Guest Post: Propping Up The Gold Price?

Tyler Durden's picture

Submitted by John Aziz of Azizonomics

Propping Up The Gold Price?

Izabella Kaminska makes the point that central banks have turned net gold buyers:

Kaminska seems to believe that gold’s price is not just central-bank supported, but its trajectory is downward:

If not for the gold bar/coin frenzy and ETF demand (now substituted by official buying), one might speculate that the collapse in conventional demand (i.e. for industrial and jewelery purposes) may have led to a very different price path for gold post 2008.

Now that ETF demand is waning, however, marginal support for the gold price is actually being provided by the official sector more than ever.


Though, given the gold price reaction of late, clearly even this is not so effective so, either gold and coin buying has started to wane as well – and there is evidencethat this is the case – or it’s taking ever more buying (by official sources) to keep prices supported at the current level.


The recent plateauing of the gold price thus either suggest that today’s spot supply is increasingly catering to tomorrow’s demand expectations, or in the context of more gold being produced all the time, it is taking ever more buying by the official sector to keep prices from falling.


In other words, sans the intervention of central banks on a major level: case bearish.

The obvious thing, though — even if we take central bank buying out of the equation altogether — is that total demand for gold is still increasing. And the price of gold has increased faster than sales, illustrating that the market has struggled and continues to struggle to keep pace with underlying demand. 

And it’s not just demand for gold-denominated paper (i.e. ETFs or other such as-risky-as-anything-you’ll-get-from-MF Global assets) — it’s recently manifested as demand for hard physical gold:

It’s true that central banks are presently supporting the gold price — after years of selling off national wealth at pennies-on-the-dollar into a bear market and thus suppressing prices. Yet it’s not the Western central banks that are pushing demand for gold. It’s the BRICs. As PBOC official Zhang Jianhua noted:

No asset is safe now. The only choice to hedge risks is to hold hard currency — gold.

And as I noted yesterday, BRICs have founded and legitimate fears of buying even deeper into an increasingly ponzified, over-leveraged, rehypothecated and interconnective paper financial system. The PBOC (and other American creditors) already faces the risk of the US Treasury inflating much of their holdings away; the entire point is to get out of such assets into something much harder to duplicate, and impossible to inflate away.

According to China’s State Council’s Xia Bing:

China must make fuller use of the non-financial assets in its foreign reserves, as well as speed up the diversification of investing channels to resist a possible long-term weakening of the dollar.

No; I don’t think it’s particularly wise to announce to the world that you’re going to get elbow-deep into gold bullion either, but this isn’t just a bluff. China is importing hard-to-fathom quantities of gold:

Ultimately, the surge in demand for gold reflects one thing alone: distrust of the increasingly messy, interconnected, over-leveraged and fraudulent financial system. Whether it is China — fearful of dollar debasement — loading up on bullion, or retail investors in the United States or Europe — fearful of another MF Global (or PFG, or Lehman Brothers) — stacking Krugerrands in their basement, demand for gold reflects distrust in finance, distrust in the financial establishment, distrust in banks, distrust in regulators, distrust in government and distrust in the financial media. And it is that distrust — not (by any stretch of the imagination) central bank interventionism — that is the force moving demand for gold.

The distrust is not going anywhere because the system is still rotten. We all know — even Business Insider readers know deep down, I think — that there is something exceedingly rotten at the heart of the global financial system. We don’t know quite how rotten, how deep the rabbit hole goes, who will be implicated, or how fast. But with every LIBOR-rigging scandal (which the Fed, of course, was aware of), every raided segregated account, every devalued pension fund, every failed speculative “hedge”, every Facebook or Zynga pump-and-dump, we get closer to the truth.

There will be no bear market for physical gold until trust in the financial system and regulators is fixed, until markets trade fundamentals instead of the possibility of the NEW QE, until governments represent the interests of their people instead of the interests of tiny financial elites.

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Ray1968's picture

China buying, ETF buying, Citizens buying. That sounds like real demand.

The downward trajectory is just in bankers fantasies as they dilute the market with paper gold.


Physical buying, paper selling. It's what's for dinner. 

CClarity's picture

Kyle Bass and the University of Texas looking smart on gold. Also looking increasingly like the Bass Japan bet will pay off too.

cossack55's picture

Kyle knows how to party on that ranch of his.  BTW, any corelation between the rise of gold from $300 to current prices and the advent of the internet?

strannick's picture

Anyone whose analysis ignores deliberate precious metals price suppression and doesnt include successive COMEX (silver) margin hikes (April 2011)  and short sales equalling a years worth of production in an hour (Feb. 2012), is just kind of chattering...

mcguire's picture

if you pay attention to the analysis you are talking about, ie price supression, the smartest thing to do right now is sell paper gold and buy physical.  i swear this is not spam, i just found it an excellent technical analysis article on the price of gold..

i think it is at least a valid concern to look at what past prices are telling you about possible future outcomes.. this article suggests that the price of gold and the dollar ar tellling us to lookf or eu inflation/us deflation and us price of gold to test $1100.  


Western's picture

Article assumes the relationship of gold-usd is going to have the same dynamic as in years past.


This time is different? It's a possibility is it not... the EUR is also a competing reserve currency and the RMB is more attractive to BRICS it seems like, and GOLD is transforming into the safety trade for fucks sakes. The PTB are trying to AVOID a panic to induce the safety trade.


I guess that's the real question; How crazy does the manipulation have to get where the paper price becomes $1100 yet you cant buy it in physical form (and that in itself is not enough to bring the price to a reasonable level)?

GetZeeGold's picture



Propping Up The Gold Price?


Is anyone else trading their food stamps for gold......or is it just me?


AustriAnnie's picture

"where the paper price becomes $1100 yet you cant buy it in physical form"

Exactly.  Gold might drop, but its only a bargain if you can actually complete the transaction.

And slowly the holders of gold who WILL part with gold in the dips, are being replaced by gold holders who absolutely WILL NOT part with the gold until they do have trust in the system (or need to sell gold to eat).  The price manipulation only increases the pace of buying by stronger holders and scares off the remaining group of buyers who scare easily.  

And by depending on the USD as safety trade, they increase the pace of the USD-for-gold trade, do they not?  By strengthening the dollar, while simultaneously holding down price of gold, they only encourage the gold buying spree by giving a discount to dollar holders.

strannick's picture

Ahh. So first a quadrillion of derivatives has to unwind before gold will level off. Leaves a bit more upside then I guess.

dexter bland's picture

The interesting thing about China buying physical gold from Hong Kong, is that Hong Kong is also buying huge amounts of gold from China. Circular trading to inflate the statistics perhaps? Who is the world's biggest gold producer again?

"Market participants have been puzzled by the high volume of gold imports from China from February, since China restricts gold exports.

Some suspect the continuous "round tripping" of the precious metal between the mainland and Hong Kong has greatly inflated gold import figures from Hong Kong, the main conduit of gold into China, the world's top gold producer and upcoming No.1 consumer of the metal.

On the other hand there is very little doubt that the physical demand from India has fallen off a cliff.

And sorry gold bugs, but gold is already in a bear market and the 2012 numbers, not shown on the chart, reveal the reasons why. Even central bank purchases are falling. The whole thing is propped up by the "paper" futures traders betting on QE,


LongBalls's picture

Research the Bank of International Settlements (BIS). The world is running out of sufficient collateral. You know it, I know it. The BIS is not looking into moving gold from a Tier 3 to Tier 1 asset class because they have nothing better to do.



Aziz's picture


Krugman said that the BoIS had gone "full-blown liquidationist".

That says it all — the BoIS is likely going to move gold to a Tier 1 asset class as part of Basel 3.

That would open a whole new golden vista.

GetZeeGold's picture



The BIS doesn't even have a country. They don't have to do sh!t.


Krugman is a windup puppet doll.


LawsofPhysics's picture

Wake me when it gets back to my dollar cost average of $300 an ounce. Buying physical is not an investment moron, it is safely storing wealth just in case the paper pushers get greedy, and they always do.

eclectic syncretist's picture

Place your bets, live with the consequences.

OmNamah's picture

For last about half-year I have been using Zerohedge as contrary trading signal in terms of timing (else I rely on my statistical edge to trade) to trade PM's.

For once my system is confirming a major bottom is in place, in both Gold and Silver.

So Ahoy!!! Good days will be back...I would prefer gold and silver miner....but everyone on its own in this bad-bad world of trading:)

On Indian markets please refer:

Rainman's picture

Not one damn thing I ever bought the past 30 years has had a better return rate than my gold....but that's just me.

Rate of return on Mrs. Rainman a different matter.

PiratePawpaw's picture

Ditto, except maybe my ammo...

"There will be no bear market for physical gold until trust in the financial system and regulators is fixed, until markets trade fundamentals instead of the possibility of the NEW QE, until governments represent the interests of their people instead of the interests of tiny financial elites" 


Translation: Not in our lifetimes

TheFourthStooge-ing's picture

PiratePawpaw said:

Translation: Not in our lifetimes

Correct, at least for many people older than around 40. At a minimum, there will be no bear market in gold until sometime after the current corrupt system is put out of our misery, many a noose is strained under the repetitive load of the culling of the guilty, and a new system has demonstrated sufficient trustworthiness over the course of a generation or two.

Hayabusa's picture

"Not in our lifetimes" is absolutely correct!!  In addition, "governments represent the interests of their people instead of the interests of tiny financial elites"... tiny financial elites, they are hardly "tiny"... we're talking economics here and that means $$, not numbers of people.  Our government is and has been bought and paid for by the "tiny" financial elites they haven't represented the interests of the 99% in decades... the elites and special interests get what they want through corruption, bribes and manipulation.  I find it funny how some of you preach about right and wrong what our government officials are doing, or not doing... my take - notions of right and wrong are promoted for the 99% by the 1% who do the opposite.  The 1% get away with stealing the rest of us blind and make their kleptocracy "legal"... this will only end when people get realistic, quit whining and start playing by the 1%ers' "real world" rules - which equate to anything goes as long as you can get away with it.

devo's picture

I think it reflects a looming world war and gold backed yuan

kito's picture

yuan is definitely something you should diversify into......ive mentioned before that the bank of china in nyc allows you to open a renminbi denominated bank account--fdic insured (ha-as if that makes you feel better)-yuan is certainly going to be an influential part of the post-reset world monetary system...........

fonzannoon's picture

Completely agree about the Yuan although I don't know who will confiscate the US customers bank of China accounts first, the US or China?

LawsofPhysics's picture

China is printing faster than the fucking Fed. ALL fiat is going to zero and China and the U.S. elite have been on same page for years. The problem is that Americans are not as conditioned to a strong state authority, yet.

How many firearms in citizen's hands again in China?

prole's picture

Zero?    Zero? ..... Wait ......... Zero?

MeelionDollerBogus's picture

no, China is printing no faster than the Fed, keeping the soft peg and still appreciating mildly vs USD. That means the Fed is printing faster.

devo's picture

I called my bank and told them I was taking a trip to China and needed Yuan. They said they could get them for me.

Problem is you get pretty hard with taxes on any appreciation...

JohnG's picture

Check out EverBank.

Gringo Viejo's picture

I REPEAT: The United States DOES NOT have 8,000 tonnes of gold.

The COMEX DOES NOT have 100,000,000  ounces of silver.

Aziz's picture

3,000 tonnes of tungsten?

6,000 tonnes of tungsten?

devo's picture

100,000,000 ounces of hooker jizz.

TheFourthStooge-ing's picture

A pile of lead bricks and a few cans of yellow paint.

sumo's picture

And chemical warfare antidote samples.

jonjon831983's picture

Actually... Yes, I will take it.  Tungsten is valuable and one of the toughest metals and is used in Armour Piercing shells. ... I just need to buy a tank first, but once that happens then I am set.

zerozulu's picture

Tungsten is not a bad investment either. one day FED will sell it at the price of gold.

Joebloinvestor's picture

Yup, read the fine print.

The US claims gold "in reserve", that is unmined gold on federal land.

fucking liars.

devo's picture

This is why gold stocks are a terrible long-term buy. Good trade, though. They'll pop big time with QE3.

cranky-old-geezer's picture



It doesn't matter if they have a GAZILLION tons of gold, FEDERAL RESERVE NOTES ARE NOT REDEEMABLE FOR A-N-Y OF IT.

And who fucking cares if the Fed is "undercapitalized"  because most of the shit on their balance sheet is fucking worthless?


What part of NON-REDEEMABLE do you people not understand?

The currency is non-redeemable, SO IT DOESN'T FUCKING MATTER what the Fed has on their balance sheet, in their vault, or any damn place.


MeelionDollerBogus's picture

Fed is holding notes saying redeemable for gold at 42/oz.

They have the notes from the Treasury.


MeelionDollerBogus's picture

REPEAT: the USA holds gold from many nations on its soil which can not be taken by force and whose ownership will be decided by nuclear missiles NOT DEEDS OR TITLES or contracts.

I'm sure that can meet the 8000+ tons.

yabyum's picture

If I had tons of US fiat I would buy some gold. Hell, if I had a little fiat I would buy a little.

Spitzer's picture

If I could legally print money, I would buy gold in case/when the printer gets taken away or breaks. THAT IS WHY CENTRAL BANKS BUY GOLD.

francis_sawyer's picture

'Propping up' gold prices WITH WHAT? (ought to be on everyone's mind at the moment)...

RobotTrader's picture

If these central banks are buying gold, then they are also buying 10x more U.S. paper.


Virtually all U.S. based bond ETF's are screaming to new highs, including CXA, the California Muni-Bond ETF.

Today, there is an unquenchable amount of thirst for U.S. Dollar-good "Paper Promises", not the "hard tangbile assets" everyone has been harping on.

Spitzer's picture

Today, there is an unquenchable amount of thirst for U.S. Dollar-good "Paper Promises",

Yeah just like Freddy/fanny stock a few years ago.

not the "hard tangbile assets" everyone has been harping on.

Everyone ? Who Peter Schiff and Zero hedge readers ???




Al Huxley's picture

Or what did that stupid fucker Charlie Prince at Citi say, in July 2007, just before everything went to shit in August?  Something along the lines of 'everybody's dancing so we just have to keep on dancing'.  It works until it doesn't - timing's a bitch, but just because bond prices are rising doesn't mean I want to own them and play the 'greater fool' game.