Gold Prices quietly & coolly climbed its way back up amid “Sold Out” signs that indicate demand for Gold Bullion is soaring in just about a week after a massive “Sell Off” in paper Gold that sent prices to their lowest level in over two years.
Gold Investment – A tale of two Markets:
Gold Investment continues to be a tale of two markets – the physical & the Paper Gold Market. The physical Gold market is witnessing a massive Gold buying rush even as I continue writing but the Paper Gold Market continues to remain weak. Gold ETF outflows continue to rise in large numbers – a record of sorts. The disconnect adds-up to a Big Time market manipulation by Big Money. It’s the biggest diversion between the Paper / Futures pricing and the real / Physical one that the world may have ever witnessed. Holdings in the SPDR Gold Trust, the biggest bullion-backed exchange-traded product, are set for the largest monthly decline since trading began in 2004. Holdings in Gold ETFs fell another 7.52 metric tons Tuesday & and outflows of 253.63 since the end of 2012. Data on the its Web site show gold holdings now stand at 1,097.19 metric tons compared to 1,350.82 at the end of 2012. An ongoing outflow from exchange-traded funds continues to undermine rally attempts in gold, says HSBC.
Gold climbed for the seventh time in eight days, rebounding from the biggest slump in three decades, as rising central bank and physical purchases countered falling Gold ETP (exchange-traded product) holdings. The volume for the Shanghai Gold Exchange’s benchmark contract has been more than four times last year’s daily average every day since April 16, while sales of Gold Coins by the US Mint are heading for the highest total since December 2009. Cash Gold of 99.99% purity added 1.4% to 294.88 Yuan a gram ($1,486.10 an ounce) on the Shanghai Gold Exchange, China’s largest spot bullion market. The contract’s daily volume has topped 20 tons since April 16, compared with last year’s average of about 4.7 tons, exchange data compiled by Bloomberg. The U.S. Mint’s gold coin sales totaled 196,500 ounces as of yesterday, up from 62,000 in March, data on the mint’s website show. The amount for all of December 2009 was 231,500 ounces. The mint said on April 23 it ran out of its smallest American Eagle Gold Coins.
Central Banks Remain Net Gold Buyers:
News on Wednesday from the International Monetary Fund that Russia and Turkey raised their Gold Reserves in March helped trigger the latest gains. Russian holdings rose 4.7 tons to 981.6 tons and Kazakhstan’s hoard grew 1.2 tons to 122.9 tons. Nations from Colombia to Greece to South Africa bought Gold Bullion as prices rose for an 11th year in 2011, highlighting the reversal of a three-decade-long bout of selling that diminished the world’s biggest bullion hoard by 19%. The World Gold Council says they added 534.6 metric tons to reserves in 2012, the most in almost a half century, and expects purchases of 450 to 550 tons this year, valued now at as much as $25.3 billion. Central banks have also been the biggest losers, with about $560 billion of value erased since gold reached a record $1,921.15 an ounce in September 2011. Gold Holdings by Banks peaked at 38,347 tons in 1965 and began their most recent contraction about a decade later. Central banks owned 31,671 tons at the end of 2012, about 19% of all the Gold ever mined, the London-based World Gold Council estimates. They accumulated the hoard over decades, with about 16% added in the 10 years through 1965, when prices were fixed at $35, or about $258 today once adjusted for U.S. inflation. President Richard Nixon formally ended the convertibility of dollars to gold in 1971. Morgan Stanley expects central banks to buy another 655 tons through 2018, while the WGC anticipates purchases of at least 450 tons this year alone. The price slump may not deter them because of how much longer they typically hold assets relative to most investors.
Analysts say that the Japanese are among the strongest buyers of gold, which they see as refuge from a weak yen and the prospect of Inflation finally returning to Japan. Price swings are an “unavoidable risk” and aren’t a “big concern” because gold is a long-term strategy for diversifying currency reserves, the Bank of Korea said in a statement April 16. The central bank almost doubled its holdings to 104.4 tons by the end of March from a year earlier, still only equal to 1.6% of all its foreign reserves, WGC data show. The slump means Sri Lanka will “favorably” consider buying more, central bank Governor Ajith Nivard Cabraal said in a Bloomberg Television interview April 16.
The Gold “Sell Off”– An ill-timed Occurrence:
The timing of the rout is surprising because the events that sustained the Gold Bull Market in the last six years are still unresolved. Central banks continue printing money on an unprecedented scale as they seek to boost growth, Europe’s debt crisis is spreading and the International Monetary Fund is among those getting more pessimistic on the global economic outlook. Yet investors are now shunning an asset traditionally seen as a hedge against currency devaluation and fiscal turmoil. Should Gold Bullion fail to rally by the end of this year, it would mark the first annual decline in the last 13 years. The Sell-Off has been a huge financial & emotional blow to investors who anticipated that stimulus by central banks and the almost doubling of sovereign debt to $22.9 trillion since 2008 would debase financial assets and boost demand for the traditional store of value. The Bank of Japan and the Federal Reserve have said they need to keep buying bonds and the International Monetary Fund cut its 2013 estimate for world growth four times since July. The slump into a bear market happened three days after a European Commission debt assessment said Cyprus had committed to sell about 400 million euros ($521 million) of gold. While the Cypriot central bank, ranking 61st globally for reserves, said it hadn’t discussed such plans, it spurred speculation that other distressed European economies would do the same. Portugal, Spain, Italy and Greece own 3,228 tons.
Gold Investors Answer by way of “Sold Out” Signs to Manipulation:
Gold Prices started plunging after Goldman Sachs advised going short on Paper Gold on expected price declines. A representative of one bullion dealer suggested that the recent sharp price decline in the so-called paper market ended up being a “gift,” although an “unnerving one,” to buyers of Physical Gold since it let them make purchases at significantly lower prices than two weeks ago. Most Gold Dealers have been surprised at the price slump & have reportedly said, “All of the selling has been in paper forms of gold. We’re not seeing hardly any sales (from investors) of physical forms of gold.” Rather than imposing a frightening effect, the plunge in Gold Prices a week ago has in fact, encouraged investors to buy more – but in physical form now as trader trust on Futures Market seems on a decline due to news on various forms of manipulation seen of late. The main concern remains the ultimate unwinding of the large global pool of liquidity caused by the stimulus efforts by central banks globally.
There has been a dramatic pick-up in physical purchases of Gold Coins, Bars & Jewelry globally. The retreat in Gold Prices came at a key time for buyers in India, thus giving an added lift to demand from the world’s largest gold-consuming nation. Spring is a time of many weddings, and gold is a traditional wedding gift. Further, much buying tends to occur in conjunction with the Akshaya Tritiya festival, which is on May 13. In fact Gold buying in China & India has been astronomical. Purchases from the Perth Mint in Australia have doubled. In Australia, a queue outside one of the bullion houses was seen winding out about half-a-kilometer long and which hasn’t been seen for years. The U.S. Mint said this week it ran out of its smallest American Eagle gold coin and suspended sales of its one-tenth ounce American Eagle Gold Coins. Standard Chartered Plc’s sales to India last week exceeded the previous record by 20% and UBS AG says physical flows there are near the highest since 2008. Reports this week have said there are shortages of Gold Bars and coins in some countries, with Gold retailers jacking up their charged premiums over the spot price of gold. There is also scattered talk in the market place that there is a significant “short squeeze” occurring in the gold futures market at present. This phenomenon occurs when short sellers are well “under water” and are forced to buy back losing positions at a much higher price, as they are squeezed out of the market. The one area that remains fundamentally strong is physical retail demand across the globe. Day-by-day premiums continue to escalate as they break long-time highs, last $3 an ounce for kilo bars in Singapore and Hong Kong (4.5 year and 1.5 year highs respectively). Gold Eagle sales in the U.S. are following suit. North American Silver premiums have shot up in particular, & in some cases by up to 30%.
Billionaire investor John Paulson told investors on Wednesday he is staying the course on gold even though there may be more short-term volatility in the price of the metal. John Reade, a partner at Paulson & Co, said that the firm, which oversees about $18 billion, is not veering off its course even as he cautioned that there could be more price fluctuations in the short term. Paulson’s small gold-oriented fund, which was already down 28% in the first quarter, has lost more money recently. But Paulson said the bulk of assets belong to Paulson himself, which makes any sort of investor run on the fund highly unlikely.