I was very interested in the news I read from MarketWatch that said, "Hong Kong
is pulling all its physical gold holdings from depositories in London,
transferring them to a high-security depository newly built at the city's
airport", although it does not say why the depository was built at the airport,
of all places. It could've been situated in a thick vault inside a mountain,
out in the middle of nowhere so that you could see the enemy coming, and get a
chance to try out some of that expensive firepower you have been itching to use
without shooting up a lot of innocent bystanders. And the police also like to
employ all their people and new equipment, so they could shut down whole
airport down for a week, making you miss your flight and weekend meeting with
your boss, and you end up getting fired and living on the street and that is
when things start getting bad.
But apparently I am alone on this "don't build the damned thing at the airport"
crusade, probably because my warning is too late and the gold depository is
already built, and there may be other reasons why it would be a good idea to
build it at the airport.
So why did they build it in the first place? Apparently, so it "would support
Hong Kong's emergence as a Swiss-style trading hub for bullion and would lessen
London's status as a key settlement-and-storage center" - for whatever that's
worth.
But getting with the action and being a "team player", the Hong Kong Monetary
Authority, "which functions as the territory's unofficial central bank, will
transfer its gold reserves stored in other vaults to the depository later this
year".
And how much gold are we talking about? "The monetary authority reported $63
million in physical gold reserves as of July 31, according to its International
Reserves and Foreign Currency Liquidity statement", which doesn't seem like a
lot, as I would have about that much gold - personally! - if my wife had always
worked two or three jobs (instead of one job and children, which eliminated the
whole economic advantage of "putting the old lady to work"!) and if I had been
extraordinarily lucky in investing the money. And if somebody rich had left me
some money in their will. A lot of money.
Anyway, it's not all that much, although Martin Hennecke of Tyche Group Ltd
said that gold and the ability to securely store it could be "appealing to
regional central banks unnerved after watching the global financial system
teeter on the verge of implosion last year", and that "Central banks are
increasingly aware of the importance of having gold reserves at a time of
financial crisis and having it easily available at their own disposal".
Of course, this makes me laugh and say, "Like who? You ever heard of the
central bank gold agreement, where central banks are still, after all these
years, selling gold into the markets in a controlled way? Hahaha! Does that
sound like 'central banks are increasingly aware of the importance of having
gold reserves at a time of financial crisis' to YOU? Hahahaha!"
Of course, he takes no notice of me, and may be talking about the results of
marketing efforts that "will be launched to convince Asian central banks to
transfer their gold reserves to the Hong Kong facility".
As we have just learned, one would be ill-advised to discount the effectiveness
of modern marketing methods, which were able to create buyers for quadrillions
of dollars' worth of derivatives with the pitch that by cutting up and
reassembling risky debt, no matter how much the more the merrier, you can make
risk disappear! Hahaha!
Or perhaps the attitude for gold has changed, like Ed Steer's gold and silver
daily newsletter quoting Dennis Gartman as saying, "we get the sense that
something really quite ominous is upon us and that some news … and clearly not
good news … is waiting out there on the market's periphery that shall tend, on
balance, to weigh heavily upon stock prices, shall weigh heavily upon
government intervention efforts; shall weigh heavily upon the global capital
market's collective psychology."
The result is, he says, that "we have the sense that we are at an historic
turning point for the gold market," and one of those things that indicates as
much is that, as you would expect, gold is in demand as exemplified by "The CEF
[Central Fund of Canada] bullion vehicle closed at a 13.6% premium to NAV, a
recently high level." Wow!
So gold is in such demand that investors are willing to pay a 13.6% premium
over the gold holdings of CEF? Wow!
It's like I've been saying; buy gold, silver and oil because your government is
acting irresponsibly with the money, and now people are finding out for
themselves how good that advice is and how it is so easy that they probably
gleefully shout, "Whee!" although the only person I ever heard gleefully
shouting was me.
Richard Daughty is general partner and COO for Smith Consultant Group,
serving the financial and medical communities, and the editor of The Mogambo
Guru economic newsletter - an avocational exercise to heap disrespect on those
who desperately deserve it.
(Republished with permission from
The Daily Reckoning. Copyright 2009, The Daily Reckoning.)
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