Gold Price Sets End-of-Month Record

When the price of gold settled at $1,248.30 at the COMEX close on August 31, that set an all-time high close for gold on the last trading day of any month (ignoring inflation, of course). This result sends a major signal to technical traders that gold is preparing to break upward in the near future. This creates just one more impetus to see far higher gold and silver prices by the end of September.

Last week, I related how at least a couple silver precious metals analysts, David Morgan being one of them, had come to the conclusion that rising prices were being caused by a major new buyer in the gold and silver markets, perhaps even different parties for each metal.

On Monday, I received a message from one of my best information sources confirming this to be true, specifically for the silver market. A customer of a London metals trader, only identified as a German conglomerate, placed large orders for silver starting last week. This was a company that previously had never purchased silver.

The rising gold and silver prices also indicate that it is highly likely that we are now seeing the next major uptick in both markets. Gold may even set a new record high price, as measured in US dollars, by the end of this week. Gold has already set recent all-time high prices in other currencies, such as the Canadian dollar.

A wild rumor began circulating over last weekend that Zhou Xiaochuan, the governor of the People’s Bank of China, had disappeared and may have defected in order to avoid punishment for losses that the central bank may have sustained. Supposedly, hundreds of billions of dollars of losses resulted from the bank’s holdings of US Treasury debt. Xiaochuan has not been seen since then, though an official of the bank stated earlier this week that the governor was busy attending meetings.

As the value of the US dollar continues to decline over time, China’s central bank would sustain losses on the US Treasury debt it holds. However, as I discussed in the past, China has been investing in businesses all around the world. There is some speculation, which seems entirely reasonable to me, that at least some of these purchases have been financed using the US Treasury debt. This would make it possible for China to acquire assets while reducing its exposure to future declines in the value of the US dollar. If this scenario is occurring, I doubt that any losses that China’s central bank sustained would be as large as alleged in the rumors, meaning that there is little reason for Xiaochuan to fear prosecution. But, I suspect, it will take a public appearance by the governor to quell all the rumors.

Last week, Rep. Ron Paul (R-TX) received a lot of coverage when he discussed how the US gold reserves supposedly stored at Fort Knox, the Federal Reserve Bank of New York, the West Point Mint, and other locations had not been physically audited since the 1950s. He urged that a new physical inventory be taken. This could be a watered-down second attempt from his original effort to require an audit of the entire Federal Reserve, a move that received wide support but was gutted by the Democratic leadership in Congress. If there does happen to be a genuine audit of US gold reserves gold reserves, I don’t have much expectation that it will produce any surprises as to the physical existence of the metal. The Fed’s legal counsel testified before Congress last year that all of the gold supposedly at Fort Know really was there.

However, Rep. Paul is also advocating that the legal title to the stored gold also be audited. There is significant suspicion that a large percentage of reported US gold reserves are no longer owned by the US government. As Rep. Paul pointed out, if the US really does possess and have title to all of its reported gold reserves, the government should be eager to prove it. The results of such an audit would end all the negative rumors and speculations. On the other side, if there is any substance to the substantial circumstantial evidence that the US government is deceiving the public about gold reserves, then you would expect to see strong opposition to an audit.

A few days ago, London’s Financial Times finally ran a story discussing the prospect that the price of gold has been manipulated and suppressed. The report included several references to the work of the Gold Anti-Trust Action Committee (GATA) and quotes from GATA’s chair, Bill Murphy. Murphy was interviewed for this story more than four months ago. This should give you an idea of how sensitive it is for the mainstream media to even discuss the issue of the manipulation of gold and silver.

JPMorgan Chase just announced that it will be closing its proprietary commodity trading operations to comply with provisions of the new financial reform law. On the surface, it may appear that the bank is abandoning its efforts to suppress silver prices, in which the bank’s London silver trading staff has openly admitted their involvement to casual witnesses. However, all of these traders will be transferred to other trading positions at JPMorgan Chase and will continue to have the ability to trade commodities, including silver. There is a good chance that the announcement is all image and no substance.

Yesterday’s column discussing the Departments of Labor and Treasury September 14-15 hearings about the confiscation of private retirement accounts has already been picked up by a number of other websites. There have been dozens to hundreds of posted comments. Upon reviewing the comments, it is obvious that there is one part of the column that needs more clarification.

Several people commented that the upcoming hearing is focused on voluntary decisions by people to convert their retirement accounts into lifetime annuities, and not the mandatory nationalization of all private retirement accounts that I described. There was at least one comment that my column was an “interpretation” which did not have an underlying factual basis.

Fair enough. I should have included the links to the October 7, 2008 meeting of the House Committee on Education and Labor (Rep. George Miller, D-CA, chair) on the subject of “Saving Retirement in the Face of America’s Credit Crisis: Short and Long Term Solutions.” In particular, refer to the remarks of Teresa Ghilarducci, an economics professor from the New School for Social Research, at http://edlabor.house.gov/testimony/2008-10-07-TeresaGhilarducci.pdf.

Professor Ghilarducci advocated, in the short term, that “Congress let workers trade their 401(k) and 401(k) – type plan assets . . . for a Guaranteed Retirement Account composed of government bonds (earning a 3% return, adjusted for inflation). When the worker collects Social Security, the Guaranteed Retirement Account will pay an inflation adjusted annuity, based on the accumulated funds.”

As part of her long term solution, Ghilarducci said, “I propose Congress establish universal Guaranteed Retirement Accounts . . . . Every worker (not in an equivalent defined benefit plan) would save 5% of their pay into their Guaranteed Retirement Account to which the government pays a 3% inflation-indexed guaranteed return.” She also advocated that the US government put $600 (adjusted for inflation) annually into these accounts as part of the incentive (bribe) to encourage people to accept this change.

Obviously, Ghilarducci advocated that this program begin as an optional and voluntary conversion to the government accounts and annuities, exactly as the upcoming hearing will discuss. However, her stated plan is that this is not the end of the changes. In her testimony, she twice states than her plan is that “GRAs are universal.” That means mandatory 100% participation.

In my previous column I only mentioned that Ghilarducci advocated government bonds that paid 3% interest, without including the qualification that it was a 3% inflation-indexed interest rate. The “inflation-indexed” feature does not provide much protection. According to the US Bureau of Labor Statistics, the Consumer Price Index (CPI-U All Items) rose just 1.2% from the end of July 2009 through the end of July 2010. However, as I have discussed several times, this rate of price increases is a managed figure, where the methodology is regularly changed with the result to lower the reported CPI. John Williams at http://www.shadowstats.com computes the CPI using the methodology formerly used by the US government. His calculation of the change in CPI from the end of July 2009 to the end of July 2010 is well over 8%! Under Ghilarducci’s proposal, the “inflation-indexed” interest rate would not currently cover the actual loss in the purchasing power of the US dollar!

So, yesterday’s commentary was not an “interpretation” or lacking in a factual basis. It was simply repeating the words that are already in the Congressional Record. It doesn’t matter whether you use a softer term like “conversion,” the stated ultimate goal following these upcoming hearings is for the US government to nationalize or confiscate all assets in private retirement accounts.

By the way, shortly after the October 7, 2008 Congressional hearing, US News interviewed Ghilarducci in an article calling her (admittedly somewhat tongue in cheek) the most dangerous woman in America. You can listen to this October 29, 2008 interview at http://money.usnews.com/money/blogs/capital-commerce/2008/10/29/401k-foe-teresa-ghilarducci-the-most-dangerous-woman-in-america.

With all the news breaking about gold and silver, most of which is bullish for precious metals, look for exciting price increases this month—even more than we have seen in the past 10 days.

Patrick A. Heller owns Liberty Coin Service in Lansing, Michigan and writes “Liberty’s Outlook,” a monthly newsletter covering rare coins and precious metals. Past issues can be found online at http://www.libertycoinservice.com/ Pat Heller is also the gold market commentator for Numismatic News. Past columns online at http://numismaster.com/ under “News & Articles”. His radio show “Things You ‘Know’ That Just Aren’t So, And Important News You Need To Know” can be heard at 8:45 AM Wednesday mornings on 1320-AM WILS in Lansing (which streams live and becomes part of the audio and text archives posted at http://www.1320wils.com.