You don’t see a lot of mainstream coverage of big players who remain bullish on gold. However, Yahoo! Finance did report on Morgan Stanley’s latest forecast, which sees gold’s bull cycle entering a new stage of growth as countries around the world ramp up their easy money policies.
“A notable feature of the investment landscape over the past few months has been the 12 percent drop in the price of gold since September.
During that time, we’ve heard some incredibly bearish calls on gold from strategists at Goldman Sachs and Credit Suisse, among other shops. Rising real interest rates are said to be the death knell for gold.
Morgan Stanley, which for a while has touted gold as its number-one investment idea in the commodity space, isn’t ready to throw in the towel just yet.
In fact, according to the bank’s Chief Metals Economist, Peter Richardson, ‘The reasons for owning gold may be evolving.'”
Peter Schiff isn’t the only one surprised by all the naysayers who believe the economy is improving and gold’s heyday is over. Brett Arends – an admitted “gold agnostic” – just wrote a commentary for The Wall Street Journal’s MarketWatch, examining the popularity of gold abroad, and the bullish fundamentals that haven’t been affected by the stock market’s recent performance.
“Have you heard about the new boom in gold? You won’t hear about it in the usual places. Everywhere you turn these days, all you hear is that gold is down, it’s finished, it’s heading for something called a “death cross,” which sounds terrifying. But away from the headlines, gold just rocketed to a new, all-time high.
Where? In Japan — the world’s fourth largest economy.”
By Jeff Clark from Casey Research
Bloomberg reported last week that Russia is now the world’s biggest gold buyer with its central bank having added 570 tonnes (18.3 million troy ounces) over the past decade. At $1,650/ounce, that’s $30.1 billion worth of gold.
Russia isn’t alone, of course. Central banks as a group have been net buyers for at least two years now. But the 2012 data trickling out shows that the amount of tonnage being added is breaking records.
The following table lists the countries that have added to their gold reserves this year, while the second one tallies those that have been selling. You’ll see how recently each country has reported, along with its percentage increase.
(Click to enlarge)
Based on current data, the net increase in central bank gold buying for 2012 was 14.8 million troy ounces – and that’s before the final 2012 figures are in for all countries.
This is a dramatic increase, one bigger than most investors probably realize. To put it in perspective, on a net basis, central banks added more to their reserves last year than any time since 1964. The net increase – so far – is 17% greater than what was added in 2011, which was itself a year of record buying.
Here’s a picture of total central bank reserves since the financial crisis hit:
(Click to enlarge)
Whatever gold’s price movements, positive or negative, central bank officials have continued adding a lot of ounces to their reserves.
But this understates the case, because most of the data exclude China, as well as a few other small countries. China last officially reported gold reserves in 2009, so the totals in the chart since then exclude whatever its purchases might have been.
Here’s where it gets interesting: Bloomberg claimed that Russia has been a bigger buyer of gold over the past decade than China – by a full 25%. Based on data about gold imports through Hong Kong and the fact that, for the most part, Chinese production doesn’t leave the country, it seemed to me that this could not be right.
The Chinese central bank holds an official 1,054 tonnes of gold in its reserves. Bloomberg states, based on IMF data, that China has added somewhere around 425 tonnes over the past decade.
I can’t say exactly what the correct number is, but the Bloomberg number almost has to be wrong. Here’s why:
- Gold imports through Hong Kong in December alone hit a record high of 109.8 tonnes.
- Imports for 2012 also hit a record high of 572.5 tonnes.
- If you add 2012 mine production – remember that China is now the world’s largest gold producer – roughly 970 tonnes of gold was delivered to various entities within the country last year.
- Cumulative imports since 2001 have reached 1,352 tonnes.
- Since 2001, imports plus production total a whopping 4,793 tonnes.
So Bloomberg is essentially saying that roughly 10% of the total gold available inside the country during that period was added to China’s reserves. While it’s true that Chinese citizens are buying a lot of gold (though perhaps more silver), it’s highly doubtful that private parties bought 90% of all the gold brought to the Chinese market during this period. I think – but can’t prove – that China’s central bank is buying more gold and at a faster pace than its Russian counterpart.
Jim Rickards, hedge fund manager and highly respected author of Currency Wars, said last month that China has probably already accumulated between 2,000 and 3,000 tonnes of additional gold reserves. If he’s right, that would be roughly double or triple the 1,054 tonnes it reported in 2009 – not the 40% increase Bloomberg’s numbers suggest.
At the very least, we can say that the Bloomberg report left consideration of China’s imports and production out of its report naming Russia the top gold buyer of 2012. Okay…but so what?
Well, Jim thinks the next big catalyst for gold will be an announcement from China about its reserve position. Here’s what he told me in late December:
The catalyst for a spike into the $2,500 to $3,000 price range for gold will be an announcement by China, probably in late 2013 or 2014, that they have acquired 4,000 tonnes or more in their official reserve position. This will put China on an equal footing with the US in terms of a gold-to-GDP ratio, and validate gold as the real foundation of the international monetary system. Once that position is validated, gold will move to the $7,000 range in 2015 and beyond.”
Even if Jim’s estimate is high or China doesn’t make an announcement until later, it’s clear that central banks around the world are buying gold in record quantities.
It almost makes you wonder… do they know something we don’t?
The Russians gave us some hints:
Evgeny Fedorov, a lawmaker for Putin’s United Russia Party, said last week, “The more gold a country has, the more sovereignty it will have if there’s a cataclysm with the dollar, the euro, the pound, or any other reserve currency.”
President Vladimir Putin told his central bank not to “shy away” from the metal, adding,
After all, they’re called gold and currency reserves for a reason.”
The Chinese have been quiet on this topic recently, after being very vocal a few years ago. Here’s a recent quote:
The current international currency system is the product of the past,” said Hu Jintao, General Secretary of the Communist Party of China.”
Others have provided clues as well:
We’re in the midst of an international currency war,” said Guido Mantega, finance minister of Brazil.
Quantitative easing also works through exchange rates… The Fed could engage in much more aggressive quantitative easing, to further lower the dollar, said Christina Romer, former chair of the Council of Economic Advisors.
Yes, we’re talking about the US dollar. Perhaps some investors have gotten complacent about the risks to the world’s reserve currency – but not central bankers. It’s not hard to see why: whether they admit it or not, central bankers must know what it means to run the printing presses the way the US has since 2008, even if price inflation is not immediately obvious. It’s no surprise they want to hedge their bets, moving more reserves into something with actual value… something that can’t be debased by a few computer keystrokes by an increasingly unfriendly government.
The US dollar has been the world’s reserve currency since WWII. That’s beginning to change, and the movement into gold is just one facet of that change. The buying by central banks is exactly what one would expect to see as we approach the end of the dollar hegemony.
The message from central banks is clear: they expect the dollar to move inexorably lower. It doesn’t matter that it’s been holding up against other currencies or that the economy might be getting better. They’re buying gold in record amounts because they see a significant shift coming with the status of the dollar, and they need to protect themselves against that risk.
This leads to a second message: gold is not overpriced, in spite of the 500%+ increase since 2001. Indeed, with the recent correction, central banks are likely buying more, even as you read this.
Central bank gold buying will continue, of that we’re certain. Even after Putin’s binge, gold accounts for only 9.5% of Russia’s total reserves. China’s 1,054 tonnes is roughly 2% of its reserves. It’s clear that both countries, along with others, have decided to accumulate as much gold as they can, as quickly as they can, before the dollar’s decline becomes more pronounced… and permanent. This could explain why some central banks don’t publicize their purchases. It also means that Bloomberg and other mainstream media outlets could be caught off guard when China announces higher gold reserves than expected – perhaps much higher.
Clearly we should take notice. If central banks are preparing for a major change in the value of the dollar, shouldn’t we? The fact remains that the US dollar cannot and will not survive the ongoing abuse heaped upon it by government planners and federal officials. That not only means the gold price will rise, but that many, if not most currencies, will lose a significant amount of purchasing power. This has direct implications for all of us.
Embrace the messages central bankers are telling us – the ones they tell with their actions, not their words. Buy gold. Your financial future may very well depend upon it.
The New York Sun published an editorial this week looking at proposed legislation in Virginia that would examine the viability of a metal-backed monetary standard. If the federal government doesn’t understand the importance of real money, maybe the states will take up the banner.
“It’s starting to look like Virginia could yet emerge in a leading role among the states in respect of monetary reform. The lower chamber of its general assembly has passed a bill to underwrite a study of the feasibility of a monetary unit based on a metallic standard. It is one of a number of states that are reaching deep into the Constitution of the United States to protect themselves in an era when the value of the dollars issued by the federal government is collapsing.”
The Argentinian government has frozen super market prices for the next two months in a misguided attempt to stop inflation. A new commentary on Zero Hedge compares Argentina’s financial decline to the state of affairs in developed countries around the world. Are you prepared for sudden hyperinflation?
“Up until now, Argentina’s descent into a hyperinflationary basket case, with a crashing currency and loss of outside funding was relatively moderate and controlled. All this is about to change. Today, in a futile attempt to halt inflation, the government of Cristina Kirchner announced a two-month price freeze on supermarket products. The price freeze applies to every product in all of the nation’s largest supermarkets — a group including Walmart, Carrefour, Coto, Jumbo, Disco and other large chains. The companies’ trade group, representing 70 percent of the Argentine supermarket sector, reached the accord with Commerce Secretary Guillermo Moreno, the government’s news agency Telam reported. As AP reports, ‘The commerce ministry wants consumers to keep receipts and complain to a hotline about any price hikes they see before April 1.'”
Read the Full Article Here
By Jeff Clark by Casey Research
The best indicator of a chess player’s form is his ability to sense the climax of the game. -Boris Spassky, World Chess Champion, 1969-1972
You’ve likely heard that the German central bank announced it will begin withdrawing part of its massive gold holdings from the United States as well as all of its holdings from France. By 2020, Bundesbank says it wants half its gold reserves stored in its own vault in Germany.
Why would it want to physically move the metal from New York? It’s not as if US vaults are not secure, and since Germany already owns the gold, does it really matter where it sits?
You may recall that Hugo Chavez did the same thing in late 2011, repatriating much of his country’s gold reserves from London. However, this isn’t a third-world dictatorship; Germany is a major ally of the US. So what’s going on?
Pawn to A3
On the surface, it may seem innocuous for Germany to move some pallets of gold closer to home. Some observers note that since Russia isn’t likely to be invading Germany any time soon – one of the original reasons Germany had for storing its gold outside the country – the move is only natural and no big deal. But Germany’s gold stash represents roughly 10% of the world’s gold reserves, and the cost of moving it is not trivial, so we see greater import in the move.
The Bundesbank said the purpose of the move was to “build trust and confidence domestically, and the ability to exchange gold for foreign currencies at gold-trading centers abroad within a short space of time.” It’s just satisfying the worries of the commoners, in the mainstream view, as well as giving themselves the ability to complete transactions faster. As evidence that it’s nothing more than this, Bundesbank points out that half of Germany’s gold will remain in New York and London (the US portion of reserves will only be reduced from 45% to 37%).
Sounds reasonable. But these economists remind me of the analysts who every year claim the price of gold will fall – they can’t see the bigger implications and frequently miss the forest for the trees.
Check
What your friendly government economist doesn’t reveal and the mainstream journalist doesn’t report (or doesn’t understand) is that in the event of a US bankruptcy, euro implosion, or similar financial catastrophe, access to gold would almost certainly be limited. If Germany were to actually need its gold, regardless of the reason, any request for transfer or sale would be… difficult. There would be, at the very least, delays. At worst such requests could be denied, depending on the circumstances at the time. That’s not just bad – it defeats the purpose of owning gold.
But this still doesn’t capture the greater significance of this action. First, it reinforces the growing recognition that gold is money. Physical bullion isn’t just a commodity, a day-trading vehicle, or even an investment. It’s a store of value, a physical hedge against monetary dislocations. In the ultimate extreme, it’s something you can use to pay for goods or services when all other means fail. It is precisely those who don’t recognize this historical fact who stand to lose the most in an adverse monetary event. (Hello, government economist!)
Second, here’s the quote that reveals the ultimate, backstop reason for the move: Bundesbank stated it is a “pre-emptive” measure “in case of a currency crisis.”
Germany’s central bank thinks a currency crisis is really possible. That’s a very sobering fact.
We agree, of course. History is very clear on this. No fiat currency has lasted forever. Eventually they all fail. Whether the dollar goes to zero or merely becomes a second-class currency in the global arena, the root cause for failure is universal and inevitable: continual and perpetual dilution of the currency.
Some level of currency crisis is inescapable at this point because absolutely nothing has changed with worldwide debt levels, deficit spending, and currency printing – except that they all continue to increase. While many economists and politicians claim these actions are necessary and are leading us to recovery, it’s clear we have yet to experience the fallout from spending more than we have and printing the difference. There will be serious and painful consequences, sooner or later of an inflationary nature, and the average person’s standard of living will be greatly reduced.
And now there are rumblings that the Netherlands and Azerbaijan may move their gold back home. If this trend gathers steam, we could easily see a “gold run” in the same manner history has seen bank runs. Add in high inflation or a major currency event and a very ugly vicious cycle could ignite.
Checkmate
If other countries follow Germany’s path or the mistrust between central bankers grows, the next logical step would be to clamp down on gold exports. It would be the beginning of the kind of stringent capital controls Doug Casey and a few others have warned about for years. Think about it: is it really so far-fetched to think politicians wouldn’t somehow restrict the movement of gold if their currencies and/or economies were failing? Remember, India keeps tinkering with ideas like this already.
What this means for you and me is that moving gold outside of your country – especially if you’re a US citizen – could be banned. Fuel would be added to the fire by blaming gold for the dollar’s ongoing weakness. Don’t think you need to store gold outside your country? The metal you attempt to buy, sell, or trade within your borders could be severely regulated, taxed, tracked, or even frozen in such a crisis environment. You’d have easier access to foreign-held bullion, depending on the country and the specific events.
None of this would take place in a vacuum. Transferring dollars internationally would certainly be tightly restricted as well. Moving almost any asset across borders could be declared illegal. Even your movement outside your country could come under increased scrutiny and restriction.
The hint that all this is about to take place would be when politicians publicly declare they would do no such a thing. You could quite literally have 24 hours to make a move. If your resources were not already in place, even the most nimble of us would have a very hard time making arrangements.
Once the door is closed, attempting to move restricted assets across international borders would come with serious penalties, almost certainly including jail time. In such a tense atmosphere, you could easily be labeled an enemy of the state just for trying to remove yourself from harm’s way.
The message is clear: storing some gold outside your country of residence is critical at this point, and the window of time for doing so is getting smaller. Don’t just hope for the best; do something about it while you still can. The minor effort made now could pay major dividends in the future. Besides, you won’t be any worse off for having some precious metals stored elsewhere.
The best chess players in the world aren’t that way because they can see the next move. They’re champions because they can see the next 14 moves. You only have to see the government’s next two moves to “win” this game. I suggest learning what countermoves you can take now, before your government declares checkmate.
In light of the recent spikes in the price of platinum and palladium, it might be worthwhile checking out CPM Group’s 2012 Platinum Group Metals Long-Term Outlook Report, released earlier this month. The report is a comprehensive study of the long-term fundamentals of PGMs, looking forward to 2022.
“Over the next ten years CPM Group expects PGM prices to increase at a strong pace. Platinum and palladium prices may break historical record nominal highs to test unprecedented levels. Investors have played an important role in the PGM markets for decades. In the past decade, however…the investor base has been expanding, and many more investors are participating in the PGM markets.”
Frank Holmes, a Seeking Alpha analyst, published an interesting commentary today, examining some under-reported bullish facts about gold in relation to other commodities and the stock market:
“While the precious metal did not shoot the lights out in 2012, gold’s bull rally goes on. It ended the year up 7 percent, making it a phenomenal 12th year in a row that gold rose in value. In a special gold bar version of the Periodic Table below, you can easily see gold’s rotation among the commodities from year to year.
What’s fascinating is the three-year rising pattern relative to other commodities that emerges when you focus on the bars. Over the past 10 years, gold has risen in position compared with the others for three years in a row, then fallen in relative position in the fourth year before repeating the cycle. Will it follow the same pattern and be in the top half of the Periodic Table in 2013?”
Get Peter Schiff’s latest gold market analysis – click here – for a free subscription to his exclusive weekly email updates.
Interested in learning more about physical gold and silver?
Call 1-888-GOLD-160 and speak with a Precious Metals Specialist today!
News hit today that the US Mint is already out of stock of 2013 silver bullion coins. Due to unprecedented investor demand, they won’t have more coins for sale until the end of the month. Kind of gets you wondering just how much silver is in the world today. Check out this entertaining info-graphic from Visual Capitalist:
Get Peter Schiff’s latest gold market analysis – click here – for a free subscription to his exclusive weekly email updates.
Interested in learning more about physical gold and silver?
Call 1-888-GOLD-160 and speak with a Precious Metals Specialist today!
Gold is back in the spotlight this week with the news that Germany’s central bank is going to begin repatriating its gold held in the US and France. Germany – the only nation in the EU that seems concerned about fiscal responsibility – has the second largest gold reserves in the world after the US. All of this has got some people wondering just how trustworthy central banks are nowadays, as well as what this could mean for the future of the yellow metal. Check out Adam English’s commentary on Wealth Wire:
“So far, the 1,536 tonnes of gold the Fed holds for Germany, worth over $80 billion at spot prices, has only been backed up by personal assurances. Now the Fed will have to prove its demands for blind faith were at least partially justified as 768 tonnes are removed over the next several years.
All the Germans originally wanted was basic verification and inspection of their property. Perhaps if the Fed was more accomodating, there never would have been pressure on the Bundesbank to explain why it allowed the situation to persist as Fed to keep their gold off-limits.”
Continue Reading…
Get Peter Schiff’s latest gold market analysis – click here – for a free subscription to his exclusive weekly email updates.
Interested in learning more about physical gold and silver?
Call 1-888-GOLD-160 and speak with a Precious Metals Specialist today!
