The Wall Street Journal Published Blatant Lies About The Gold Market

If you tell a lie big enough and keep repeating it, people will eventually come to believe it. The lie can be maintained only for such time as the State can shield the people from the political, economic and/or military consequences of the lie. It thus becomes vitally important for the State to use all of its powers to repress dissent, for the truth is the mortal enemy of the lie, and thus by extension, the truth is the greatest enemy of the State.  - Joseph Goebbels, Hitler's Minister of Propaganda

Over the past year or so there has been a very aggressive attempt by Wall Street and the financial media to discredit gold as both an investment and a store of value against the intentional devaluation of the U.S. dollar by the Federal Reserve and the Government.

As a perfect example of this, the Wall Street Journal published an article yesterday titled, "Gold Fades From Investment Picture."  You can read the article here, which I've reproduced except for one irrelevant picture of gold bars (you can download this document by clicking on the "Download" button on the top right) :

 
WSJ_Gold -

Notwithstanding the absurdity of the opening sentence, the next sentence makes the statement that Russia's Central Bank has accounted for 30% of all gold reported to the IMF  since the start of 2010 and that Russia sold gold in September.  First, note that the statement is qualified by making sure that they cite all gold purchases reported to the IMF.  The truth is that the IMF is emphatically not the official Central Bank scoreboard for Central Bank gold purchases.  There is no such thing.  Theoretically it would be the the BIS (Bank for International Settlements) but tell that to China, which hasn't issued an "official" Central Bank gold report since April 2009.

But let's put the WSJ's assertion into the context of the Russian Central Bank's gold activities since 1994:

As you can see, since 2007 Russia has nearly tripled its gold reserves and has been steadily accumulating nearly every month since then.  You can also see that there were two other months, both in 2012, when Russia sold a small amount of gold.  To make the assertion that a relatively small gold sale by the Russian in Central Bank indicates that Russia's appetite for gold is waning is outright incompetent reporting.  It's a borderline fraudulent statement.  In fact, one Russian Government official recently had this to say:  "The more gold a country has, the more sovereignty it will have if there's a cataclysm with the dollar, the euro, the pound or any other reserve currency"  LINK.

For the sake of brevity, I'll skip over the ridiculous comments that are in the article that were made by moronic Wall Street analysts and get to the part in which the article asserts that Central Banks are on track to cut their buying by 34% in 2013.  The truth is that we really don't know exactly how much gold any of the Central Banks are buying other than that nearly all of the Central Bank gold buying is coming from eastern hemisphere Central Banks + several South American CBs.

What we do know is that based on the amount of gold flowing into China through official sources in Honk Kong plus physical gold deliveries reported by the Shanghai Gold Exchange, China alone is on track to import close to entire annual amount of gold that will produced in 2013 by all gold mines.  Here's the net import (imports less re-exports back to Hong Kong) for China through August this year:

I don't know about you but this chart doesn't look to me like the world's largest importer of gold is slowing down its purchases.  Please note that this chart does not include gold that has been delivered year-to-date on the Shanghai Gold Exchange.  When you add those numbers in, China has imported well over 1,000 tonnes of gold so far this year.  In fact, let's take a look at that:

Please note that this total 1,750 tonne number would include gold imported through Hong Kong.  Also note that it is anticipated that estimates for the total amount of gold mined in 2013 are between 2200 and 2230 tonnes.  So you can see that China is sucking down nearly all of the world's gold production on its own.

One more very important point to emphasize.  The gold that may or may not be imported into China that is purchased for the Peoples Bank of China (Central Bank) does not get reported officially.  We have no idea how much gold is being accumulated on an annual basis by the PBC.  We do know that China produces about 400 tonnes of gold per year from its mines and the gold it produces internally is not exported.  But if you net out the gold produced by China from the global total produced, you can see that ex-China the world is going to produce about 1800-1900 tonnes of gold.

There are several other problematic aspects to the Wall Street Journal's article, but they all center around the fact that "sources" cited by the authors of the article are, at best questionable.  I will go out on a limb and state for the record that the article is intentionally or unintentionally fraudulent.

One more aspect to all of this to note.  You might be asking yourself, if China is taking down most if not all of the gold that will produced by mines this year, where is India, Turkey, Russia, Viet Nam, the Middle East and the other gold-buying Central Banks getting their gold and how come the price of gold isn't going higher?

First, the GLD gold trust has had over 500 tonnes removed from it since mid-December 2012.  Accounting for the gold that has been removed from all of the physical gold ETFs plus the Comex in New York, roughly 700 tonnes of gold being stored by various institutional custodians has literally disappeared from sight.  We have no idea where this gold has ended up, but it's safe to say that most, if not all, of it has ended up in private vaults of Central Banks and investors in all of the gold major gold importing countries.

One more point about that.  The LBMA (London Bullion Market Association) does not report the amount of gold held by the Association so we have no idea how much gold has been drained from it.  We do know that the Bank of England released 1300 tonnes of gold from its vault sometime this past summer.  We also know that gold swap rates on the LBMA were negative for a significant amount of time this summer and have been over the past several days.  This is indicative of a very tight supply vs. demand for physical market in London.

So there you have the facts about global demand and supply.  The truth is that China, and other countries, are buying gold hand-over-fist and there's not really much that western Governments can do to stop it.  The price of gold has been contained by the U.S. Fed, the Bank of England and ECB through the use of paper derivative gold contracts - futures and forwards.  It is also highly suspected that the Bank of England released 1300 tonnes of physical gold from its vaults as described above to help keep a lid on the price of gold.

I think it's now becoming somewhat generally accepted that western banks and Central Banks are actively manipulating the price of gold and silver via the paper derivatives markets.  At some point, and I have no idea when but I suspect the time is not far off, these entities are going to lose control of their ability to keep the price of down.  Although this will be a huge gain for those of us who are positioned to take advantage of what we see coming, I truly fear the ramifications of this event for the U.S. dollar and U.S. economic/political system.