I always get a large number of emails from investors asking questions about gold and silver. Yesterday the email volume spiked. Basically investors were asking the same question, “Why is gold down on North Korea warning that its military has been cleared to wage a nuclear attack against the United States?” The United States has responded by deploying a missile defense shield at its territory Guam. Defense Secretary Hagel called North Korea, “A real and clear danger.”
It was not long ago that I saw a similar spike in the email volume when Cyprus, a eurozone country, proposed a large tax on bank deposits which amounted to a proposal of partial confiscation of private property. And then there was the news that central banks bought more than $3 billion in gold in 2013.
The chart explains why gold does not go up when fundamentally events are occurring that should cause a pop of several hundred dollars in gold prices.
Please click here to enlarge the chart.
Before I explain the chart, let us analyze the three events described above.
Central Banks
According to the data compiled by UBS, central banks bought $3 billion worth of gold in the first two months of 2013. South Korea bought 20 metric tons, Russia bought 19.2 metric tons, Kazakhstan bought 6.6 metric tons, Indonesia bought 1.9 metric tons, Bosnia bought 1 metric ton, and Azerbaijan bought 2 metric tons.
Such massive buying by a number of central banks alone should have caused gold to move up to $1900 but it did not.
When Is A Euro Is Not A Euro
The founding principle of the eurozone was that it would have a common currency. But now a euro owned by a German is not the same euro when owned by a resident of Cyprus.
When faced with mounting opposition, Cyprus abandoned its plan to impose large taxes on bank deposits. Yes you are reading it right – a plan of taxes not only on interest but on the total amount of deposits. This tax amounted to confiscation of private property without any compensation. After abandoning this plan, Cyprus imposed strict capital controls. Initially people could withdraw a maximum of $300 euros each day from banks. People could not take more than 1000 euros out of the country and overseas credit card transactions could not exceed 5000 euros per month…Read more at Kitco
