“If gold is ‘past its day’, what of toxic derivatives and today’s deluge of US Treasury bonds…?” Just like poor Pip Dickens’ Great Expectations, central banks keep inheriting unwelcome bequests.

Today’s “legacy assets” are toxic derivatives; a decade ago it was gold reserves. Both are proving hard to shrug off, but for very different reasons. Both legacies also come thanks to previous central-bank history; the fossils remain only too livid today.

And 10 years from now, if not sooner, just how welcome will the current central bank must-have become – freshly printed government debt, bought with money that doesn’t exist until the central bank wills it?

Seeking first to defend against inflation and war, the West’s central banks built up huge reserves of the ultimate hard money –gold bullion– during the early-to-mid 20th century. Long before the turn of the millennium, however, these hoards grew to look quaint and expensive. Unyielding and relatively

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Excellent chart from the fine fellows over at Zeal LLC. Notice how the actual sales from Central Banks has been declining, at the same time gold demand has exploded. This is very bullish for gold, obviously. Like what you see? Share with a frienddiv class="feedflare" a href="http://feeds.feedburner.com/~ff/YourFinancialFuture?a=6oVm4W-Niac:g1-k2RyYD44:yIl2AUoC8zA"img src="http://feeds.feedburner.com/~ff/YourFinancialFuture?d=yIl2AUoC8zA" border="0"/img/a a href="http://feeds.feedburner.com/~ff/YourFinancialFuture?a=6oVm4W-Niac:g1-k2RyYD44:F7zBnMyn0Lo"img src="http://feeds.feedburner.com/~ff/YourFinancialFuture?i=6oVm4W-Niac:g1-k2RyYD44:F7zBnMyn0Lo" border="0"/img/a a href="http://feeds.feedburner.com/~ff/YourFinancialFuture?a=6oVm4W-Niac:g1-k2RyYD44:7Q72WNTAKBA"img src="http://feeds.feedburner.com/~ff/YourFinancialFuture?d=7Q72WNTAKBA" border="0"/img/a a href="http://feeds.feedburner.com/~ff/YourFinancialFuture?a=6oVm4W-Niac:g1-k2RyYD44:V_sGLiPBpWU"img src="http://feeds.feedburner.com/~ff/YourFinancialFuture?i=6oVm4W-Niac:g1-k2RyYD44:V_sGLiPBpWU" border="0"/img/a a href="http://feeds.feedburner.com/~ff/YourFinancialFuture?a=6oVm4W-Niac:g1-k2RyYD44:qj6IDK7rITs"img src="http://feeds.feedburner.com/~ff/YourFinancialFuture?d=qj6IDK7rITs" border="0"/img/a a href="http://feeds.feedburner.com/~ff/YourFinancialFuture?a=6oVm4W-Niac:g1-k2RyYD44:l6gmwiTKsz0"img src="http://feeds.feedburner.com/~ff/YourFinancialFuture?d=l6gmwiTKsz0" border="0"/img/a a href="http://feeds.feedburner.com/~ff/YourFinancialFuture?a=6oVm4W-Niac:g1-k2RyYD44:gIN9vFwOqvQ"img src="http://feeds.feedburner.com/~ff/YourFinancialFuture?i=6oVm4W-Niac:g1-k2RyYD44:gIN9vFwOqvQ" border="0"/img/a /div

Gold started the summer doldrums looking strong and has retreated since, but what are its prospects for the rest of the year and beyond? That will largely be determined by the interplay between supply and demand; let’s take a look at the supply side.

Reports of dwindling supply are accurate in some areas; however, the story is not that simple. Unlike most metals that are consumed in industrial use, most of the gold ever mined is still around. Gold is forever. Thus newly mined, refined, and fabricated gold is not all that’s entering the marketplace; there are multiple ways of meeting demand. Here’s a look at each.

Breaking Rocks

Imagine that you could turn back the calendar to late 1848, as word was beginning to spread about the gold discovery at John Sutter’s sawmill on the South Fork of the American River in Coloma, California. Would you have loved gold enough to be

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“Words from the Wise” this week comes to you in a shortened format as I do not have access to my normal research resources while on the road in Europe (also see my post “Gone A.W.O.L. - to Slovenia and Switzerland“). Although very little commentary is provided, a full dose of excerpts from interesting news items and quotes from market commentators is included.

While investors’ hopes of an economic recovery might have got ahead of reality, the cartoonists continually reminded us of worrisome issues …

Source: Signe Wilkinson, Washington Post,  June 18, 2009.

The past week’s performance of the major asset classes is summarized by the chart below - a mixed bag so to speak.

Source: StockCharts.com

A summary of

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Tuesday trading in gold turned into a pretty big bear raid. As I mentioned briefly in my rant yesterday…starting shortly after Sydney opened on Tuesday morning…someone bombed the bullion market with a big sell order. The word ‘big’ is relative in this case. In the extremely thin trading that characterizes Far East gold and silver activity…a 1,000 contract sell order would hammer the market…and that’s pretty much what happened in gold. Ditto for silver.

Anyway, after the Sydney pounding [courtesy of the U.S. bullion banks out of N.Y. one would think], gold didn’t stray far away from $897…and was within a whisker of that price when trading began on the NYMEX/COMEX at around 8:20 a.m. in New York. Then it was lights out. A vertical decline like that can only occur if there is huge selling volume into a no-bid market…i.e. the traders for the bullion banks stand there with folded

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Gold declined from Hong Kong through the first hour of New York trading on Monday, shedding about $15, rallied back until the noon hour, but then fell right through the Globex to finish at $906.20/oz., down $6.80. Overnight, gold has fallen off.

Platinum really hit the skids, plummeting straight through with little interruption, ending at $1140, down $35. Overnight, platinum is sharply lower.

Silver fared much better than its sister metals and, even though it too peaked in early far East trading, it managed to hold above $13 all the way through the Comex, before easing on the Globex to close at $12.90/oz., up a penny. Overnight, silver has fallen steeply. (Click here for charts)

Precious metals fanciers couldn’t have been too disappointed with yesterday’s action, given that silver held steady and gold fell only modestly in the face of both a rising dollar and slumping oil.

Most of the market

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Avery Goodman

On Tuesday morning, gold derivatives dealers, who had sold short in the face of a fast rising gold price, faced a serious predicament. Some 27,000 + contracts, representing about 15% of the April COMEX gold futures contracts remained open. Technically, short sellers are required to give “notice” of delivery to long buyers. However, in reality, buyers are the ones who control the amount of gold to be delivered. They “demand” delivery of physical gold by holding futures contracts past the expiration date. This time, long buyers were demanding in droves.

In normal times, very few people do this. Only about 1% or less of gold contracts must be delivered. The lack of delivery demand allows the casino-like world of paper gold futures contracts to operate. Very few short sellers actually expect or intend to deliver real gold. They are, mostly, merely playing with paper. It was amazing, therefore, when March

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By John Irish and Luke Pachymuthu

DUBAI, March 2 (Reuters) - Major emerging economies are seeking to raise their central banks’ gold reserve holdings as fears of a sharp depreciation in the U.S. dollar mount, senior industry officials said on Monday.

Investors have been piling into gold as a safe haven as the the world’s worst financial crisis since the 1930s depression sent global stock markets crashing.

“In this recession it is India and China which are going to grow at a slow rate, but they are growing,” said Aram Shishmanian, chief executive officer of the World Gold Council.

“And they will naturally be looking to gold as part of their reserve asset management strategy, and I see them buying.”

China, the biggest foreign holder of dollar denominated treasury securities with some $681.9 billion

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Central banks don’t want their leased gold back Chris Powell

It works this way.

While central banks traditionally have said they lease gold to earn a little money on a supposedly dead asset, in 1998 Federal Reserve Chairman Alan Greenspan told Congress that this was not true. Central banks lease gold, Greenspan admitted, to suppress its price:

http://www.federalreserve.gov/boarddocs/testimony/1998/19980724.htm

For years prior to 2000, gold leasing fueled what was called the gold carry trade. Investment houses leased gold from central banks, paying the central banks a tiny annual interest rate, usually well below 1 percent of the value of the gold leased, and then sold the gold into the market and invested the proceeds in government bonds, earning perhaps 5 percent annually. The

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HIDDEN VALUE

Dear Reader, 

Is China buying gold to protect itself from the worst financial crisis in history? 

Although we can’t be 100% sure, we can make a compelling case. 

This from Ed Steer, who writes for our friends over at Casey Research… 

In the last three days, I’ve noticed that there has been a change in pattern during Far East trading. It’s not a lot, but it’s something I haven’t seen since I started watching the Kitco gold charts about ten years ago. A buyer [either going long, or covering short positions] is active in Hong Kong trading [in both gold and silver] that I’ve never seen there before. Is it something… or is it nothing? I know that three days activity can hardly be considered a trend… but

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