My Favorite Goldbug Conspiracy Theory
(Note that the title is mostly for fun; I don’t think these guys are crazy or anything.) I have been on the gold bandwagon for a while now. Some of us (perhaps after a period of being oblivious) were alert to the dangers and thus recommended to people, “You want to own gold. Once everyone else catches on to how screwed up things are, they will rush to gold as a safe haven.”
Well, that apparently hasn’t happened. Judging from official prices, people all over the world run to US Treasury debt, not yellow metal, when they start panicking. What’s really odd is that on certain days when major surprises hit, gold would get crushed, when one might have supposed it would at least hold its own.
Now there are lots of official explanations for this. For one thing, gold is a commodity, and every other commodity has tanked in price over the last three months. For another (though perhaps related), even if investors would like–other things equal–to increase their exposure to gold during these times, they might not have that luxury if they are (say) running a hedge fund and have to pay cash to a bunch of withdrawing clients. A hedge fund might actually have to sell some of its gold futures to raise the money to pay them off.
Anyway, the goldbug theory that I like on all this, is that you have to distinguish the paper from the physical market. What is happening is that the government (or other nefarious groups) are purposely selling gold futures contracts like mad, to suppress the official gold price (reported in the news). On the other hand, if you try to go into a coin shop or buy gold through the mail, there is a shortage; they will be out, or you will be told to wait 3 months for your coins to show up.
My own personal twist on this is that the obvious arbitrage isn’t really attractive once you factor in all of Paulson et al.’s recent hijinx. You might say, “Well if gold really ‘should’ be $1200 but it’s only $750, why don’t you and a bunch of Ron Paul kooks buy a bunch of futures?”
Well, one answer is that the government might step in and void the contracts. Suppose a bunch of counterparties to Goldman Sachs demand physical delivery, and then (because of the stipulated shortage) Goldman realizes it can’t deliver. It wouldn’t surprise me in the slightest if the government voided the contracts–or more realistically, allowed Goldman to just pay the ‘market’ value of them, even though the whole point is that this value is bogus–in order to relieve the “systemic threat to financial integrity” or some such BS.
Here are two articles (1 and 2) on these matters, from the goldbug point of view. I think I got them from Tom Woods and MercedesRules.
