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In Gold We Trust - From Aurophobia To Valuation

Tyler Durden's picture


"Even though the consensus is convinced that the gold bull market has ended, we remainfirmly of the opinion that the fundamental argument in favor of gold remains intact. There exists no back-test for the current financial era. Never before have such enormous monetary policy experiments taken place on a global basis. If there ever was a need for monetary insurance, it is today."

Via Pater Tenebrarum of Acting-Man blog,

We are happy to once again present the annual gold report by Ronald-Peter Stoeferle and his co-author Mark Valek. Although Ronald is no longer with Erste Group in Vienna (he is now a managing partner at Incrementum AG in Liechtenstein), he still writes the 'In Gold We Trust' report for Erste Group in his role as an external advisor. The version of the report that we are offering for download here is the extended Incrementum version, which inter alia contains a section on gold stocks and a number of elaborations on topics which are not as extensively discussed in the shorter version.

In spite of this year's decline in the gold price, we still trust in gold, one might say. There are a few valid reasons for the recent bearish trend, some of which Ronald dissects; nevertheless, the bet remains that it is very likely undergoing a large degree correction in a secular bull market.

As we have already remarked on occasion of previous editions, Ronald was and remains one of the very few analysts working at a mainstream institution (or in this case as an external advisor to one), who truly understand how the gold market works in terms of price formation and how it should therefore be analyzed. In chapter 3 of the report, this topic is thoroughly examined, including the fact that gold's high stock-to-flow ratio is precisely what gives it its importance as a monetary asset (and is a major reason why it was chosen as money, i.e., the general medium of exchange, in times past, before governments imposed fiat money). Chapter 3 also contains an interesting subsection on 'aurophobia' and its psychological roots.

Financial repression also receives an in-depth look in this year's report. The term was rediscovered by Carmen Reinhart and Belen Sbrancia and describes the many ways in which governments that have accumulated too much debt organize the theft of the citizenry's assets by underhanded means in order to avoid having to enact politically unpopular measures.

Obviously this is a topic that is highly relevant to gold investors, as a result of a number of unique properties gold possesses. After all, governments cannot devalue it at will. In the longer term, they can only lessen investor appetite for gold if they institute policies that are the polar opposite of those that are characteristic of financial repression. Moreover, gold represents relatively mobile wealth, that nevertheless exists physically and does not depend on counterparty promises (including that most rapacious of counterparties, the State). As such it offers investors a means to protect themselves against financial repression, at least as long as its possession is legal (as we know from historical experience, there is no guarantee that it will remain so, even if it appears likely from today's vantage point).

The chapter on financial repression also makes clear why it is erroneous to compare today's vast public debt/ financial repression combination to that of the post-war period.

Another new feature in this year's report is the attempt to approach the valuation of gold from a quantitative standpoint. Specifically, a regression model that looks at probability-weighted scenarios of future Fed balance sheet trends strikes us as quite interesting. Of course, the value of gold is subjective, as are all values. Since it pays no stream of dividends (why that is the case is also explained in the report) and issues no financial statements, one cannot apply any of the valuation methods that are employed in valuing stocks or bonds. However, it is possible to ascertain gold's relative value versus a range of other investable assets and where it stands at a given point in time in the historical context. We were actually surprised to learn how moderately valued gold still is when looked at in this manner in spite of the advance since 1999/2000.




In GOLD We TRUST 2013 - Incrementum Extended Version by zerohedge

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Thu, 06/27/2013 - 11:35 | 3699318 ParkAveFlasher
ParkAveFlasher's picture

Extended versionz, bitchez!

Thu, 06/27/2013 - 11:37 | 3699327 The Shootist
The Shootist's picture

Aurophobia- I'll have to use that more often. Is it like hippies' fear of carbon?

Thu, 06/27/2013 - 11:40 | 3699333 ParkAveFlasher
ParkAveFlasher's picture

Hippies do fear carbon, except when scraping the resin off the mesh in their bowl.

What I want to know is, which ZHer is selling their bullion for good.  I for one am thanking my lucky stars because this makes my acquisition schedule a bit more rosy.

Thu, 06/27/2013 - 11:44 | 3699355 cifo
cifo's picture

Gold is monetary insurance. You don't sell your life insurance, do you?

Thu, 06/27/2013 - 11:57 | 3699414 francis_sawyer
francis_sawyer's picture

In gold we THRUST...

Thu, 06/27/2013 - 12:06 | 3699447 Pladizow
Pladizow's picture

To: Cifo - google "Life Settlement"

Thu, 06/27/2013 - 13:08 | 3699709 cifo
cifo's picture

Thanks. It looks like another financial instrument to benefit brokers/financial planners/advisers/attorneys/estate planners and other low life.

Thu, 06/27/2013 - 13:33 | 3699792 dryam
dryam's picture

gold/silver down 1.5% all of a sudden with no move in ANY other asset class (no move in Palladium or Platinum either)

Thu, 06/27/2013 - 13:08 | 3699711 BaBaBouy
BaBaBouy's picture

For Todays Financial YUPPIES... ``IN BEN-SHALLOM WE TRUST``

They Will Learn New Lesson Soon ...

Thu, 06/27/2013 - 12:30 | 3699504 deKevelioc
deKevelioc's picture

Since I'm all-in, I expect central banks to walk into the abandoned warehouse, douse the place with high-octane gas and drop a match, killing them in the process.

Thu, 06/27/2013 - 13:42 | 3699837 margaris
margaris's picture

I salute you, sir.

Thu, 06/27/2013 - 11:53 | 3699393 GubbermintWorker
GubbermintWorker's picture

I haven't sold a single ounce of gold, silver, or lead that I have accumulated over the last five years. I do however continue to scrape the resin off the mesh of my bowl.

Thu, 06/27/2013 - 12:56 | 3699664 resurger
resurger's picture

Is JP Morgan done buying?

Thu, 06/27/2013 - 13:27 | 3699777 Harbanger
Harbanger's picture

Comex "sold" 32% of their physical gold inventory in the last 5 months.  Pretty soon it will all be gone.

Thu, 06/27/2013 - 13:44 | 3699854 ChanceIs
ChanceIs's picture

Didn't Gordon Brown sell most of the UK's gold at the bottom.  You know....."Brown's bottom." That would includes his preannouncement of the sale.  That way he got a better price.

So I think tha obvious conclusion is that when people in authority sell their gold it is at the worst possible time and that the bottom is in - or has been put in.

Thu, 06/27/2013 - 13:54 | 3699891 Harbanger
Harbanger's picture

You may be right when you say "That way he got a better price".  There's no denying that physical inventories are flying out fast.  What's comex going to trade without physical excpt paper for paper?  Physical will skyrocket when there's a shortage.

Thu, 06/27/2013 - 13:56 | 3699911 Herd Redirectio...
Herd Redirection Committee's picture

And the fact that people are withdrawing their gold... Tells you gold in your hand is not the same as gold held for you by Comex!

Thu, 06/27/2013 - 13:36 | 3699808 Kirk2NCC1701
Kirk2NCC1701's picture

More money can be made from tax moves than with gold.  Am listening in on a Members Only web-conference from Simon Black, as I type. 

None of this PM wanker-material of "Well, 'fundamentals' say that gold ought to be $7000/oz", but VERY specific, detailed and actionable info. 

Look, you can keep dissing and pissing in the wind all you want.  I really don't give a sh!t  You can stay all girly and emotional and Rage On, respond with personal attacks, or...

You can cool down, get smart, get informed first-hand, and take whatever steps you need to keep from getting bum-blasted by the Elite Oligarchs acting via your beloved Gov.  Best wishes.


Thu, 06/27/2013 - 14:01 | 3699932 Herd Redirectio...
Herd Redirection Committee's picture

Actionable!  God, Simon loves that word...

Thu, 06/27/2013 - 13:53 | 3699888 hankwil74
hankwil74's picture

Too bad.  If you sold 2 years ago and bought today, you could have a hell of a lot more than what you have now.  

Thu, 06/27/2013 - 17:15 | 3700969 auric1234
auric1234's picture

It's so easy for you to say that now. If I had a crystal ball, I too would have sold 2 years ago to buy it back later.

But, I know the fiat toilet paper is going under sooner or later. I may not be able to predict everything, but one thing's for sure: when the music stops, I WON'T BE THE BAGHOLDER.


Thu, 06/27/2013 - 13:06 | 3699699 Alexandre Stavisky
Alexandre Stavisky's picture

By their fruits ye shall know them.  And also, seek ye first the kingdom of heaven and all these things shall then (afterwards) be added unto you.  Take the opposite and you know who speaks it.  Seek first the awards and accolades of this world, and diminish the good, seek to extinguish the sacred, deny the divine...what shall be added unto you? Sow the wind...

And what do we have now?  Obviously secret combinations of those who seek the vanities of the earth: wealth, power, personal (unearned) exaltation.  To win it by intrigue, by combination, by leverage, or application of "magic", to GET by another means other than honourable endeavour.  And who is the author of it all?  And who, these bad blackhearted actors sometimes called sociopaths?  Just those gone over to the empire's dark side listening to the artful, cunning One who draw men off one after another as they lose the capacity to distinguish any larger path than their mortal ambitions.  And as THESE go about seeking to snare men's souls and fortunes and delight in the rancour and tribulation they provoke, little do they realize how terribly ensnared they have become.  Everwhile distant watchers mark and account every jot and tittle, which the malefactors will eventually woefully repay in another time and season.  As done unto them is what they have done unto others.

"Who for one sweet grape would ALL the vine destroy?", also "Who for a minute's mirth would wail a week (or lifetime)?"

And so this secret black empire seeks to obtain the land little by little, first with small frauds and "LIES undertaken for the common good".  Then full scale assaults upon every moral and ethical code revealed to mankind.  Where in the spectrum are we now?  And how much more grievious shall be the burdens to come?


Thu, 06/27/2013 - 12:23 | 3699487 Ghordius
Ghordius's picture

Aurophobia is the grandmother of Europhobia

many think that because I sport the EUR sign I would not love to have gold back as monetary metal

My nick is Ghordius, and I'm a stacker

yes, I still think that in the current environment stacking is sanity, and that the EUR "project" is the other part of sanity

just think about it: imagine any country using gold or a fully gold-backed currency in this environment as it is currently driven

remember how two years ago a lot of people were talking about switching to gold as accounting and billing unit for their businesses? I wonder how they are/were faring, after having experienced those kind of fluctuations in the FX they have vs the rest of their environment

but hey, this is exactly the reason why hundreds of tons are thrown on the market: "shake the baby". The fight between currencies has always been about which one is more stable, in the short and medium term, and which one dies last, in the long term

though not worry - gold has a glass chin, it's easy to get it on the mat for a while... but it also has immense staying power

and so, in gold I trust, too

Thu, 06/27/2013 - 12:30 | 3699532 Frank N. Beans
Frank N. Beans's picture

"My nick is Ghordius, and I'm a stacker"

<golf clap>  

Thu, 06/27/2013 - 12:38 | 3699569 Ghordius
Ghordius's picture

2y, 14 weeks old account and I've never seen you. bring some argument

Thu, 06/27/2013 - 13:30 | 3699735 Frank N. Beans
Frank N. Beans's picture

okay thanks for putting this out there.

Here is my 2-cent opinion: 

Gold goes higher when interest rates are less than rate of inflation.  Because of QE, rates have been lower than inflation and gold did well.

Recently interest rates have shot up, due in part to talk of tapering.  So now interest rates are higher than inflation so gold reacts negatively.  There are other factors in the price movement of gold but this seems to be a big overarching one. 

edit:  also I've made numerous snarky and a few not so snarky comments on ZH; I can't help it if you haven't seen them. 

Thu, 06/27/2013 - 13:51 | 3699879 sdmjake
sdmjake's picture

So interest rates are now higher than govt statistical inflation rates so that is why gold is down?

Inflation at my house is running much higher (and has been for years) than any interest rates. That has not changed of late.

JPM has some BIG empty shelves to fill by Sunday. Take spot price down and cover the orders with cash. (Could this be the month they get caught out? nah...)

Thu, 06/27/2013 - 13:10 | 3699720 Kirk2NCC1701
Kirk2NCC1701's picture

Schadendfreude:  Why should I be the only one underwater?

Lucky for me, I got more FRNs --> The more it drops, the more I shops!  Keep dropping.  I'll keep shopping.  Yihaa!

Thu, 06/27/2013 - 12:35 | 3699552 Ghordius
Ghordius's picture

btw, on page 8 there is a canard, imho: "The next chart shows that the price of gold is suffering from the (temporary) return of confidence in the euro zone". Sure. Billions of people decide on gold depending on the "confidence in the eurozone"/s

this is again one of those propaganda trends I will just never understand - or at least nobody ever explained to me in a way my mind gets around it

Thu, 06/27/2013 - 13:21 | 3699668 Ham-bone
Ham-bone's picture

Gold smackdown results in heavy selling of paper GLD (leveraged credit) to buy phyz gold (unleveraged capital)....phyz buying which is supplied by heavy GLD and COMEX / LBMA phyz outflows alongside significant shorting in the paper market pushing price and disgorgement further.  But these phyz buyers worldwide are strong hands...ie, once they purchase and hold the phyz, it's good as gone as they generally only buy n hold vs. paper traders rapid movenments.

Now, when one realizes this price takedown means that available phyz inventories are very thin and thinning further - any subsequent price rise and rise in demand by paper GLD will also meet neccesary buying by the paper GLD...but where o where will a rising GLD find the phyz to meet a turnaround in it's underlying price?  And where o where will the shorts find deliverable gold?

So many elements here for a potentially explosive upward movement vs. the continued downside risks that gold goes to $1100 or $850...so there is unlimited upside potential vs. another 20% or 30% downside...and any downside only slows mining, exploration, and exarcerbates thin inventories w/ continued GLD redemptions...amazing opportunity and only highlighted by the talking heads telling you to abandon all hope for gold.  The opportunity for silver is multiples that of gold as there is so little above ground silver available (3mo's vs gold large above ground holdings) and any upside can generally only be met w/ new supply...the squeeze here would be epic.

If there is any lose of control to the downside price, the upside will be astounding...which either means they won't lose control or will lose control because they are standing on the long side.

Thu, 06/27/2013 - 11:37 | 3699324 SafelyGraze
SafelyGraze's picture

here's what we know about the value of gold:

The Palatine Crown or Bohemian Crown is the oldest surviving crown of England. It was produced from gold, enamel, sapphires, rubies, emeralds, diamonds and pearls (height 18 cm, diam. 18 cm).

The English Queen's crown was likely produced about 1370 and has been associated with Queen Anne of Bohemia, the consort of King Richard II of England.



Thu, 06/27/2013 - 11:40 | 3699329 Manthong
Manthong's picture

I have not been paying attention lately..

So I need to ask if they are mining thousands of billions of ounces at the same rate banks are printing thousands of billions of dollars, euros, pounds .. whatever?

..or quads of yen..

Thu, 06/27/2013 - 11:44 | 3699351 The Shootist
The Shootist's picture

All I know is, Liesman says there's only deflation, and no one, least not central banks, would ever manipulate gold/silver prices. Despite them manipulating everything else. [/sarc]

Thu, 06/27/2013 - 11:44 | 3699353 ParkAveFlasher
ParkAveFlasher's picture

Who knows the truth about the supply, the prices, the markets, etc.  One gold guy that everyone listens to says COT shows net longs, another gold guy that everyone listens to says COT is a crock of shit, another gold guy that everyone listens to says look at the technicals and draw a sunflower fractal pattern on them, etc...

It's shiny, it's heavy, no one knows jack about it, it's coveted and hidden and lorded over, I like it, I like it like I like dangerous poontang, I keep my knowledge of it close, no one knows where the preciouses is hidden, give us $55,000/oz fat stupid JPM hobbitses.  Why does JPM hates us so, when we means it no harms?

Thu, 06/27/2013 - 12:23 | 3699499 Uchtdorf
Uchtdorf's picture


Thu, 06/27/2013 - 12:52 | 3699639 jimmytorpedo
jimmytorpedo's picture

+1 for dangerous poontang.

AU,... bitchez, get in my car!

Thu, 06/27/2013 - 13:09 | 3699716 joego1
joego1's picture

dangerous poontang = no gold for you

Thu, 06/27/2013 - 13:26 | 3699771 Manthong
Manthong's picture

Bling be the thing whens you doin’ yo thing with the girls on the string.

Maybe I should consider pursuits in contemporary poetry.

Thu, 06/27/2013 - 14:08 | 3699981 Herd Redirectio...
Herd Redirection Committee's picture

Don't sell your gold for dollars.  Exchange it for new dollars when the time comes.

Thu, 06/27/2013 - 15:45 | 3700551 Manthong
Manthong's picture

but you should be careful that FDR does not come back from the grave to steal it from you before the revaluation.

Thu, 06/27/2013 - 13:34 | 3699798 Meat Hammer
Meat Hammer's picture

Remember, it starts as herpes, but then becomes yourpes.

Thu, 06/27/2013 - 13:32 | 3699793 Meat Hammer
Meat Hammer's picture

I had a horse laugh after that one.  God bless you ParkAveFlasher.

Thu, 06/27/2013 - 14:21 | 3700064 FeralSerf
FeralSerf's picture

Like Hillary? Vince Foster might be able to tell us how dangerous that poontang was if he hadn't gone and committed "suicide".

Moral: just because it's dangerous does not mean it's desirable.

Thu, 06/27/2013 - 11:41 | 3699335 jubber
jubber's picture

Deflationary collapse bitch

Thu, 06/27/2013 - 13:17 | 3699747 Shell Game
Shell Game's picture

Global, weaponized (leveraged) debt - deflationary spiral - Quantitative panic - currency collapse (hyperinflation) - deflationary collapse.  Yes.  Your point?  Think half of the world is not going to abandon the $USD in the not too distant future?   The only duct tape holding this shit together in the Military Industrial Complex - and the entire world is turning into a Graveyard of Empires....

Thu, 06/27/2013 - 11:41 | 3699338 JJ McApe
JJ McApe's picture

protip: never catch a falling knive

Thu, 06/27/2013 - 12:34 | 3699554 Levadiakos
Levadiakos's picture

more like a falling bomb

Thu, 06/27/2013 - 13:31 | 3699790 IridiumRebel
IridiumRebel's picture

never listen to a shithead with an agenda

Thu, 06/27/2013 - 11:43 | 3699346 NoWayJose
NoWayJose's picture

I do not own gold because of QE, nor do I fear the end of QE. I own it because the US has $17 trillion in debt, is adding more than a trillion a year to that total, and there is no one in Congress willing to vote for any austerity. This cannot end happily for the US dollar. I can live with short term pain (and buy more) but I cannot think of anyplace better to be in than gold - when the bubble finally pops.

Thu, 06/27/2013 - 12:24 | 3699501 Fuku Ben
Fuku Ben's picture

Derivatives will collapse the fiat system faster and long before debt

Long Gold, Guns & Grub

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