one would have bought in such volume as developed in 1968. Further, gold’s price, like the price of any commodity or currency, also can be driven by the policy objectives of those who would acquire it. Gold holders who underwrite vast short selling in gold, as Western central banks long have done through gold swaps and leases, may profit from maintaining a low price. And gold holders who recognize the market’s vulnerability to a short squeeze may see profit or geopolitical advantage in arranging one or threatening to. Continue Reading>>>

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