01
Aug
2013

As The Crisis Deepens, Gold Flows East – Epilogue

Today’s AM fix was USD 1,323.75, EUR 999.20 and GBP 870.29 per ounce.  

Yesterday’s AM fix was USD 1,331.50, EUR 1,002.79 and GBP 875.35 per ounce.

Gold fell $3.50 or 0.26% yesterday and closed at $1,322.80/oz. Silver gained $0.10 or 0.51% and closed at $19.72. 

Gold rose in early Asian trading, then fell back to lose some of its early gains in anticipation of the Federal Reserve’s statement. The statement, which offered no hint of a stimulus pullback, prompted an afternoon rally but the price ended the day’s trading with a loss of 0.26%. Silver finished the day with a gain of 0.51%. 

As The Crisis Deepens, Gold Flows East – Epilogue

An intended consequence of publishing ‘As The Crisis Deepens, Gold Flows East’ was to create discussion and feedback, not just among GoldCore’s own customer base, but among the many thousands across the globe that pick up our Market Update via leading sites such as ZeroHedge and Max Keiser. 

GoldCore and Insight is not breaking new ground here, we are simply attempting to bring some clarity, in our way, to a very complicated issue, an issue that has serious implications for the stability and growth of our respective economies. 

So, when you draw fire from a recognised commentator in the energy field you expect the rebuttal to be logical and more importantly, properly researched. It was then with some surprise that we read Andrew McKillop’s article in yesterday’s edition of The Market Oracle.

In the internet age, McKillop demonstrates how easy it is to fire off 1,200 words without due care and attention. Much like the way the U.S. Fed, the Bank of England, the Bank of Japan and the E.U. central bank are printing money. 

The supply of energy to meet the growing demands of the global economy is the core theme of the first three editions of Insight. There is no doubting the massive reserves of fossil fuels still lying close to or just beneath the earth’s surface. One of the key points made in the first edition of Insight back in February is that we must factor in the cost of processing those fossil fuels before they can enter the energy market. The future of energy production is as much as about the economic cost of processing those supplies as it is about the extraction. 

In reply to Andrew McKillop in The Market Oracle.

McKillop: One of the losers is easy to identify: OPEC. To be sure, its total oil revenues of $1260 billion ($1.26 trillion) in 2012 are impressive – more than two and a half times WalMart’s turnover – but we should make a comparison of this with world GNP, about $65 trillion. If oil, supplying a bit less than one third of world energy, costs around 5 percent of GNP is this a crisis?

GoldCore: He appears to make the same mistake made by other mainstream economists of measuring the energy intensity of the world economy in terms of dollar values and concluding that such a small sector can’t be important. Measured in mass energy flow terms the energy sector is close to 50% of the world economy. He seems to imply that oil isn’t all that important, OPEC revenues being c. 5% of world GDP. Its importance lies not so much in its cost but in its unique status as the premier transport fuel. It simply isn’t replaceable since nothing else has its unique chemical signature and portability.

McKillop: Other losers can be aligned and counted. Overpriced oil dragged in and swelled the oil-and-gas sector to extremes of at least $250 billion-a-year exploration and development spending on a regular basis. In turn, this rationalized and justified over-investment in all kinds of allied, and competing energy sources and systems, running from energy saving to biofuels. Set against this, many developed countries including the US, Japan and all EU28 countries have official or semi-official targets for compressing their total energy demand by as much as 33 percent by 2035. Both China and India are not so far behind in this new no-energy policy quest. Oil will of course be especially hit.

GoldCore: We don’t doubt that every government in the world is looking to increase energy efficiency and cut back on oil consumption. 33% cut by 2035? Could be, but he might usefully think about the implications for world growth, with OECD oil consumption falling steadily and the entire area in recession or depression. Where does he think this leaves the debt structure (i.e. leverage) built up during the last fifty years? What does this mean for the future of the global monetary system?

McKillop: Dangling the prospect of a vintage-type Peak Oil crisis, which begets a financial crisis, which begets a ramp in gold prices may seem nicely logical to some Gold Core readers.

GoldCore: What exactly is a "vintage peak oil crisis"? Since the peak of world conventional oil production in 2005, we have seen the collapse of the western financial system, widespread warfare centred on oil and gas production and distribution, a massive ongoing default on gold debts by the banks, widespread fraud not excepting the burgeoning industry in made-to-order economic statistics such as the ridiculous US inflation data, made-up Chinese GDP and so on. 

McKillop: What looks suspiciously like disguised advertising for the site, Gold Core has published a three-part report in its Market Update series on “why gold must rise”.

GoldCore:  GoldCore Insights are periodical essays published by GoldCore that are intended to inform, create debate and raise awareness not only on our core business of precious metals but also on macro-economic and other important global issues. Since its founding in 2003 GoldCore has fostered relationships with a growing panel of market commentators and experts around the globe. It is our firm intention that this panel will be leveraged to bring you insights that offer a different perspective to the mainstream press.

McKillop: Gold Core

GoldCore: GoldCore

 

To access all three editions of Insight, please clcik on the following links:

Insight February – Currency Wars, Bye, Bye Petrodollar, Buy, Buy Gold

Insight April – Cyprus, Energy & Gold: Wealth Protection In A Lawless World

Insight July: As The Crisis Deepens, Gold Flows East

 

NEWS

Gold climbs after dovish Fed comments – Reuters

ANZ Opens 50-Ton Gold Vault in Singapore as Demand Expands – Bloomberg

Gold imports dropped in June and July – finance minister – Reuters

COMMENTARY

On The Intrinsic Value Of Gold, And How Not To Be A Turkey – ZERO HEDGE

Choosing the Next Fed Leader – The New York Times

For breaking news and commentary on financial markets and gold, follow us on Twitter.

 

 

Mark OByrne