Eurosystem Sales by Ed Wener


The bombing of the Gold market over the past few days was well planned as usual. First they let the Gold price run a bit, accumulating Gold along the way. They buy Gold shares too. This strategy attracts new buyers, not aware that they are entering a Bizarre World where normal market conditions do not apply.



Then, out of the blue, for no apparent reason, they attack. The real reason for the attack is to frustrate market participants. Hurt them financially. Discourage them from owning Gold or Gold shares. The attack is coordinated and sustained. They use the Gold accumulated in the run up supplemented with Eurosystem Gold as the table below illustrates. This Table is derived from the weekly financial report available at: http://www.ecb.int/press/pr/wfs/2005/html/fs051101.en.html



This Table begins with the second year of the second Washington Agreement (WAG2). The first figure of 149,882 million Euros is the total Eurosystem holding of Gold and Gold receivables. It works out to 11,858.4 tonnes (using 32,151 oz per tonnes and a Gold price of €393.124 per oz).





This attack on Gold is highly profitable for those on the inside. They make money knowing that Gold will go up and then they sell and short Gold/Gold shares making money on the way down. The HUI index went up to a high of approx 250 then dropped signaling that Gold was about to be attacked.



Let’s go back to our table for it tells us this attack is over. WAG2 limits Eurosystem sales to 500 tonnes per year. In the first month of year 2 they have already sold at least 60 tonnes which works out to 720 tonnes annually. I say “at least” because Eurosystem holdings include Gold Receivables. They may have leased or swapped more than 60 tonnes during the month. In other words their vaults do not hold 11858 tonnes of Gold but rather a combination of Gold Bullion and Paper Receivables of dubious value. The breakdown of this total into their component parts is the greatest secret in the financial markets. If we knew the total Gold Receivables we could work out the total Gold Bullion sold over the past decade and from that calculate how much longer this charade can go on.



In any case, I believe Gold market participants are learning from past experience. Buyers are becoming less enthusiastic with each successive run up. This is most noticeable when looking at the Gold shares. Experienced buyers are now taking profits as they see the shares stall. So in the current run up to US$480 the shares were unable to better their highs of 12 months ago. But too this is a dangerous game. Selling your Gold and Gold shares because the market is rigged, because breaking out to new highs does not mean further gains but immediate pain means you are being trained to react. Remember, they don’t want you to own Gold or Gold shares. They want you to hold fiat currencies. Pain, in the form of financial losses, is applied whenever you get too enthusiastic.



So whereas the old rule was to buy on a breakout, the new rule is to sell. Take “profits”. This is the Bizarre World of Gold. So you take “profits” but you’ve given up your seat in the Gold market. You hold fiat paper. You are being trained to hold fiat paper. No one is going to tell you when the game is up. And this game is for keeps. No second chances. As long as they are willing to sell down their Gold stocks it can go on. Unless of course someone else says “I bid $1000 per ounce”. Unlimited quantities required. Preposterous idea? Maybe, but at $1000 per oz all the Eurosystem Gold (including those dubious Receivables) would only be worth €$300 Billion. Or more simply there is only one ounce of Gold for every European.



Cheers from Auckland, Ed Wener
ed.na@xtra.co.nz

un must reading, démo à l'appui ..