Philippa Malmgren is an insider’s insider. She was Special Assistant to the President for Economic Policy on the National Economic Council. She was also a member of the President’s Working Group on Financial Markets, aka, the Plunge Protection Team. Her client list includes every elite corporate firm in the world (Take a minute to look at the list, its mind boggling, the list is here.). You don’t get much more insider than this.
She is out with a new comment on gold. In it she seems to hint that there might have been a conspiracy to push gold down (Remember this is coming from a major insider, who travels in the circles she is talking about):
Why Won’t Gold Go Up? After all, gold should be rising given that every major central bank is expanding the monetary base by historic magnitudes. Japan is doubling the monetary base. The UK is about to print until they reach what the new Governor calls “escape velocity” which is as yet undefined. The US has open-ended Quantitative Easing that will last at least until nearly full employment is reached at 6.5% to 5.5%. The ECB has not even started to monetize the debt but hopes to as soon as the Germans give in. So, why did the gold crash of 2013 happen on April 12th? Gold lost an almost unprecedented 84 USD an ounce that day.
Conspiracy theories abound. It seems the Japanese bond market and gold are highly correlated. As the JGB market sells off, due to their effort to create inflation, every bank starts hitting it’s VAR driven risk limits and has to raise cash.
Maybe the Fed did it? Like all central bankers who are pursuing QE, Chairman Bernanke, is bound to hate it if the market puts more trust and faith in gold than in government. Some observers are now going crazy with the possibility that the Federal Reserve and other central banks might somehow have encouraged the sudden sell pressure. Central banks are either selling or exchanging gold for credit. Cyprus sold 75% of it’s gold, though that does not begin to provide enough cash for them. The IMF is selling too. Euro zone banks are all pledging their gold as collateral against the generous and probably repayable loans the ECB is extending to them.
Is it materially important that JP Morgan and other investment banks are net beneficiaries of money printing but also maintain massive short positions? Why did several banks all issue “sell gold” notes just before or in the months before the record price drop? Were they prescient or forcing a desired outcome?
Note her comment on who has been buying gold during the recent selloff and what it means (my bold):
The most interesting piece of the puzzle is that the Chinese have emerged as the biggest buyer of gold, mainly in large off market. They want the Yuan to emerge as a hard, gold-backed currency in a world where everyone else has chosen to inflate and devalue. The recent bilateral currency deals with Australia, France Russia and Singapore, and many others, reflect this desire to displace the USD as the world’s reserve currency. It may be an interesting and long race between the Chinese reaching for convertibility and the Western central banks straining credibility.
So what is her advice to investors:
Gold bulls have a rare chance to double up now. Gold bears will have a hard time doubling down from a record profit. Meanwhile, apparently the Indians and everybody else in the emerging markets recognizes a good deal when they see it. As inflation pain continues to make headlines from high tomato prices in Brazil to the same for onions in India, no emerging market investors have any illusions. Inflation for them is here for the duration. A gold backed Yuan is increasingly sounding like a sensible idea.