Gata's Fatal Gold Solipsism By Tim Wood 20 Mar 2005 at 07:45 PM EST
NEW YORK (ResourceInvestor.com) -- Almost a fortnight ago the Gold Anti-Trust Action Committee claimed that gold’s lagging price performance relative to other commodities was “more powerful evidence of surreptitious intervention by central banks in the gold market”.
Not.
The latest claims are not evidence of any sort; by any standard. It requires a special arrogance to convert reductionist rumination into a central bank rigging scheme. There is no iron law requiring the Reuters/CRB Index to sustain fixed price relationships for time immemorial.
It is this perpetual solipsism that leaves Gata unable to engage seriously rather than hurl insults and fatwas against unbelievers.
Gata’s basic premise has always been that gold is not a commodity, but money. Yet now investors are supposed to be outraged because gold is acting too much like money and not like an ornery ‘ol commodity.
If gold begins to once again lead base metals, as it seems it most likely will before this cycle is complete, will Gata loudly claim that something is awry?
Gata’s promotion read: “With the CRB Index where it is today, GATA said the price history of the last boom in commodities suggests that gold now should be priced between $591 and $647 per ounce -- and that does not adjust for the dollar's loss of purchasing power in the last 25 years.”
It is an entirely unpersuasive conclusion, more so because of the Gata’s broader philosophy, such as it is. How on earth can Gata even bother to benchmark the gold price to an index that takes its price from the New York market which is supposedly at the heart of the anti-gold conspiracy.
The inference is that gold alone is somehow a victim because it is not conforming to previous patterns. If that is sufficient to prove a conspiracy, then other commodities must have super conspiracies manipulating them. The central banks must be very, very long cocoa and cotton, never mind oil and copper. And they manipulators must be shorting the heck out of poor palladium and platinum.
History shows that relationships between components of the CRB Index are always in flux. What Gata requires us to believe is that if tallow and nickel deviate from the ratio of 1980, then a conspiracy is to hand.
The CRB Index has not kept pace with changes in the world economy. The changes in the price setting arrangements, marketing, supply and demand for all the components has changed substantially since the 1980s. That is why so many trade-weighted commodity indices have started to emerge to compete with Reuters/CRB.
Given the economic boom taking place in China and India – on an unprecedented scale – there’s nothing surprising about base metals and soft commodities outpacing gold. The simple, but critical difference is that base metals boast nearly empty warehouses and fragile supply networks. By contrast gold is overhung by weak hands who keep signalling and acting to supply as much gold as the market wants from large stockpiles.
So what.
If anything, it is interesting how gold has reasserted its monetary role since 2001. If the CRB Index is proof of something, then this chart must be sufficient proof of the contrary:
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