Picture: REUTERS
Picture: REUTERS

GOLD bulls have had it rough this year but many would have found solace in the Precious Metals Round Table web-based conference call and presentation held recently by Sprott Asset Management.

About 6,300 participants logged on to listen to speakers like investment "guru" Marc Faber — publisher of the Gloom, Boom and Doom Report — and Toronto-based Sprott chief investment strategist John Embry, a regular keynote speaker at gold conferences.

The bottom line? Hang on to your physical gold and gold shares because the point is fast approaching when the gold price is going to explode.

That prediction is, of course, completely at odds with what has actually happened in the gold market this year, where the price has plunged from about $1,700oz to $1,200oz, before recovering marginally to just above $1,300oz.

Predictions from institutions such as Natixis are far more restrained. The recently published Natixis Metals Review predicts gold dropping back to lows around $1,170oz over the coming six months to a year and averaging $1,200oz for next year.

By contrast, Mr Faber says "the Fed (US Federal Reserve) is well on the way to creating a situation where the sh.. will hit the fan".

Mr Embry says: "We are in the early stages of a classic monetary debasement. We are seeing more and more instances of where the physical gold does not seem to be available. The paper gold market will be seen for what it is, which is one of the greatest Ponzi schemes in history.

"The paper market has been controlled aggressively by the central banks, the BIS (Bank for International Settlements) and the bullion banks. Investors have been presented with an unbelievable opportunity," he says.

"Demand for gold will explode at a time when the supply is not available and the price will reflect this dramatically."

The conviction held by all the speakers is that the gold price has been forced down through blatant manipulation of the gold investment paper market and that much of the gold that is supposedly held by various institutions such as the Fed is no longer available.

That is because the metal has been leased out to bullion banks, which have, in turn, sold it to investors and that bullion is not readily recoverable.

The allegation is that various banks are acting in concert to drive down the gold price so they can buy bullion back without sending the price through the roof.

Such suggestions of manipulation are dismissed out of hand in many investment circles as gold "conspiracy theories".

But one development has really focused attention on the issue and that was when Germany’s Bundesbank early this year announced it had requested the return of 300 tons of gold from the Federal Reserve Bank of New York. However, this would take seven years to complete.

That situation was forensically dissected by Grant Williams, analyst for Mauldin Economics, in his "Things that make you go Hmmmm" newsletter.

He says that three Boeing 747-400 aircraft in standard cargo freighter configuration could deliver the gold immediately from New York to Frankfurt, assuming, of course, that the gold is actually available at the New York branch of the Fed.

On April 1 came news of the letter from Dutch state-owned bank ABN-Amro to customers effectively stating that any holders of physical gold who had left the metal in custody with the bank would, in future, not be able to request physical delivery of their gold and would instead be compensated in cash. Mr Williams says: "There is a word for that where I come from: confiscation."

Sprott CEO Eric Sprott says: "Our analysis of the physical gold market shows that the central banks have most likely been a massive, unreported supplier of physical gold and that strongly implies that their gold reserves are negligible today."

His conclusion is that "a large portion of the western central banks’ stated 23,000 tons of gold reserves are merely a paper entry on their balance sheets — completely unbacked by anything tangible other than an IOU from whatever counterparty leased it from them in years past".

Mr Sprott says: "We also realise that some readers may scoff at any analysis of the gold market that hints at ‘conspiracy’.

"We’re not talking about conspiracy here, however, we’re talking about stupidity.

"After all, western central banks are probably under the impression that the gold they’ve swapped and/or lent out is still legally theirs, which technically it may be.

"But if what we are proposing turns out to be true, and those reserves are not physically theirs — not physically in their possession — then all bets are off regarding the future of our monetary system."