World Gold Council
Recent outflows from physical gold exchange traded products have been interpreted by the financial press as a sign of weakness in the demand for gold as an investment vehicle. However, a closer look at the evidence suggests otherwise - the evidence presented here suggests that, contrary to what has been stated in the financial press, the flows out of the SPDR Gold Trust may have been generated by the bullion banks to take advantage of an arbitrage opportunity in the physical market. This arbitrage opportunity occurred because of the intense demand for gold stemming from Asia and the inability of traditional suppliers to provide this gold (hence the large Shanghai premium). We believe that this activity further supports our hypothesis that there is a lack of availability of physical gold and an obvious dislocation between the physical and paper gold markets.
The store of wealth demand is not just from Chinese ‘aunties.’ There remains an under estimation of the demand coming from wealthy Chinese and high net worth and ultra high net worth individuals (HNWs and UHNWs).
This has not been commented upon or analysed but we have direct experience of wealthy Chinese people looking to store gold in Hong Kong and Switzerland, as have other storage providers.
About once or twice a month for the past few years, it's been a steady ritual of mine to conduct a Google search for the words "all-time high" and "all-time low". The results provide an interesting big picture perspective on what's happening in the world.
Gold edged higher today supported by strong physical demand internationally and especially in Asia.
Demand in the physical market continued to hold prices near $1,400/oz as the recent drops in the spot market encourage buyers internationally to accumulate bullion.
Russia, Greece, Turkey, Kazakhstan and Azerbaijan expanded their gold reserves for a seventh straight month in April, buying bullion to diversify foreign exchange reserves due to concerns about the dollar and the euro. Russia’s steady increase in its gold reserves saw its holdings, the seventh-largest by country, climb another 8.4 metric tons to 990 tons, taking gains this year to 3.4% after expanding by 8.5% in 2012, International Monetary Fund data show. Kazakhstan’s reserves grew 2.6 tons to 125.5 tons, taking the increase to 8.9% this year after a 41% expansion in 2012, data on the website showed. Turkey’s holdings rose 18.2 tons to 427.1 tons in April, increasing for a 10th month as it accepted gold in its reserve requirements from commercial banks. Belarus’s holdings expanded for a seventh month as did Azerbaijan’s. Interestingly, Greece’s gold holdings climbed for a fourth month, according to the IMF data. This could be a sign of rising economic nationalism in Greece or that the Greek central bank realises that if Greece leaves the euro and is forced back onto the drachma that gold reserves will offer a modicum of protection. Only a modicum, because Greece’s gold reserves remain miniscule especially considering the scale of their debts.
- Mine union threatens to bring South Africa to 'standstill' (Reuters)
- Russia Raises Stakes in Syria (WSJ) - as reported here yesterday
- Japan buys into US shale gas boom (FT)
- Bill Gates Retakes World’s Richest Title From Carlos Slim (BBG) - so he can afford a Tesla now?
- China Wages Rose Sharply in 2012 (WSJ)
- Regulators Target Exchanges As They Ready Record Fine (WSJ)
- Citi Takes Some Traders Off Bloomberg Chat Tool (WSJ)
- After Google, Amazon to be grilled on UK tax presence (Reuters)
- Apple CEO Cook to Propose Tax Reform for Offshore Cash (BBG)
- French, German politicians to pressure Google on tax (Reuters)
- Gold Bears Revived as Rout Resumes After Coin Rush (BBG)
- A stretched Samsung chases rival Apple's suppliers (Reuters)
There are no surprises in the latest World Gold Council Gold Demand Trends report other than the fact that statistics show global demand for gold in Q1 2013 was on the increase before the COMEX raid on April 15th. This is a clear indication that the fundamentals supporting a strong price for gold in the long term remain and also helps to explain why there was such a shortage of gold bars and coins in the weeks after April 15th.
China's demand for gold jumped 20% to 294 tonnes in the first quarter of 2013, while global gold demand overall slid 13% thanks to the dramatic rotation of demand from paper to physical. Chinese demand in gold bars and coins grew to 109.5 tonnes - more than double the five-year quarterly average of 43.8 tonnes. Central banks added 109.2 tonnes of gold to their reserves in Q1 2013, the ninth consecutive quarter of net purchases. But it was the Q1 ETF outflows of 176.9 tonnes, equating to a 7% decline in total gold ETF holdings that obscured the strong rise in investment for gold bars and coins at the retail level. In the face of the huge 'paper' gold ETF outflows, 'physical' gold demand surged to its highest in 18 months...
- As scandals mount, White House springs into damage control (Reuters)
- Glencore Xstrata chairman ousted in surprise coup (Reuters), former BP CEO Tony Hayward appointed as interim chairman (WSJ)
- JPMorgan Chase asks Bloomberg for data records (Telegraph)
- Platts Retains Energy Trader Confidence Amid Price-Fix Probe (BBG)
- Syrian Internet service comes back online (PCWorld)
- Japan Q1 growth hits 3.5% on Abe impact although fall in business investment clouds optimism for recovery (FT)
- Soros Joins Gold-Stake Cuts Before Bear Market Drop (BBG)
- Factory Ceiling Collapses in Cambodia (WSJ)
- Sony’s $100 Billion Lost Decade Supports Loeb Breakup (BBG)
- Snags await favourite for Federal Reserve job (FT)
- James Bond’s Pinewood Turned Down on $300 Million Plan (BBG)
In a remarkably candid interview, the President and Executive Chairman of CME Group Inc, Terrence Duffy, told Bloomberg TV that today gold buyers "don’t want certificates ... They want the real product".
"What’s interesting about gold, when we had that big break two weeks ago we saw all the gold stocks trade down significantly, we saw all the gold products trade down significantly, but one thing that did not trade down, was gold coins, tangible real gold. That’s going to show you, people don’t want certificates, they don’t want anything else. They want the real product."
Gold has surged 4.9% in dollar terms so far this week and is headed for its biggest weekly gain in one-and-a-half years. Gold has recovered in all currencies and is up by 4.8% in euro terms and 3.7% in sterling terms.
Therefore, gold has recovered nearly half of its recent sharp decline and is now just 7% below its price ($1,560/oz) prior to the futures induced sell off on April 12th and 15th.
The state of Arizona may become the second state to use gold and silver coins as legal tender. Last week, Arizona lawmakers passed a bill that makes precious metals legal tender. Arizona is the second state after Utah to allow gold coins created by the U.S. Mint and private mints to be used as currency. Utah has had the law on the books for the past 2 years and is working on a system for using the precious metals as currency. The Arizona Senate Bill 1439 would allow the holder of gold or silver coins or bullion to pay a debt. However, the coins must be issued by the U.S. government or approved by a court, like an American Eagle Coin. Oddly the government does not require that persons or business must use or accept gold or silver as legal tender in contravention of the U.S. Constitution. The sponsor of the bill, Republican Sen. Chester Crandell, would need a final state Senate vote after approval by the House, and if passed the law would not take effect until 2014. Crandell said, "The whole thing came from constituents".
The first time the Status Quo/Troika tried to force a (not so) stealthy gold confiscation on an insolvent European country was back in early 2012, when as part of the most recent Greek bailout MOU, it was disclosed that "Greece’s lenders will have the right to seize the gold reserves in the Bank of Greece under the terms of the new deal." However, the public outcry was so loud that the Troika had no choice but to shelve its plans and proceed with a full scale bondholder restructuring instead. Fast forward to last week, when Europe's appetite for physical gold came back with a bang, this time as part of the Cyprus "Debt Sustainability Analysis", and subsequent comments from Mario Draghi, demanding that tiny Cyprus, whose opposition, already weakened by the confiscation of uninsured deposits would be far less vocal than Greece's, sell off €400MM, or virtually all of its sovereign gold, over 10 of its 13.9 total tons, to cover the excess costs of its ever ballooning sovereign bailout. So who's next? It remains to be seen, although we are certain there will be a very clear correlation between the next country to see its gold "purchased" by the status quo, likely some time in the next 1-3 months, and the amount of total non-performing loans on said country's bank balance sheets. The usual suspects are presented below. And, in the parlance of Goldman Sachs, these countries better scramble to sell, sell, sell now before gold hits 0, or maybe even goes negative.
Update, and sure enough: PANICOS DEMETRIADES SAYS CYPRUS CENTRAL BANK INDEPENDENCE UNDER ATTACK. As a reminder, Panicos hold the now obsolete position of head of the Cyprus Central Bank.
As was noted two days ago (so certainly not the news catalyst for today's gold sell off as some are trying to make it appear) as part of its bailout expansion by 35%, Cyprus announced, then refuted, then re-admitted, it would need to fund a portion of the incremental €7 billion in cash demands by selling €400 million, or nearly all 13.9 tons, of its central bank gold. Today, we learn that this demand came from none other than the head of the ECB Mario Draghi. Bloomberg reports: "European Central Bank President Mario Draghi said the profits of any gold sales by the Cypriot central bank must be used to cover losses it may sustain from emergency loans to Cypriot commercial banks."
Anyone who wants to get to the truth behind the inflationary threats to their wealth should ignore everything the Central Banks say about inflation and look instead at their actions.