Gold’s Dirty Little Secret

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Under normal circumstances, the price of gold correlates to the balance sheets of the world’s four largest central banks: the Fed in the U.S., the Bank of Japan, the European Central Bank and the People’s Bank of China. Lately, however, that has not been the case. The price of gold is, in fact, lagging a bit behind.

On Monday, two of Deutsche Bank’s market analysts made a note of the fact and a few news organizations picked up on it. “Gold may be worth more than what traders have decided is the spot price,” they reported. “…the pace of balance-sheet expansion — by 300% since 2005, according to the analysts — indicates that gold could be worth more.”

Chris Powell, Secretary/Treasurer of the Gold Anti-Trust Action Committee Inc., begs to differ. Instead, he blasts analysts and the financial media for not inquiring more closely into why this correlation broke down. He published his own take Tuesday, on GoldSeek.com:

“…perhaps because such inquiry might lead them to the largely surreptitious intervention in the gold market by central banks and particularly their underwriting the huge gold derivatives business, in which paper claims to gold that doesn’t exist take the place of ownership of real metal.

That central bank activity remains a highly prohibited subject among mainstream market analysts and mainstream financial news organizations alike.”

The spot price is currently about $1,326 per ounce. If it were tracking the balance sheets of central banks as it normally does, the price would currently be closer to $1,700 an ounce.

The two analysts, Grant Sporre and Michael Hsueh, were careful to stress that they were by no means predicting that the trading price of gold would rise to the higher price. Only that if gold were viewed as a currency, instead of a commodity, it would be worth more than the current spot price.

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