Written by Jeff Nielson Sunday, 03 March 2013 15:02
When markets are manipulated (especially markets for physical goods), imbalances are created. The longer the manipulation continues and/or the more extreme the degree of manipulation, the larger the resultant imbalance.
The Corporate Media continues to attempt to describe the large gold-deficit which exists in India as a “current account deficit” – i.e. a currency deficit. Gold is a currency. It is and always has been regarded as such by our governments and the international cabal of private banks (the “central banks”) who are allowed to control/operate our monetary systems.
As a matter of the most elementary logic, it is impossible for one to create a “currency deficit” when you are simply swapping one currency for another. If we were to trade McIntosh apples for Delicious apples, we could not end up with “an apple shortage.” So all these media reports of a “current account deficit” for India are a clumsy sham. India has a large gold-deficit. Period.
Why does India have a large gold-deficit? Why does this worry the Financial Oligarchs to such a great degree that they not only continue to obsess about it in their own, media propaganda-machine; but they also feel compelled to lie about the situation? Most importantly, why do these same Oligarchs believe they can fix/solve this gold deficit through selling “paper gold”?
There is only one, possible explanation for the large, persistent gold-deficit which exists in India: the under-pricing of gold versus their own paper currency. Understand that Indians are not only renowned as the biggest consumers of gold, but also the most-shrewd buyers with respect to price.
In short, India’s “gold deficit” could be solved tomorrow, with no financial contortions (or fraud) of any kind; simply through a substantial increase in the price of gold (to its fair-market value). In fact, this is the most elementary principle in our (supposedly) free/open markets: whenever a supply/demand imbalance exists – in this case gold currency versus paper currency – price rises for the good in short supply to whatever level is necessary to restore equilibrium in that market.
Note that with all our currencies maintained (i.e. manipulated) within relatively tight ranges to each other (what our governments call “competitive devaluation”) that if gold is (and has been) chronically under-priced versus the Indian rupee then it must also be chronically under-priced with respect to all the other variations of these paper currencies.
Presumably the bankers (and media talking-heads who parrot them) are familiar with the most basic mechanism of free/open markets. Presumably these same individuals actually believe our own markets to be free/open. Yet when these same individuals continue to fret (and lie about) India’s gold deficit; the only remedies they can suggest are fraud or manipulation.
The manipulation is already a fait accompli. India’s government has jacked-up the import duty on gold. Or to put this another way, it has artificially raised the price of gold in order to artificially decrease demand. The only possible way to characterize this action is “market manipulation.”
Now the (proposed) fraud. The other “bright idea” being floated by the media/bankers is to sell Indians more (imported) “paper gold” – lots more. The obvious question is how can you solve a gold deficit by selling “paper gold”, unless one is actually only selling paper, but calling it gold?
The fact that some sort of sham is being attempted here is obvious. The only remaining issue is to precisely clarify the nature of that sham. Examining this issue from a technical/legal perspective; in fact there are two ways in which “selling paper gold” could ‘solve’ a gold deficit.
Written by Jeff Nielson Thursday, 28 February 2013 14:44
Parts I and II of this series presented an overview of the precious metals mining sector. There it was noted that these companies have been (in the most neutral terminology possible) chronically undervalued in our markets.
The basic business model of these miners (and all commodity-producers) was described/explained. Specifically, it was demonstrated that over time all such producers must “leverage” the price of the commodity they produce – as a basic proposition of arithmetic.
However, despite being in the best-performing commodity sector for the past 12 years, and despite the superlative fundamentals for precious metals going forward; as the saying goes, all gold- and silver-miners “are not created equal.” Notably, there is a dramatic schism between the large-cap corporations in this sector (which tend to attract the most investor dollars and attention) and the smaller producers.
To understand the night-and-day difference between these companies, it’s best to begin by looking at the typical large-cap business model with respect to precious metals miners. As with large corporations in general, their philosophy is the epitome of simplicity – in other words utterly simplistic. Bigger is better.
In a world populated by small corporations, and blessed with abundant resources; this simplistic mantra was in fact a general economic truism…about a hundred years ago. In today’s world of scarce resources, already over-populated with mega-corporations; it is a dinosaur-strategy, assuring one’s path to extinction.
While this observation is appropriate to most of the corporate world, it is especially easy to illustrate the truth of this (modern) principle by examining precious metals mining. Look at every large gold mining company on the planet, and one will see the clear illustration of a strategic decision by management: the choice to operate a (relatively) small number of mega-mines, versus choosing instead to produce gold from a larger number of smaller mines.
At a very elementary level, this strategy may seem to represent wisdom. The simplistic corporate mantra is that larger operations must be “more efficient” than smaller ones. While this assertion is not necessarily true in general, it is patently untrue with respect to precious metals mining (and most forms of mining).
In a world of diminishing resources, resource-scarcity necessarily implies two realities in mining. The number of (undeveloped) “large deposits” in the world is steadily declining, and the “grades” (i.e. richness) of the ore is also steadily declining. This means extracting/crushing/refining more and more tons of ore to get less and less ounces of gold.
From an environmental standpoint, this is an appalling dynamic. To begin with, the amount of environmental disruption/devastation which results from mining operations rises exponentially with the size of the mine. One large mine (typically) doesn’t produce an equal amount of “pollution” to four mines, ¼ its size; but often two or three times that quantity.
Yet even from the standpoint of corporate efficiency this is clearly an inept if not suicidal strategy. In our world of scarce resources, nowhere is this reality more apparent (and expensive) than with respect to energy. At best (i.e. producing high-grade ore from efficient mines), mining companies represent a highly energy-intensive form of industry.
Deliberately choosing to produce gold from deposits with rapidly declining grades, in an economic paradigm of soaring energy costs, in an energy-intensive industry is nothing less than a recipe for destroying one’s own profit margins. Out of desperation, the large-cap gold miners have turned to polymetallic deposits for their jumbo mines, bolstering their sagging bottom-lines by using the “credits” from these other metals to offset soaring production (energy) costs.