“Woe to the land whose king is a child and whose leaders are already drunk in the morning. Happy the land whose king is a nobleman, and whose leaders work hard before they feast and drink, and then only to strengthen themselves for the tasks ahead”. (Eccl 10: 16-17)


"When misguided public opinion honors what is despicable and despises what is honorable, punishes virtue and rewards vice, encourages what is harmful and discourages what is useful, applauds falsehood and smothers truth under indifference or insult, a nation turns its back on progress and can be restored only by the terrible lessons of catastrophe." … Frederic Bastiat


Evil talks about tolerance only when it’s weak. When it gains the upper hand, its vanity always requires the destruction of the good and the innocent, because the example of good and innocent lives is an ongoing witness against it. So it always has been. So it always will be. And America has no special immunity to becoming an enemy of its own founding beliefs about human freedom, human dignity, the limited power of the state, and the sovereignty of God. – Archbishop Chaput






Tuesday, January 17, 2012

GFMS reports substantial offtake of Gold by Central Banks

Dow Jones news is carrying a report this morning from GFMS (formerly Gold Fields Mineral Services)detailing the amount of gold purchased last year by the world's Central Banks. It was indeed a formidable number.

The net purchases of the yellow metal came in near 430 tons, a more than 5-fold increase on the previous year. It was also the highest level recorded since 1964.

To give you a sense of the significance of these purchases - the amount of NET purchases by Central Banks in 2010 was a mere 77 tons!

Surprising to me was the fact that Mexico was the largest buyer as far as the official monetary sector goes. GFMS reports that they added almost 100 tons of gold to their reserves. I would have thought it would have been China to lead the pack.

The other surprising fact was that signatories to the Central Bank Gold Agreement ( this was set up to limit the amount of gold sold by European Central Banks ) sold less than 10 tons for 2011.

The summary - Central Banks are now absorbing a significant amount of world gold production. This should continue to provide very good downside support for the metal on price retracements lower as these banks do NOT CHASE PRICES HIGHER but are there to buy at levels they consider gold to have "value".

8 comments:

  1. China has an entity that goes out and buys and accumulates gold and then, at a given point in time they decide to transfer it all to the PBoC. Just like last time some 3 or 4 years ago, if I recall correctly, suddenly the PBoC reported an additional 400 to 600 tons of gold.

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  2. Next time the PBoC reports its gold holdings, it be to tell the world that the Yuan is on its way to becoming the new world reserve currency and that it's properly backed by gold.

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  3. Hoarding the money and the gold! ...eek! Or are they hedging? Or thinking they might buy up the competitor's stock, eh?
    It's said that above ground there's near 140,000 tonnes (long tons) of the yellow metal; and supposedly below ground there is 50,000 mineable tonnes. At the current rate of digging, blasting and crushing there is about another 20-year’s worth...plus or minus something or other.

    Anyway, thank you Dan, you have an eagle eye and sniffer like a bloodhound.

    And Dan, you share like you have a heart of gold!

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  4. Grateful as always for your commentary, Dan, so please don't take this observation as an adverse criticism (if it's a criticism at all I mean it constructively) but, if Central Banks were indeed paragons of trading virtue as you say then why have they waited ten years to get in in such a big way? I would be interested to see what history has to say (if any data exists for comparable situations) about the actions of Central Banks at market turns. Obviously, I can see the point you make about them wanting to defend their position and so maybe muscle their way out of weakness but, if they can be said to move the market, are we necessarily justified in assuming that they can't make the same mistakes as the rest of us? Maybe what they just did was a contrary signal, especially when met with "At last, the cavalry just showed up!"

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  5. I remember when the banks were net sellers and it was reported by some that the banks were terrible at trading and that they usually sold prior to an increase in price. Would this also mean that the banks would buy prior to a drop in price?

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  6. Leslie;

    Central Banks seeking to diversify their reserves (many of which are held in Dollars or in Euros) are doing the prudent thing. Tell me - would you feel comfortable owning little to neglible amounts of gold considering all of the unrest in the currency markets not to mention the fact that the US is now $15 TRILLION in debt and Obama wants another Trillion? Oh and don't forget that the Euro is a Rock of Gibraltor for stability and permanency.

    Ten Years ago the Euro was the be-all and end-all of currencies that was going to dethrone the Dollar; now some wonder if the damn thing will even survive intact.

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  7. GFMS view on gold - Gold's bull market may be nearing its end

    http://www.mineweb.com/mineweb/view/mineweb/en/page33?oid=143465&sn=Detail&pid=102055

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  8. That was indeed my point, seekingwisdom (07:26PM) but you make a very good point, Dan (08:48PM), and one which hadn't occurred to me: much depends on what Central Banks are diversifying out of. If it's Euros then it looks like a rational decision to unwind positions that had been building from 2000/2001. The fact that there may not be much choice apart from gold and the USD (Federal Reserve Note) may explain the sideways-to-down picture in EUR/USD for the past 3 years (top in April, 2008), or even the sideways picture over the past 7 years - EUR/USD is now just below where it was at end Jan., 2005) but I don't have the data to stretch this theory any further. For example, 430 tons of gold seems like it would mop up a lot of Euros, but what percentage of the Euros available to Central Banks does this represent?

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