"Gold For Beginners" - All You Need To Know About The Precious Metal From UBS

Tyler Durden's picture

A must read presentation from UBS' global commodity research analyst Julien Garran and PM trading srategist Edel Tully.  Their summary view: "How should we think about gold? This has to be one of the favorite questions of nearly every investor we encounter, and despite our lack of specialized knowledge and our relative focus on the emerging universe we very often get dragged off into speculative discussions on the nature of gold demand and what gold prices are “telling us”. If we had to  summarize the conclusions on gold in a single phrase – keeping in mind that this is a bit of an exaggeration, and one to which Julien and Edel might well take exception – we would say “forget about the fundamentals”. When we talk about investment demand, there are two main drivers: inflation and risk. I.e., gold does well when buyers are worried about inflation prospects, debt monetization and the debasement of national currencies, and also does well in an environment of heightened volatility and fear about the global economy."

And some specific questions relating from recent macroeconomic developments:Can eurozone become a net seller in view of their funding needs?

The question on the central bank side is certainly one that has been asked many, many times over the past few months, i.e., whether Greece or Portugal would look to offload some of their gold holdings. But first, we have to remember that the European central banks are confined through the central bank gold agreement as to what gold they can sell each year; currently they are limited to 400 tons per annum for the next five years, so that means 400 tons this year. So far we’ve only seen about 41 tons since September, so clearly there is a good bit of room within this year’s quota should central banks look to sell.

However, I would be quite surprised if we did see selling momentum coming through from the European central banks. If we think about it logically, right now is not exactly a good time for a central bank to start selling gold holdings. Rather, tight now is when the central banks should maintain their gold holdings. If you look for example at the World Gold Council’s website, it lists all the reasons why a central bank should own gold. And looking at it from another angle, if we were to see some selling activity in the west it would not surprise me at all if those Asian central banks who are underweight in gold take on part of this load. So in essence you could see a shift in gold moving from west to east.

And will China announce its ongoing gold buys any time soon?

You may remember that China announced in April last year that it effectively had doubled its gold holdings. This was reflected in the change in the template between 2003 and 2009. So even if China is increasing its gold reserves today, we would have to expect that we wouldn’t find out for a long period of time, just as we saw last year. Typically, China is a self-sufficient market; it’s the largest producer of gold, and last year we didn’t see the Chinese coming onto the international market to a large degree.

This changed in December 2009, when we saw a large amount of Chinese buying of physical gold coming out of the domestic market; this lasted until February of this year. Part of this can be attributed to the Chinese New Year, where typically we would expect a decent gold buy and also a decent platinum buy. Chinese purchases went quiet in the latter half of February, spiked up again briefly in March and have been quiet again since then.

So you have to ask yourself why the Chinese would now be coming onto the international market to source gold; it does perhaps indicate that there’s not enough domestically-produced gold available. You can draw your own conclusions from here, but generally I think it’s fair to say that the market consensus expects China to increase its gold holdings over the coming years.

All this and much more in the full report below


h/t www.fmxconnect.com



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WilliamShatner's picture

Motley Fool?

Excuse me while I ignore that piece.

Temporalist's picture

The article is multiple contributors opining on gold and gold related equitites.  That and the comments are interesting; more than you are giving credit for without reading it.

Grand Supercycle's picture


As suggested earlier,  the EURUSD daily chart is giving bullish signals.

Gold info at blog.



Yardfarmer's picture

Grand Superbore, as usual: myopic, monomaniacal ,moronic,

thesapein's picture

Gold is simple and easy to understand. It's only confusing to those who are already confused.

Dismal Scientist's picture

Julien Garran's last job was as Natural Resources PM at Sofaer Capital. Where he spectacularly failed. Back to the sell side for you, sunshine. Those who can't do, teach etc. Flippancy aside, the guy is knowledgeable, but clearly doesn't understand trading

MarketTruth's picture

As i see it, part of the 'problem' that needs to be understood is how gold is priced. It reflects the currency, for example a few grains of gold is worth many hundreds of trillions of dollars... Zimbabwe dollars that is. Another example is to look at gold price climb as rated in Euros during the past one year time period.

My point is, gold is valued at 1:1 and always has been. It is when a valuve of gold as compared to ___ that the 1:1 value is altered.

thesapein's picture

What rate are you referring to when you say gold is valued 1:1?

Yardfarmer's picture

aside from some peripheral cogency regarding the most elemental understanding of the gold market, this article was devoid of insight, blighted with the same smug, self satisfied, complacent analysis which has pervaded and paralyzed conventional analysis into gold for decades. these "experts" are typical of the straight jacketed mentalities which are hidebound in the proprietary dimensions of their own trading stations. give me the imagination and insight of Alf Field, Martin Armstrong, Jim Willie and Jim Sinclair and leave these insipid day traders to ply the dismal circuits of their hopelessly limited financial hamster wheels. gold for beginners indeed. gold for old ladies and idiots more likely. must read? a terrible lapse and a terrible read by the usually astute TD!

thesapein's picture

If you're a subscriber to the Hat Trick Letter, then you know way too much about this gold stuff to be looking for insights from ZH.

dumpster's picture

yes hat trick , Sinclair , Russell.. .  now in its 11th year

so many top callers all the way from 300..

you would think all these just came to the dance people .

are so brain bound . and now they want to call the dance tunes lol

so we hear the same top is in .. at 1200.. as gold springs to 1650.

like broken  records of imbecilic economic understanding . standing on a pile of Keynesian sludge.  of course the sludge is eatable ,  



DoChenRollingBearing's picture

+$1230 dumpster

I won't even bother to download the report.  I have learned so much about gold from fofoa, Sinclair, Jim Willie, etc.

I cannot see how Obama & Co. gets us out of the messes we have.  Too many problems.  Start a business here in the US now?  Forget it.  Taxes going up.

I am opting out and just want to preserve what I have.  Gold.  Silver good too.  And if you like yummy PMs, take a look at Platinum, its ratio to gold is relatively low by historical standards.  Protect them with guns & ammo.  So simple.

ATM's picture

What is money if not a means of storing wealth?

What is gold if not the best store of wealth that governments cannot create out of thin air?

I am storing more wealth today at spot plus $10.

Black Swan's picture

Please if there is anyone out there reading this and they think GOLD is in a bubble and would like to sell their bullion at present prices, then i'm your man.

At present i'm in a position to buy as much gold as someone wants to sell me whether it be 1 metric tone or 500 metric tone. 

This is no joke I will buy it so please e-mail me on domhk2000@gmail.com



dumpster's picture

black swan

dont hold the breath ,, those that call the top have zero gold , zero wealth, zero understanding .

and like lemmings run to to the edge of the cliff.. and all together plunge into the ocean below .

DoChenRollingBearing's picture

What he said!    ^--- dumpster & I don't think you will get many offers.

Wish I could buy a metric ton of Gold.  I buy Gold as income arrives, small quantities at a time.

Been doing that for decades.  With luck will buy for decades more.

Good luck finding BIG GOLD.  Seems that it is hard to buy LARGE amounts of physical gold now.  May soon get hard to buy small amounts soon...

cwild's picture

I met a strategist last year who worked for the Reagan economic team. I asked him about gold and he said, "Look, I never trade things that are only controlled by 3 people. Assuming he's right, whats your guess who the 3 people are?

1. SNB



DosZap's picture



Read Jim's opine.............

fearsomepirate's picture

Gold for beginners:


1.  Gold is money.

2.  Money, like every other economic good, is subjectively valued by individuals.

3.  Gold, like every other form of money, has advantages and disadvantages.  Its advantage is that its supply is damn near impossible to inflate much.  Its disadvantage is it's not as liquid as fiats and not legal tender in most states.

4.  People demand money when most other investments are turning to crap.  They demand gold when most other forms of money are turning to crap.

5.  Stocks are crap.  Bonds are crap.  Fiats are crap.  What's that leave?

That'll tell you more than that article does.

Fix It Again Timmy's picture

"If you don't trust Gold, do you trust the logic of taking a beautiful pine tree, worth about $4,000 - $5,000, cutting it up, turning it into pulp and then paper, putting some ink on it and then calling it one billion dollars?"

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