CRASH 2: SH*TTING GOLD BRICS?

Emerging market central banks are piling into gold as their best hedge against dramatic falls in developed World demand.
Emerging ‘Bric’ nation Central banks were by far the biggest purchasers of gold in Q3 2011, and most made the biggest purchhases in their history.
September’s ‘correction’ in price was, to my mind, silly profit-taking in many cases. The fact that the new players are buying to diversify reserves isn’t especially interesting: but to do so in these quantities is very big news indeed. Following from the words of China’s financial Vice Premier yesterday, the gold-rush shows what the Brics expect: a massive demand slump in the West.

The scale of the purchases at 148.4 tonnes on a net basis was far bigger than previously disclosed, and helped explain gold’s rebound from a low of $1,534.

The countries that have publicly disclosed their purchases include Thailand, Russia and Bolivia. Sources also suggest that China and Brazil were big buyers, although India was the exception. (As we may be about to discover, India is exceptional in several ways, not all of them good: bullion buying there fell by a quarter: keep your eyes on this.)

China actually overtook India to become the largest consumer of gold jewellery in the third quarter…an unusual development given its religious significance in India.

27 thoughts on “CRASH 2: SH*TTING GOLD BRICS?

  1. Love this from ZH today:
    When discussing European sovereign bond purchases it is never polite to say the ECB “monetizes” when talking to “very serious people” – after all they “sterilize”, or in other words, don’t see an actual balance sheet expansion, as they offload the entire cumulative balance (which as of this week was €194.5 billion) onto other financial institutions. In this way, the bank supposedly does not take on interest rate risk, which in a feedback loop, is the cause and event of such modestly unpleasant monetary expansion episodes as the Weimar republic. What few discuss, however, is just where the banks get the money to actually buy bonds from the ECB. Well, as it turns out, all the money used for sterilization comes from, you guessed it, the ECB, in what is one massive several hundred billion circle jerk. In essence what the ECB does, by pretending to not monetize and pretending to sterilize, is taking on not only interest rate risk one level removed, but also bank solvency and liquidity risk! In turn, this makes the central bank even more undercapitalized in practice than it is (and at 50+ leverage, it is already pretty, pretty undercapitalized), as once the banking dominos start crumbling, it will be the ECB that is left on the hook… and thus the Fed and the US taxpayer. So perhaps while Germany is complaining every single day about the possibility of outright money printing by the ECB, it will be wise to ask itself: who is giving Europe’s insolvent banks, which just borrowed a record amount of short-term cash from the ECB to be recycled precisely into such indirect monetization, their cash?

    • It is just the Eurocrats being creative with the rules. They have form for this sort of work and I would vote the Eurocrats as the ‘Prime Model’ for bureaucrats. They would survive nuclear devastation along with the cockroaches.

  2. I am staggered at your news. No mention anywhere,that I have seen. Go to a big Indian wedding,in say Mumbai,and there will be more gold there,than in the Bank of England vaults. I have followed that corrupt organisation,the CME,whose guys did not pick up,the MF global debacle,with 1.2 billion missing from clients funds. Zerohedge is always posting,that the CME,artificially fixes the price of gold,and silver. Another corrupt practise. So there is definitely something fishy here,and its not Billingsgate. The two things I noticed, living in India,were the amount of gold they bought,and the amount of rice,they consumed.

  3. I believe that China’s reporting of its gold reserves have been routinely understated and that it has agents buying large amounts of gold on the QT around the world. Most information is via the World Gold Council. Not all countries are members and those that are may have motives for misreporting. I like Victorian sovereigns.

    John, looking forward to more information on India.

    • The World Gold council reports thus:

      “China
      Value of reserves: $67.65 billion
      Holdings total: 1,161.6 tons

      At 1,161.6 tons, the world’s most heavily populated country has the world’s seventh largest gold reserve. Expect it to be higher on the list? Well, bear in mind that China’s gold only accounts for 1.6 percent of its foreign reserves. With a population of 1.34 billion, the country holds about $50.49 worth of gold per person, totaling $67.65 billion.”

      Source: World Gold Council

      A Chinese sources states thus?

      http://news.xinhuanet.com/english2010/indepth/2011-11/21/c_131259676.htm

      “China has a proven gold reserve of 6,327.4 tons, making it the largest gold reserve holder second only to South Africa.”

      That number may be gold in the bank or gold in the bround waiting to be mined.

      It is still a large discrepancy which may bear some investigation.

  4. It’s funny how the EZ debt laden countries will try to offer every scrap of paper promise as collateral, beg the ECB to print, hope Germany backs eurobonds, suggest that neighbours puts up their gold as collateral – but NEVER offer up their own gold. It reminds me of some friends that came to stay last Christmas. They were not invited this year.

  5. The sellers are probably those closing margin calls on equity loses and our good friends at JP Morgan and HSBC. The trouble for them is the physical buyers move in on sharp falls so there is now becoming a floor to PMs. I note that when silver is driven down to $30 per ounce by short sellers it bounces back up as buyers of physical take advantage. Trouble is there’s not much physical out there. All the more reason to buy physical gold and silver. I think HSBC could have more than its fair share of headaches when the Chinese property market does an Ireland. I’d like to add to them.

    • JP Morgan has had a massive short position all the way through this bull market from $250 but manages to make money covering some on these sell offs that they themselves precipitate, only to add further shorts on the rally. You keep thinking they will run out of road but it never happens since they are the Fed’s banker.

      • The trouble is that silver has numerous industrial uses eg. computers, solar panels etc. As physical reserves contract(already at record lows) the price of physical will rise and it will expose the market manipulation.

  6. I have been banging on about MF GLOBAL losing somewhere,$1.2 billion of customers money,and the corruption of the CSE. Those honest hard working banking folks,JPM,have just bought the largest stake in our,London Metals Exchange,from MF Globals receivers. Thats going to be another UK company,split into pieces,and even less control of gold, silver,etc. What if the UK were to set up online,a large Monopoly board,its already got on it lots of London,we could sell,such as,Pall Mall,Piccadilly,all the London stations,etc. This would please Cameron,and Osborne,as they could run it. Why sell it all to the EU. their going to take it anyway.

  7. Yes, yesterday was options expiry day in the PMs market and that always means the crooks at JPM and HSBC take the price down as hard as possible. When these people finally have their fingers prised from their market rigging controls I believe the rises in the PMs will be staggering!

    The whole MF Global fiasco is alleged to include fraud in the metals markets on an unprecedented scale. How much longer do we have to put up with all these injustices and criminality in the markets??

  8. I wondered what all the fiddling and farting was going on,with murkys mob. now they have got around to finally announcing it. To soothe Germany,and the hob goblin,its the IMF,thats going to lend all the bailout money. Very clever,because that includes the US,but very bad for us,the UK,because they have out maneuvered Cameron,or maybe not,and now we have to pay for the rescue.

    • @nerdman – “its the IMF,thats going to lend all the bailout money”

      Is that based on this at the WSJ – But the EFSF hasn’t raised any of these outside funds, … and Friday Dutch Finance Minister Jan Kees de Jager said it appeared unlikely to happen.

      Instead, Mr. de Jager suggested in comments to a small group of reporters, “probably the IMF route will be used by some countries.”

      But it isn’t an easy route either. The International Monetary Fund itself has available resources roughly comparable to the too-small EFSF, and there is great political reluctance in non-euro countries to increasing the IMF’s size in order to help Europe.

      Could be wishful thinking, or he’s let the cat out of the bag, or he’s thinking or places like Hungary. I’ll put my money on the last one, and the WSJ’s misread him – they don’t do dot joining in Post Modernist Media Studies.

      There are reports that Jankers and Rumpoil have come round Merkel’s point of view – leaving Barroso out on a bit of a limb regarding Eurobonds (Barrosic Lint, Germany, Coal & Coke, Eurobombs – gotta be a line in there somewhere)

      Teacozy says he’ll be submitting to a joint proposal to the EU partners to change the Union’s treaty with Merky Angel. In other words he’ll attend a meeting, where Merkel will announce her plans – jerk. But maybe he’s also come round to admitting the can kicking game has has reached the end of the road.

      • Given that the UK has in the past been rescued and bailed out by the IMF back in 1976 can we really now grumble about putting our hands in our pockets to contribute to their coffers? The IMF was after all only only able to come up with the cash thanks to the generosity of President Jimmy Carter and Chancellor Helmut Schmidt. Denis Healy had to get down on his knees and grovel. If I remember correctly the bond markets were charging the Labour Government an interest rate of over 15%. Soon we may have the pleasure of watching George Osborne performing the same trick as the British economic miracle appears to be running a little late.

      • Spot on. Berlusconi and Papandreou had to be removed, why? They would not go along with the plan they already have. Not long to wait.

  9. In his Beeb interview Kyle Bass said

    “… in recent years the US & the EU have created $6 trillion dollars out of thin air. So why would I want to own paper currency, For me buying gold is a put on the idiocy of the political cycle … ”

    And on Bass’ advice Texas Uni squirrelled away a billion in April http://www.bullionmark.com.au/gold-research/blog/2011/4/00/175-Texas-University-Endowment-Storing-About-$1-Billion-in-Gold-Bars.html

    If they’re doing it in Texas, it’s not surprising that they’re doing it other Big places.

    Quiz: If Texas were a country would it be a T in a BRIC a T in a CIVET or T in a CARBS ?

  10. I never understood the whole Gold rush thing. Does it have any real physical / Industrial use? Gold has been found near Loch Lomond – so a new mine has just been given the go ahead. White Gold is much nicer for Jewelery in my opinion. So the truth is out there…. There’s GOLD in them there hills…. and a huge, ugly, enviromental tragedy what is also known as gold mine. Diamonds? Now you’re talking. Girls best friend.

      • @GG
        Gold: industrial use, very minor?

        Connectors. Especially in high-grade electronics. Sure they don’t use much, but without it you do not have a mobile phone. For these you need various rare-earth elements too – found in Central Africa amongst a few other places. Guess where the Chinese are active.

  11. Pingback: GOLD: Why the old purchasing system is breaking down | The Slog

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s