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Gold “Fever” In Asia And Central Bank Demand Could Cause An “Earthquake” In The Gold Market

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From Gold Core

Gold “Fever” in Asia and Central Bank Demand Could Cause an “Earthquake” in the Gold Market

Gold is mixed against various currencies today but is higher in euros after the euro has fallen on concerns that European leaders gathering for the summit in Brussels may not be able to resolve the Eurozone’s debt crisis and prevent contagion in the financial system.

Cross Currency Rates

Gold is trading at USD 1,600.10, EUR 1,128.1, GBP 989.50 and CHF 1,315.10 per ounce.

Asian indices were mixed and European indices have snapped a two day advance, and commodities declined, on signs economic growth is slowing in Europe and China. The Stoxx Europe 600 Index slipped 0.4 percent as Ericsson AB lost the most in more than two years and earnings missed analysts’ estimates. The FTSE has fallen 0.35%. Futures on the Standard & Poor’s 500 Index slid 0.3 percent.

Gold and G10 Currencies Versus the US Dollar – 2011 YTD

An interesting analysis article on gold by Reuters confirms massive and growing demand for physical gold in Asia and the risk of dislocations and rapidly rising prices in the gold market due to central bank demand.

The giant middle class populations in Asia, especially China and India are buying physical gold bullion in volume due to concerns about global growth, in order to protect themselves from stubbornly high inflation and concerns about the declining value of their respective paper currencies.

Gold demand in China alone is expected to rise about 20% to near 700 tonnes this year from 570 tonnes in 2010.

Official figures show inflation at 6.4% but real inflation is likely higher and the authorities are struggling to tame annual inflation.


Gold and G10 Currencies Versus the US Dollar – 2011 YTD

The massive increase in demand from Asia is sustainable. Especially in China where gold ownership was banned from 1950 to 2003 and therefore per capital consumption of gold is increasing from a near zero base.

Besides this Asian demand, there is also the continuing and growing central bank demand. Central banks were net sellers for most of the last 30 years and became net buyers in 2010 due to monetary and systemic concerns.

The analysis piece reports something experts on the gold market have been saying for some time, which is that “central banks have to tread lightly, as sizable purchases could jolt the relatively small gold market.”

“Last year, global gold supply, including mine production and scrap, stood at 4,108.2 tonnes, which translates into about $210 billion at current price.”

Meanwhile, “the amount of U.S. debt held by the public stood at $9.75 trillion by July 19, doubling from five years earlier -- adding nearly $1 trillion a year, based on data from the U.S. Treasury Department.”

Dong Tao, chief regional economist at Credit Suisse said that "gold supply simply doesn't grow as fast as China's foreign reserves. Only the increase in U.S. debt can match that."
Central banks could raise gold holdings marginally, he said, but sizeable purchases could cause an “earthquake” in the market.

"We can buy whatever with our money without causing price distortion, but a $2-trillion, $3-trillion elephant will certainly cause distortion”, said Tao.
China has the world's biggest foreign reserves, which stood at $3.2 trillion at the end of June. Gold holdings of 1,054.1 tonnes make up just 1.6 percent of its reserves, though China ranks sixth among the world's top official holders of gold.

Some coverage of gold’s record nominal highs in recent days suggested that gold’s rise in value was due to investors “piling into” gold due to fears about the EU and U.S. debt crisis. The phrase “piling in” suggests that rising gold prices are due to speculative “hot money” and that therefore prices would fall as quick when the speculative money decides to sell.

However, Asian and central bank demand for physical gold bullion is not speculative rather it is smart money which is passively diversifying and buying and holding for the long term. 

NEWS

(Reuters) -- Analysis: Asian investors stricken by gold fever on record price
http://www.reuters.com/article/2011/07/21/businesspro-us-asia-gold-idUSTRE76K0RO20110721

(Wall Street Journal) -- Gold Push Unlikely to Be Scrapped
http://online.wsj.com/article/SB10001424052702303661904576455861205249574.html

(Bloomberg) -- Gold Advances as China Slowdown Reignites Global Economic Growth Concerns
http://www.bloomberg.com/news/2011-07-21/gold-may-decline-as-european-u-s-leaders-work-to-ease-default-concerns.html

(Reuters) -- PRECIOUS-Gold hovers around $1600/oz; euro zone summit eyed
http://af.reuters.com/article/commoditiesNews/idAFL3E7IL09N20110721

(The Sun) -- £3 Billion Golden Yacht is  World's Most Expensive
http://www.thesun.co.uk/sol/homepage/news/3705851/3bn-gold-yacht-is-worlds-most-expensive.html?OTC-RSS&ATTR=News

(Wall Street Journal) -- Family Loses Coins (Double Eagles) Worth Millions in Dispute With U.S.
http://online.wsj.com/article/SB10001424053111903461104576458423819724978.html

(Reuters Africa) -- Hong Kong Mercantile Exchange to launch silver futures on July 22
http://af.reuters.com/article/metalsNews/idAFL3E7II0W920110718

COMMENTARY

(Forbes) -- Gold - What The Left Fails To Grasp Is That Gold Equals Jobs
http://blogs.forbes.com/ralphbenko/2011/07/18/what-the-left-fails-to-grasp-is-that-gold-equals-jobs/

(BBC) -- Is Now the Time to Sell Your Gold?
http://www.bbc.co.uk/news/business-14221697?utm_source=twitterfeed&utm_medium=twitter

(ZeroHedge) -- Fed Preparing For US Default Says Plosser
http://www.zerohedge.com/article/fed-preparing-us-default-says-plosser

(Got Gold Report) -- Gene Arensberg: Comex commercials pile on shorts in gold
http://www.gotgoldreport.com/2011/07/comex-commercials-piled-on-short-gold-futures-.html

(Forbes) -- Gold Is Truth, Unchained CPI Leads To A Dog-Food Diet
http://blogs.forbes.com/greatspeculations/2011/07/20/gold-is-truth-unchained-cpi-leads-to-a-dog-food-diet/

 


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Thu, 07/21/2011 - 08:13 | Link to Comment bigdumbnugly
bigdumbnugly's picture

money money money money money money money...

mwahahahahahaha

Thu, 07/21/2011 - 08:14 | Link to Comment Xibalba
Xibalba's picture

EUR/USD going full retard....2X 100pip swings this morning already.  

Thu, 07/21/2011 - 08:15 | Link to Comment freethinker4now
freethinker4now's picture

Thats Chinese music to my ears

Thu, 07/21/2011 - 08:18 | Link to Comment cossack55
cossack55's picture

C'mon 10.0

Thu, 07/21/2011 - 08:20 | Link to Comment Roger Knights
Roger Knights's picture

"Asian and central bank demand for physical gold bullion is not speculative rather it is smart money which is passively diversifying and buying and holding for the long term."

This elephant in the room is so obvious -- but US-centric gold bears refuse to see it. They keep babbling about bubbles and baubles.

Thu, 07/21/2011 - 08:22 | Link to Comment j0nx
j0nx's picture

Sucks when the rest of the world is catching up to the United States' standard of living for the past 60 years and we all realize that resources on this planet are finite. Just a matter of time now.

Thu, 07/21/2011 - 08:22 | Link to Comment goldfreak
goldfreak's picture

too many positive articles on gold in the media? A bad sign?

Thu, 07/21/2011 - 09:03 | Link to Comment CH1
CH1's picture

Maybe the beginning of the parabola.

Thu, 07/21/2011 - 11:34 | Link to Comment gdogus erectus
gdogus erectus's picture

They have to put a few positive articles on gold in the MSM now before the big run-up so that in the future they can re-write history on how the MSM was all over it and offer articles like this up for proof.

Thu, 07/21/2011 - 08:24 | Link to Comment TradingJoe
TradingJoe's picture

So far this morning no trace of "buying", futures slightly up, respective ETFs DOWN!

Looks like markets are setting up for another NO VOLUME MeltUp "on EURO ZONE PROGRESS" :))))

Thu, 07/21/2011 - 08:28 | Link to Comment bigdumbnugly
bigdumbnugly's picture

>euro zone progress<

another to add to the growing list of oxymorons

 

Thu, 07/21/2011 - 08:37 | Link to Comment TradingJoe
TradingJoe's picture

Oh Dear! Another "wise guy"! :))

Thu, 07/21/2011 - 09:04 | Link to Comment CH1
CH1's picture

Hong Kong Metals Exchange opens tomorrow.

Could be entertaining.

Thu, 07/21/2011 - 08:26 | Link to Comment newstreet
newstreet's picture

Tyler must have a really big GLD position to unload.

Thu, 07/21/2011 - 08:42 | Link to Comment Strike Back
Strike Back's picture

Dumbass or agent, we don't invest in GLD due to counterparty risk.  If you're going to use the whole "they're lying because they want to profit" line that is so favored amongst the sheeple, at least pick a viable investing option that "they" would be profitting from.  And before you spout such an idiotic line, consider the how much your leaders and their financial backers have to benefit from their Dow/SP Index/Consumer economy to infinity line when the bulk of their wealth is held in stat quo equities.  Get fucked.

Thu, 07/21/2011 - 08:45 | Link to Comment Strike Back
Strike Back's picture

Dup.

Thu, 07/21/2011 - 08:31 | Link to Comment Spigot
Spigot's picture

Spin this as a "demand" thing focus on far east "central banks", do not focus on the reality: dumping dollars.

Thu, 07/21/2011 - 08:34 | Link to Comment youngman
youngman's picture

I still think in the new future....all the hard metals will be owned by the Asians, Russians, and Indians....and the Western world will be trading only paper gold and silver...

Thu, 07/21/2011 - 08:38 | Link to Comment gwar5
gwar5's picture

I got a feevah, and there's only one cure -----> GUH-OLD!

An interesting July 20th reminder (to RobotTrader?) from Peter Schiff:

“This had been the longest winning streak for gold since 1980 as far as consecutive up days.  I think more importantly the Dow Jones broke down Monday to less than 7.8 ounces of gold, that’s the first time it has been below 8 ounces in this entire bull market.  

So the Dow is even lower today in terms of gold than it was in March of 2009 when the index was at 6,500.  That shows you how much real value is being lost nominally even as the market goes up. That bodes very well for gold as an asset class, as an inflation hedge, that not only is it rising, but it is rising relative to stocks.”

-- Peter Schiff, KWN


Thu, 07/21/2011 - 08:43 | Link to Comment Spigot
Spigot's picture

Someone is prepping the public message/meme when the dollar tanks vis a vis gold, oil and commodities (taking over the role of real money vs the broken money system) its about "those people over there doing something (speculators, central banks, etc).

Thu, 07/21/2011 - 08:45 | Link to Comment Scroto Gaggins
Scroto Gaggins's picture

“central banks have to tread lightly, as sizable purchases could jolt the relatively small gold market.”

What does this tell you?

 

No gold standard means tillions/quadrillons of worthless dollars printed while gold remains @ $1600/oz.  I would like to know what the "real" price of gold/oz would be if we revalued it to all that worthless fiat in circulation (paper, and electronic).  While we are at it, lets end naked shorting. 

Thu, 07/21/2011 - 09:08 | Link to Comment Long-John-Silver
Long-John-Silver's picture

To reinstate a Gold standard the price would need to inflate to $24,400 per Troy ounce.

Thu, 07/21/2011 - 09:25 | Link to Comment tarsubil
tarsubil's picture

As of right now? What about two years from now after much more printing? At what point does valuing gold in dollars become useless? At what point afterwards does everyone realize this?

Thu, 07/21/2011 - 11:08 | Link to Comment RockyRacoon
RockyRacoon's picture

Ya know, if I knew as little as you do about gold and markets I'd keep my mouth shut.

Thu, 07/21/2011 - 12:55 | Link to Comment Temporalist
Temporalist's picture

Hey Rocky would you really mind a $24k POG?  I don't think so.

Thu, 07/21/2011 - 09:17 | Link to Comment Spigot
Spigot's picture

Exactly, see my post above. There are 165,000 tonnes of gold in above ground storage, no lack of supply. People want it and are not selling it at these prices. The comment about "have to watch due to even small purchase in small market causing price dislocations" is really a warning in disquise...

"OUR FINGER IS ON THE BUTTON"

Back in the late 80's there was discussion that the next "World War" would be financial in nature...

And of course the title of the thread "Nuclear" war now about pricing gold (and all fiat in relation there unto)...

...and of course its all those "yellow bastards" who are "doing it to us"...scape-goat framing...

Thu, 07/21/2011 - 11:57 | Link to Comment DosZap
DosZap's picture

Scroto,

Last figure I had was $57,000 per ounce.

Thu, 07/21/2011 - 08:48 | Link to Comment MiningJunkie
MiningJunkie's picture

With the funds owning less than 1% gold exposure, I would say that this "gold fever" is an ailment borne by the short hedgies...

Thu, 07/21/2011 - 08:48 | Link to Comment MiningJunkie
MiningJunkie's picture

With the funds owning less than 1% gold exposure, I would say that this "gold fever" is an ailment borne by the short hedgies...

Thu, 07/21/2011 - 09:33 | Link to Comment Clint Liquor
Clint Liquor's picture

'Gold fever' is an ailment afflicting those with wealth denominated in Fiat currencies controlled by morons.

Thu, 07/21/2011 - 10:31 | Link to Comment Spigot
Spigot's picture

Might add that only 1-2% of the total volumn of trade is in physical vs 98-99% in paper. Other than Sprout (and certainly not the ETFs) I do not know of other sizeble physical allocations (maybe recently discussed Texas University Endowment).

Thu, 07/21/2011 - 12:00 | Link to Comment DosZap
DosZap's picture

Mining,

With LESS than .8% of Americans holding /owning ANY Gold, I would say the Bubble talk via MSM  is TRASH, and is used to scare people from owning it, physically.

Thu, 07/21/2011 - 08:56 | Link to Comment SoNH80
SoNH80's picture

I don't bother timing short-term gold price swings in the (ultra-compromised) futures/paper markets.  I don't think that the long-term trend for gold is like an earthquake-- sudden, violent, transitory.  Gold is a glacier--- slow, steady, inexorable, unstoppable-- in the current geopolitical/economic environment.  Glaciers don't seem too exciting on a day to day level, but they carved out the Great Lakes, and moved thousand ton boulders hundreds of miles like they were marbles, or pieces of lint.  For every little price-suppression victory by the boyz, there's millions of Asians and Arabs buying in.  Small scale often, sometimes not so small scale.  Gold is a vote for lack of faith in fiat currencies.  The glacier stood still from 1981-2001, but it's moving again, and reshaping the landscape.

Thu, 07/21/2011 - 09:27 | Link to Comment tarsubil
tarsubil's picture

Very good post, IMHO.

Thu, 07/21/2011 - 13:02 | Link to Comment Temporalist
Temporalist's picture

I too like the imagery and analogy.

Thu, 07/21/2011 - 10:28 | Link to Comment Spigot
Spigot's picture

Damn, EscKey, you are buying big gobs o' dat stuff again?!? !8-o

Thu, 07/21/2011 - 15:11 | Link to Comment PulauHantu29
PulauHantu29's picture

escapekey, what does this mean, "registered silver (or gold) down"....does this imply increased buying? decreased stores?

Thanks....

Thu, 07/21/2011 - 09:07 | Link to Comment Mitch Comestein
Mitch Comestein's picture

Asian fever bitchez.

Thu, 07/21/2011 - 11:35 | Link to Comment Monedas
Monedas's picture

Our dark skinned  Aryan brothers of India and our, equally endowed with Neandertwat genes, Asian brothers have much in common with us i.e. they are savers and essentially conservative people ! It's the Zimbabwians that disappoint us with their want of Neandertwat, prepare for "Winter" hoarding instincts ! Mugabians are the missing link ! Monedas 2011 Northern Latitudinists....shed your chains of Liberal guilt !

Thu, 07/21/2011 - 11:32 | Link to Comment HungrySeagull
HungrySeagull's picture

It's easy for a Central Bank to hire 2000 people to buy one ounce per day and aggregate it. That way they still get the gold in bulk but not in the numbers that causes any pain. A thousand little sticks instead of a butcher knife chop.

Thu, 07/21/2011 - 12:52 | Link to Comment Hook Line and S...
Hook Line and Sphincter's picture


Westerners have a very circuitous way of perceiving Gold 'premiums'.

Talk about nominal thinking!

The only way we should be thinking is in terms of discount. When we begin to speak of "AU" paper trading at a discount to "AU" physical, then the populace of the West will have arrived at the point of proper perspective.

Thu, 07/21/2011 - 15:09 | Link to Comment PulauHantu29
PulauHantu29's picture

RE in China is massively overpriced...and the savers there are getting the same screw-job as in the USA, i.e., extremely low interest on savings....basically wealth destruction. The mechanism of this type of distortion is lclearly explained in William Greider's book, Secrets of the Temple.

Anyway, it is reasonable for them to move some of their vast wealth into other hard assets like gold. Makes sense to me.

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