When it comes to following the trail of money, capital flows specialist TrimTabs has traditionally focused on the stock market. In the past, TrimTabs' Charles Biderman has discussed how according to any reasonable calculations, there appears to be a key buyer missing among the usual market participant suspects, leading Biderman to conclude that the Fed may be buying stocks directly (or indirectly through Citadel as the case may be). To our surprise, in its most recent release, TrimTabs takes a look at the buyers in the gold market, and ends up with the same question: "Gold prices hit a record high in nominal terms for the second consecutive day. We are not sure who is driving up prices." The speculative conclusion: "Are central bankers loading up on gold as they crank up the printing presses and keep interest rates ridiculously low?" Of course, at first glance this would be preposterous as it has long been accepted that for the Fed a jump in surge prices is a very adverse development. Well, is it? Traditionally rising gold prices have been merely indicative of abnormally high inflation, which for the Fed was a "bad" thing in the past. Not so much any more, or at least since the advent of the "wealth effect" experiment. Recall that it is now the Fed's "goal" to give the impression of inflation (and reality for those who eat and use energy). This is based on Bernanke's false assumption that inflation is much more easily controllable (15 minutes...) than deflation. So while on the surface this may appear to be a preposterous claim, in reality there is nothing that prohibits a gold price surge in the context of the Fed's third mandate.
Full observations from TrimTabs:
Who Is Driving Gold Prices Higher? Speculative Traders and Fund Investors Not Very Bullish. Are Central Bankers Loading Up on Gold as They Print More Money?
Gold prices hit a record high in nominal terms for the second consecutive day. We are not sure who is driving up prices:
- Commitments of Traders data indicates that non-commercial futures traders are net long gold futures by 3.7 to 1, which is a low ratio historically.
- Precious Metals equity mutual funds—which hold mostly mining shares—redeemed 0.4% of assets in the past week. Meanwhile, Real Estate funds and Natural Resources funds attracted 0.8% of assets and 0.5% of assets, respectively. In the past month, Precious Metals funds lost 0.5% of assets.
- Precious metals exchange-traded funds—which hold physical metals—issued only 0.2% of assets in the past week and 0.4% of assets in the past month.
Are central bankers loading up on gold as they crank up the printing presses and keep interest rates ridiculously low?
Whatever the source of the buying, we think investors could do a lot worse than allocate some of their capital to precious metals as fiscal and monetary excess continues around the globe.
Lastly, remember that there has been speculation that various banks are pushing for a mark to market treatment of gold held at central banks. Our own Fed marks its 8,133.5 tons of gold at $42.22/ounce. In other words, if at some point the central bank cartel needs to expand excess reserves even more, thereby creating an even greater "inflationary threat", what better way than to convert held gold from a fixed to a MTM price. For the Fed alone this move would imply a $350 billion "increase" in assets, which would then need a comparable increase in bank reserves (and currency eventually).
In an ironic twist, is gold about to become the "red button" to be pushed in the last ditch case when expectations of rampant inflation need to be created, following the next major deflationary market crash.