The Price of Gold

Volatility in the Price of the commodity GOLD
What a period it has been. Last week the price of gold rose dramatically and this week it moderated. Last week the price of the commodity reacted to the Fed announcements rising dramatically, and this week some common sense actually occurred and the price fell.

Traders in currencies and commodities
Some say that traders in currencies and commodities are essential to the economy. They balance supply and demand; they create a market and so on and so on. Imagine if you will that the majority of traders are fresh out of school and are less than 30 years of age. Most have no experience in the real world, if indeed there does remain a real world in investing. They sit eagerly at their trading desks, desperately searching for the latest news, calling their associates and friends, looking for tips, searching Facebook and Twitter and Linked In, looking for the latest gossip, ready in an instant to hit the keyboard and BUY or instantly SELL.

And if someone else is first to do a trade, they try to be as quick as possible to follow. Computer programs mimic this propensity – they move billions of shares at lightening speed, always searching for the latest move or technical indicator.

The result of this is the dramatic moves in the commodity price of gold that we saw in the last two weeks. It jumped up, it reacted and fell again. And the traders made (or lost) money and the houses made commissions on the trades – lots of commissions.

I will leave the discussion as to the benefit of all of this to another blog, but for now let us examine what happened the last week, before this week’s correction.

The US Federal Reserve
What a week it was. The US Federal Reserve didn’t like some of the recent economic numbers and to help the economy, made an announcement that more ‘easing’ might occur. This ‘easing’ is to help economic growth, add to employment, keep liquidity in the marketplace, and so on.

A basketful of good intentions. Perhaps?
Sometimes I wonder whether all of these announcements have an ulterior motive. It is impossible that these very prominent people do not see the effect of their announcements, but something doesn’t smell quite right here.

The Effect of Announcements
Upon hearing this announcement, the price of gold bullion immediately shoots upward, defying the predictions of a pullback by so many pundits. The value of the US dollar plunges against every major currency. It is obvious that the world realizes that creating money out of nothing is not good economic policy. It has never worked long term. It created the monster extended depression that started in 1929, and it is being misused again in our times.

Now this happens every time these announcements are made, gold shoots up, and the US dollar falls. So it is odd that we get announcements before the actual deed. If the purpose was to create liquidity, or pump more fuel into the economy, the very fact that the deed is done should accomplish the purpose. There should not be a need to make an announcement.

But that is not what happens. Instead, we get announcements, and immediately following the announcements, the US dollar plummets. Do you believe this incredible coincidence?

Well, what I take out of this, is that there is a deliberate policy in the USA to drive the dollar down and it is obvious that these announcements are quite deliberate. Everyone in the economic world sees this, and the value of gold bullion continues to climb. It should climb in any case, but official US government policy that forces it to climb faster than it would otherwise climb, is good news for gold.

The effect of this diminishment of the US dollar is to strengthen the US economy. If the Chinese won’t allow their currency to rise, the US is forcing their own currency to fall. The goal is increased productivity, increased exports, overtake the Chinese and Koreans and Indians in those areas that an expensive US dollar allows these other economies to thrive, and restore the US economy to world dominance.

Will it work? I don’t know. But I do know where to invest in these circumstances.

So I urge you to get with the picture. You need to be protected and you need to increase your net worth. So you have to be in gold. We think you should be in gold juniors.

By Larry Cyna

Mr. Cyna is an accomplished investor in the Canadian public markets for over 20 years, and has managed significant portfolios. He is a financing specialist for private and public companies, and has expertise in real estate and debt obligations. He has assisted private companies accessing the public markets, has been a founding director of public companies and continues as a strategic consultant to selected clientele. He is and has been a director, a senior officer and on the Advisory Board of a number of TSX and TSXV public companies in the mining, resource, technology and telecommunications sectors, and the Founding Director of two CPC’s with qualifying transactions in mining and minerals. He was an honorary director of the Rotman School of Management MBA IMC program, has completed the Canadian Securities Institute Canadian Securities Course & Institute Conduct and Practices Handbook Course, was a former Manager under contract to an Investment Manager at BMO Nesbitt Burns, a roster mediator under the Ontario Mandatory Mediation Program, Toronto, a member of the Institute of Corporate Directors of Ontario, a member of the Upper Canada Dispute Resolution Group, and the Ontario Bar Association, Alternate Dispute Resolution section. He obtained his designation as a Chartered Accountant in Ontario in 1971 and was the recipient of the Founder’s Prize for academic achievement together with a cash reward. He became a CPA in the State of Illinois, USA in 1999 under IQEX with a grade of 92%. He is a Member of the Institute of Chartered Accountants of Ontario and the Canadian Institute of Chartered Accountants. He holds certificates in Advanced ADR & in Civil Justice in Ontario, Faculty of Law, University of Windsor, certificate in Dispute Resolution from the Ontario Institute of Chartered Accountants. Previous accomplishments are Manager of Cymor Risk Consultants LP specializing in Risk Management Assessment; CEO of Cyna & Associates specializing in mediation and ADR; Founder & Senior Partner of Cyna & Co, Chartered Accountants, a fully licensed and accredited public accountancy firm with international affiliations; and was a partner in a large public accountancy firm. Mr. Cyna is well known in the Canadian Investing community. He is invited to, and attends presentations given by public companies usually 3 or 4 times each week. These presentations are intended by the various hosting companies to present their inside story to sophisticated parties and Investment Managers for the purpose of attracting funding, or of making parties more interested in acquiring shares of those companies. Being a part of this keeps Mr. Cyna deeply involved in the current market and leads to numerous investment opportunities.

Leave a comment

Your email address will not be published. Required fields are marked *