World Gold Council
India’s gold policy over the last several years is about as dysfunctional as any government policy we have ever seen, and that’s saying a lot. In a nutshell, Indians were buying too much gold for their government’s comfort, so the “authorities” stepped in with duties and import restrictions in an attempt to stifle the trade. So smuggling soared. Fast forward to today. It appears the government has finally realized they can’t stop their citizens penchant for gold, so they have decided to dump central bank gold onto the market. They are justifying this act with a so-called 'swap' into phantom gold at the Bank of England - the favored global hub of shady, rent-seeking, banker oligarchs. This begs the question of who really needs the gold, the RBI, or London bankers?
As the probe into alleged fraud at Qingdao continues to escalate (with liquidity needs growing more and more evident as Chinese money-market rates surge), Bloomberg reports that China’s chief auditor discovered 94.4 billion yuan ($15.2 billion) of loans backed by falsified gold transactions, in "the first official confirmation of what many people have suspected for a long time - that gold is widely used in Chinese commodity financing deals." As much as 1,000 tons of gold may have been used in lending and leasing deals in China and Goldman reports that up to $80 billion false-loans may involve gold. As one analyst noted, this was unlikely to have a significant impact on the underlying demand for gold in China and as we have pointed out before, any unwind of the Gold CFDs would lead to buying back of 'paper' gold hedges and implicitly a rise in prices.
Several months after it was revealed that Germany was able to only recover a miserable 5 tons of its gold in all of 2013 (under 10% of the 84 tons it was scheduled to repatriate), Germany appears to have given up entirely in its attempt to recover gold which simply is not there, and as Michael Krieger reports, citing Bloomberg, has decided to keep "it" (by "it" we don't mean the gold since that clearly has not been at the Fed for decades, but merely the paper promises of ownership: for more see China's gold rehypothecation scandal and how the unwind works) at the NY Fed after all. That is to say, in the "safe hands" of former Goldmanite Bill Dudley.
June is seasonally a poor month for gold and technical damage means gold could be manipulated lower again before half year end ... As one astute commentator said on Twitter this week, being able to acquire cheaper gold given the state of the world today is "like being given discounts on life-rafts on the Titanic ... "
Last week we commented that based on TIC data, while "Belgium's" unprecedented Treasury buying spree continues, one country has been dumping US bonds at an unprecedented rate, and in March alone Russia sold a record $26 billion, or 20% of its holdings. So as Russia is selling a record amount of US paper, what is it buying? For the answer we go to Goldcore which tells us that "Russia Buys 900,000 Ounces Of Gold Worth $1.17 Billion In April."
Another important caveat to the figures is the ‘elephant in the room’ that is demand from the People’s Bank of China (PBOC). The PBOC does not declare their monetary gold purchases to the IMF or release the data. However, most market participants accept that they have and are quietly buying significant amounts of gold as part of their foreign exchange diversification programme and as part of their strategic goal to position the yuan as a rival global reserve currency ...
Not much going on tonight, except for the non-coupy martial law announcement in Thailand where the government is said to still be in charge of everything except for martial law decisions taken by the army of course, which in turn is in charge of everything else apparently including the central bank which intervened so extensively in the market, the Baht was barely changed at one point. There was also news of explosions and clashes in Benghazi but as everyone knows, what difference does Libya make at this, or any other, point. Additionally overnight there were reports that the cities of Slavyansk and Kramatorsk in east Ukraine were being shelled by the Ukraine army but that too barely registered as bullish for the USDJPY (which in now traditional fashion ramped during the US day session then sold off during Asia hours).
The ECB, the Swiss National Bank (SNB) and the Riksbank of Sweden announced a new gold agreement this morning. They announced they have no plans to sell significant quantities of gold and reaffirmed the importance of gold bullion as a monetary reserve asset.
When one thinks of Switzerland, banking comes to mind easily but gold doesn’t as much. But, "it is said that the Swiss only love money... this is not true. They also love gold." A full two-thirds of the world’s gold goes through Switzerland and, in an average year, it refines grossly 70% of the world’s gold. Six of the gold refiners on the LBMA Good Delivery list make for 90% of global volume, and four of those are in Switzerland. Up until 1992, the Swiss franc’s 40% backing by gold was written in the country’s Constitution. When Switzerland became a member of the IMF it had to abandon this backing by gold. Today, Swiss citizens have asked for a referendum to be called in order to get back to that backing. As Gilles Labarthe wrote, "Switzerland is for gold what Bordeaux is to wine."
It is interesting to note that thousands of Indians have engaged in gold smuggling in recent months. Meanwhile smuggling in the western world consists primarily of drugs. This says something about the values system of India and Eastern societies versus what is valued in the western world.
Bloomberg Television’s “On The Move Asia” had a fascinating interview with Albert Cheng, the World Gold Council’s Managing Director, Far East. He discussed China’s gold market and what’s driving the country’s demand with Rishaad Salamat.
Since 2003, we have pointed out how China’s liberalization of its gold market would have enormous ramifications for the global gold market in terms of a huge new source of demand and would ultimately lead to higher prices in the long term.
Hint: it's not designer clothes, shoes, bags or watches.
Gold prices are down almost 2% this morning (over $25) as last night's slowdown in Chinese money-supply growth and fears that China's insatiable gold demand has become less insatiable send the barbarous relic back towards $1300. Slowing GDP expectations, increasing restrictions on shadow-banking commodity-backed financing, and a need for liquidity are all factors weighing on the precious metal this morning.
One can see that while the traditional 6:00 AM USDJPY buy program is just duying to resume aggressive upward momentum ignition, futures are still leery and confused by the recent post-open high beta selloffs. Then again, things like yesterday's ridiculous no news 3:30pm ramp happen and confused them even more just as momentum is about to take a downward direction. Stocks in Asia (ex-China) advanced amid a reversal in sentiment after Citigroup (+4.15%) inspired positive close on Wall Street, however Shanghai Comp (-1.4%) underperformed as concerns over GDP data on Wednesday following weak money supply data weighed on sentiment. Stocks remained on the back foot (Eurostoxx50 -0.42%), with Bunds supported by the release of lower than expected German ZEW survey and also ongoing concerns surrounding the stand-off between Ukraine/Russia. Short-Sterling bear steepened after UK CPI fell to its lowest level since October 2009, but house prices across Britain posted its biggest rise since June 2010, reviving concerns over an overheating market.
The reasons to hold gold (and silver), and we mean physical bullion, are pretty straightforward. So let’s begin with the primary ones:
- To protect against monetary recklessness
- As insulation against fiscal foolishness
- As insurance against the possibility of a major calamity in the banking/financial system
- For the embedded 'option value' that will pay out handsomely if gold is re-monetized
The punch line is this: Gold (and silver) is not in bubble territory, and its largest gains remain yet to be realized; especially if current monetary, fiscal, and fundamental supply-and-demand trends remain in play.