Will Gold Be the Turd in G-20’s Punchbowl?

With a glower of contempt toward the bankers, gold remains easily aloft above $1000, developing thrust for the next big move. We wrote here a while back that blast-off from $1000 would follow the realization that G-20 can do nothing to restore stability to the world’s tottering financial system. Now, the question is whether anything at all will be “realized” in the wake of the Pittsburgh meeting. We hesitate to call it a summit because the event seems to have slipped off the news media’s radar.  Unable to recall the actual dates of the session, we searched Google’s news pages in vain for this information. Tellingly, there was only a sidebar from the New York Times about how the meeting would probably be a net positive for Pittsburgh’s economy.

 Pittsburgh

Fortunately for Pittsburgh, G-20 scouts have been in the city for weeks, wallowing in expense-account lunches and dinners well ahead of the actual event. “Since early August, journalists, dignitaries and safety officials have been visiting our city, eating at our restaurants, shopping in our stores and staying in our hotels,” said the town’s young mayor, Luke Ravenstahl, 29. “That’s just the short-term gain. In the long-term, you really can’t put a dollar value on the amount of free marketing we’ve received worldwide.”  We have family ties to Pittsburgh ourselves and harbor a hope that some South Korean or Japanese mogul takes a shine to the Pirates baseball team, since Mark Cuban seems unwilling to come to their rescue. The Bucs could use a benefactor with deep pockets and a desire to strengthen the team’s sorry excuse for a bullpen. 

 Chinese Blockbuster

However, we somehow doubt that that will be the news that emerges from the G-20 Septemberfest. More likely is that we will get a statement from the U.S. that America is committed to laying the foundation for a long and stable period of global economic growth. (Whether we will simultaneously rescind the ruinous tariff just levied against Chinese tires remains open to speculation.) In reality, about the only thing we can conceive of that would lend real importance to G-20 would be an explosive rally in gold. That would at least remind the attendees that market forces are about to drown them all if they are unable to come up with a convincing stall tactic. And what would that be? How about China announcing that they are going to implement metal backing for the yuan? Now that would be a shocker! Rude, too – akin to telling your host that you’ll bring your own toilet paper to the next meeting. A big rally in gold would also force the news media to make sense of it all. Sure, the rally would be a turd in the punch bowl. But it’s not as though the story could simply be ignored. Unfortunately, however, gold is still too much a creature of official manipulation to pull such a stunt. Not now, but maybe next year.

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  • mike September 27, 2009, 7:31 pm

    Mayor Luke Ravenstahl can talk about the supposed gains to Pgh, but those on the ground know better.
    Huge areas of the city were shut down affecting workers and medical care – even ambulances were re-routed (and re-routing in Pgh is difficult). Downtown employees were actually told to stay home from work! Students/faculty at Pitt and CMU were also disrupted and harassed by storm troopers.

    Pgh got the G-20 because other cities weren’t so stupid to foot the bills. Big loss to taxpayers and a huge inconvenience.

    Next time the G-20 should go where they may be better tolerated – like the desert or just take over a cruise ship for a week.

  • Mark September 26, 2009, 2:23 pm

    I read the other day the Chinese government had allowed the public to buy gold. What better way to soak up some the savings in paper money without costing the government anything. The only problem with gold like any other store of value is it is only worth what somebody else will pay for it. If the world economy follows the path of Zimbabwe who is richer the guy in the condo with bars of gold and rare gold coins or the the guy with a yard big enough and the skills to grow a garden and trade the food. What works when things are NORMAL can be useless when it is going down the tubes.
    The service industry is just a necessary evil like oil on gears you need enough oil but more oil is just a waste of money. The main problem with the US economy is we do not make stuff that the rest of the world wants to buy China and Asia does. All we are doing is transferring the wealth we accumulated after WWII as someone does when they retire. The only problem is countries countries may die but people keep having offspring nad need to eat.

  • ben September 25, 2009, 8:50 am

    The Chinese are Communists…not the reincarnations of Ludwig von Mises. The only reason the Chinese government would want to accumulate gold is so they can continue having a supply of Arab oil when dollars can’t even buy their weight in oil. To pledge it against their currency would kind of defeat the whole purpose of getting it in the first place. If the pledge was sincere, and the Yuan was able to be converted into gold at current market prices, I’d say the governement vaults would be bereft of all the gold in under a month. Bye bye gold, bye bye oil.

  • Rich September 25, 2009, 12:45 am
  • Rich September 25, 2009, 12:44 am

    Striking visual metaphor Rick (and welcome back, although you never left long) as the Pittsburgh Potemkin Village puts its best facade forward for the G-20 charade. And will they flush the Three Rivers punchbowl and its contents?

    Julian Robertson suggested G-2 or G-3 might be more timely and useful to bail US out. Do BB, HRC, LS or TG have the gravitas/moral authority to persuade them? Will the David’s have to do it? Or was the idea all along to finance, foreclose and repo the USA while reducing American wages to the $1.25 a day world level?

    Awfully quiet out there, suggesting many holding their breath to see if Mr Market does not recover yet again, for the 8th time since the first week of March. Somehow we suspect seven rallies and a +61% S&P5 are a hard act to follow.
    Rosie may be right and all may not be quite so rosie, if that makes big cents.

    Fortunately we have your S&P5 hidden pivot breach to 1045.85 to day to confirm what the kamaina have been saying: it may be all over but the crying…

  • Ben September 24, 2009, 8:42 pm

    “Unfortunately, however, gold is still too much a creature of official manipulation to pull such a stunt. Not now, but maybe next year.”

    Proven by the drop below 1,000. I’ll take it that that is what were you getting at.

    I have to admit, I was getting used to the IDEA of it never again seeing those levels, even though for the better part of the year I’ve been seeing a rally at or around later this year, at the soonest, and possibly not by the middle of next year at the latest (hard as that is to imagine).

    Anyway, I have my doubts that China will be comming out and making that sort of announcement. Though I don’t really have any evidence for thinking it, I just don’t think they have enough gold to even consider such a thing. They would want a cheap price until they do (if ever), so why shock and awe at the G20?

  • gladstone September 24, 2009, 7:28 am

    I wouldn’t worry too much about gold becoming rebellious with a huge break out. The price of gold will be whatever the Feds want it to be. You underestimate the ability of these people to pull this off and return the world to stability again.

    Yes, I do see the fundamental problems with the derivatives market and I do believe one day the whole thing will end in the biggest financial collapse in the history of the world. But, it’s the same derivatives that let the musical chairs go on for years, which, may last much longer than most would dare to think.

    I started believing the imminent collapse back in the Clinton era with my first gold and silver purchases in 1997. Twelve years later it’s still the same old circle jerk. You people put forth all the same arguments but with a little different twist. Yes, the day of reckoning will come to the U.S. This year? Probably not. It’s impossible to scientifically predict the future.

  • Paul September 24, 2009, 4:11 am

    Rick,

    Glad your back. Hope you’re 100%.

    If the Chinese have been very patient buyers of gold, wouldn’t they welcome:

    1. Continued, good ol’ fashion price manipulation, especially if the results were a very slow to no appreciation of gold prices?

    2. A redux of the events from a year ago when they were able to scoop up Au for under US$800, Ag under $10, Cu under $1.30, and Oil under $40?

    Does China have enough Au to “open up shop” with a gold-backed currency?

    Best of luck to all.

  • FranSix September 24, 2009, 1:21 am

    The simple fact that the Yuan is pegged to the dollar makes all of the jawboning about China just a tad absurd. Seems people have forgotten the Yen as well. Apparently the world cannot afford a sub-90 Yen, but here we are, testing that level again.

    From what I gather, G-20 happens Sept 24 – 25.