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Gold at 425 ounce giveaway when oil 40 barrel { April 22 2004 } Original Source Link: (May no longer be active)
http://www.vheadline.com/readnews.asp?id=18129http://www.vheadline.com/readnews.asp?id=18129
Gold at $425-per-ounce is giveaway prices when oil is surging towards US$40
Published: Thursday, April 22, 2004
Bylined to: Andrew McKillop
VHeadline.com oil industry commentarist Andrew McKillop writes: After the so-called 'Anti Shock' of 1985-86, when the oil price was divided by three thanks to Saudi overproduction and a barrage of right-minded analysis from New Economists, these liberal thinkers set a new price for oil, and a new price for gold. Both, of course, were lower than previous.
Oil was henceforth worth exactly US18-per-barrel, while gold was worth exactly $270-per-ounce of the Troy type. The new gold/oil standard was born, with a ratio around 1-to-15. This standard, like any neoliberal nostrum, suffered grave credibility problems, but the New Economists recycled a key slogan from the Keynesian era and its politics. This was curious given their self-proclaimed goal of destroying all and anything to do with that far-back era of full employment, social welfare, infrastructure development and other old-fashioned things like aid for poorer countries and respect for the UN system.
Keynes was, to them, a closet communist but his slogan that 'Gold is a barbarous relic' was a nice partner for their new slogan that oil is a 'Sunset Commodity', meriting a very maximum of 1/15th the gold price they set.
Into the 1990s and the Clinton Boom of win-win for players of the bourse casino, outsourcing of industrial activity to the emerging real economy powerhouses of China, India, Brazil, Turkey among others, and the first Oil War in the Gulf, this gosh-and-golly pricing system held up. With some slippage: by the late 1990s gold was fretting to quit its $270 'right price', and oil had already reached a dangerous, new 'right price' of between $22 and $28-per-barrel. None other than Mandil, head of the IEA, has recently vouched that the $22-$28 price range has every appearance of being dead and gone -- now that oil changes hands at around 38 US dollars-per-barrel!
If the Gold Ratio or new standard of the so-called new economists applied, then the gold price, today, should be well above US$550-per-ounce. In the real world, it is flirting with the $400-425-per-ounce 'psychological ceiling.'
So what is wrong ?
What is wrong is that both gold and oil have soared far out of their 'right price' ranges. Put another way, the oil price, or the gold price, or both are too high. This news has sunk in, in high places!
The 'Financial Times' of London in an April 17, 2004 editorial claimed that at this moment we are seeing the death throes of overpriced gold - anytime soon it will collapse to 'right price' levels (around $270 or $300-per-ounce).
Since this editorial was a pure article of faith the reasons for gold's coming collapse were thin on the ground. Just two 'reasons' were advanced for the demise of gold in this thundering appeal for downward speculation on the gold price.
First was the 'shock decision' of N M Rothschild to completely abandon gold bullion trading, and give up its seat on the ultra select London daily price fixing committee. To the 'Financial Times' this could only be due to Rothschild's traders knowing what is in store for the gold price. Just as easily, it could be due to N M Rothschild traders being way undersold on futures trading, through betting on a fall in the gold price that is not materializing. Getting out now will be less painful than later, when the scandal hits the fan and the courts fill with claims on the venerable trading house.
The second reason, and shock came from France -- where the Banque de France may (or may not) sell up to one-third of its gold stock, that is about 900 tonnes on a stock of 'fiduciary gold' estimated at around 2800 tonnes.
Obviously, to the 'Financial Times', the French government is eager to profit from artificial highs of the gold price. Inside France, where debate has raged on this subject, nothing is further from that conclusion.
The former Finance minister Jean Artuis writing in 'Le Monde' on April 20 explained that at current gold prices, the sale of 900 tonnes would barely cover 3% of France's ballooning national debt, and the Chirac UMP government, because of European Central Bank (ECB) legislation, would have great difficulty placing their hands on even a fraction of the sale product.
Even worse, he went on, France's debt is growing so fast that by this winter those 900 tonnes sold at over $400-per-ounce would cover well under 2% of the national debt, and by late 2005 not even 1%.
Other explanation offered by French analysts have a more interesting ring to them. One theory advanced in the business press is that French and ECB dollar holdings are low, far lower than the impressive stocks held by Japan, China, or -- for France -- even Taiwan and Hong Kong. Given that an oil shock is imminent those dollar holdings must be garnished, in order to pay for oil imports at $50 or $60-per-barrel, and ease the pain of a dangerous ride for the US dollar, during which the remaining stock of 'fiduciary gold' will appreciate handsomely in value.
While the 'Financial Times' likes its readers to believe that the 'FT' believes a crash of the gold price is imminent it could, in fact, be just the other way around. Gold at $425-per-ounce is at giveaway prices when oil is surging towards the $40 'ceiling.'
The Bob Woodward argument that the Bush clan and Saudi princely circus may have agreed to set a brief interregnum for the oil price, with oil prices talked down just before the November elections to assure re-election for Bush, may be true.
But the gold price has such big upward potential its movement may, in fact, pull the oil price right through that 'glass ceiling.'
Daily variations of both the gold price, and oil price will therefore respond to this tortured context of conflicting world views, through an explosion of volatility.
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