World Gold Council
There is a story being told to the masses about Chinese gold demand that is grossly incorrect. The huge discrepancy between numbers from the World Gold Council (WGC) and actual gold demand is so wide yet cunningly hidden I must conclude there is essential information about physical gold demand deliberately kept privy.
It may signal that the ECB and Eurozone are set to embark on a gold accumulation programme. More likely, it is simply a way to bolster confidence in the euro due to increasing doubts about the viability of the single currency.
Central bank gold buying surged another 17% last year as countries outside of the Western hemisphere continue to stockpile the only currency with no counterparty risk.
The “perfect-storm” of geopolitical instability, diplomatic isolation, severe currency depreciation, and economic decline now confronting Russia has profoundly damaged Moscow's international standing, and possibly for the long-term. Yet, it is precisely such conditions that may push the country’s leadership into taking the radical step that will secure its world-player status once and for all: the adoption of a gold-exchange standard.
After significant buying in recent years, some may have questioned if this would continue in 2014. The answer was loud and clear: central bank net purchases amounted to 477t over the year, 17% above 2013’s impressive 409t. This represents the second highest year of central bank net purchases for 50 years, after the 544t addition to global gold reserves reported in 2012. Russia had by far the greatest appetite amongst those who raised gold reserves. The country accumulated an additional 173t (36% of total central bank demand in 2014) over a turbulent 12 months. 2014 was bookended by tension and uncertainty for the country: geopolitical antagonism with the Ukraine, and the resulting international sanctions, at the beginning of the year was followed by severe economic distress towards the end.
Given that Russia perceives itself to be under financial and economic attack from the West, there is the possibility that they are accumulating more gold than they are declaring officially to the IMF.
De Nederlandsche Bank, the Dutch central bank has denied reports in Reuters, Bloomberg and picked up by GoldCore, that the bank had increased its gold holdings for the first time in sixteen years. IMF data had shown that the Dutch had increased their holdings to 622.08 tonnes.
2014 may go down as the year when gold and silver conspiracy “theories” became conspiracy “facts” as banks globally were found to have conspired to rig the prices of gold, silver, currency and many other markets.
For those wondering where US shale exploration and production companies will be in about 2-3 years, look no further than the gold miners, where the disconnect between undaunted physical demand and relentless paper supply (after rebounding above 0%, GOFO is once again negative through the 3 month mark), and where high production costs and low selling prices, after two years of balance sheet pain, is finally leading many over the cliff. Case in point, Canadian gold-miner San Gold, which had a capitalization of over $1 billion in 2010 just filed for bankruptcy protection. It isn't the first gold-miner to wave the white flag, and it certainly won't be the last.
The World Gold Council’s recommendations are far from crazy...
Every year, David Collum writes a detailed "Year in Review" synopsis full of keen perspective and plenty of wit. This year's is no exception. "I have not seen a year in which so many risks - some truly existential - piled up so quickly. Each risk has its own, often unknown, probability of morphing into a destructive force. It feels like we’re in the final throes of a geopolitical Game of Tetris as financial and political authorities race to place the pieces correctly. But the acceleration is palpable. The proximate trigger for pain and ultimately a collapse can be small, as anyone who’s ever stepped barefoot on a Lego knows..."
"Russia is at a critical juncture and given the sanctions placed upon them and the rapid decline in oil prices, they may be forced to dip into their gold reserves, if it happens it will push gold lower." That is what, according to some people Bloomberg has quoted, is in the cards...
If we're in a gold bear market, then answer these questions...
First Germany, then the Netherlands, perhaps Switzerland this weekend, and now the French right-wing Front National, which shockingly came first in May's European parliament elections, and whose leader Marine Le Pen is currently polling in first place in a hypothetical presidential election (in both a first and run off round), ahead of president Hollande, has sent a letter to the governor of the French Central Bank, the Banque de France, demanding that France join the list of nations which have repatriated, or at least tried to, their gold.
As the debate regarding whether or not Switzerland should keep the bulk of its gold reserves at home on Swiss soil reaches it's climax - the referendum takes place on Sunday - it is telling that the Dutch announced on Friday that they have just secretly repatriated 122 tonnes of their sovereign gold reserves from New York back to Amsterdam.