“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


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Friday, August 16, 2013

Demand Side News

The World Gold Council this week released some very interesting data which I want to relay here although you can get it firsthand by clicking on the link below to take you directly to their site.

http://www.gold.org/media/press_releases/archive/2013/08/gdt_q2_2013_pr/

I want to first start with a chart of the largest gold ETF, GLD. I consider this ETF to be a very good proxy for overall WESTERN gold investment demand.



Notice how the gold holdings in the ETF have been consistently dropping for this entire year thus far. GLD Began the year with 1350 tons of gold reported in their holdings. As of yesterday, August 15, reported holdings are 913 tons. Doing the math we learn that a total of 437 tons have gold have been offloaded from this ETF by predominantly large WESTERN investors, aka, hedge funds. So we have it established that investment demand for gold in the West has been pitiful. That we know and have stated repeatedly as the gold price chart has continued to deteriorate for most of this year.

However, what stands out to me in the WGC data is this: (By the way, I could not help but notice that they misspelled the word ' jewelry)!

Globally, jewellery demand was up 37% in Q2 2013 to 576 tonnes (t) from 421t in the same quarter last year, reaching its highest level since Q3 2008. In China, demand was up 54% compared to a year ago; while in India demand increased by 51%. There were also significant increases in demand for gold jewellery in other parts of the world: the Middle East region was up by 33%, and in Turkey demand grew by 38%.
Bar and coin investment grew by 78% globally compared to the same quarter last year, topping 500t in a quarter for the first time.  In China, demand for gold bars and coins surged 157% compared with the same quarter last year, while in India it jumped 116% to a record 122t. Taking jewellery demand and bar and coin investment together, global consumer demand totalled 1,083t in the quarter, 53% higher than a year ago.


Look at that last sentence again.... total global consumer demand for gold totaled 1,083 tons in the second quarter. The report also states that demand for bars and coins was 508 tons - that is more than enough to completely absorb the 437 tons of gold dishoarded by hedge funds!

What the hedge funds have been throwing away, the Chinese and the Indians have been buying as well as smaller buyers of bars and coins.

This fits with the Commitment of Traders reports which have been detailing the continued long liquidation by the category of traders known as Managed Money or Hedge funds, not to mention the rapid escalation of new short positions in gold.

It has been this solid, sustained demand for PHYSICAL GOLD that has put the price floor under this market and prevented the bears from cracking the market lower. However, in and of itself, that buying was insufficient to drive the price SHARPLY HIGHER. To do that, MOMENTUM BUYERS must make their entrance into the metals markets. That now appears to be occurring; not in a large way as of now, but nonetheless it is happening.

As mentioned yesterday hedge funds are beginning to take a look at the precious metals once again and getting some exposure on the long side. They are grossly under-invested in this category (and that includes the mining shares) and thus we are seeing somewhat of a rebalancing of their portfolios to favor a larger exposure. This bodes well for the metals as we head into the historically strongest season for gold prices.

Oh and by the way, It is certainly helping matters to learn that Paulson has cut this holdings in gold in a significant way. A move by such a large player of his nature goes a long way in assuaging fears that more "capitulation" type selling in gold is coming. Maybe we can look back at some point in the near future and point to his selling as the final bottom. I find that incredibly ironic. It also goes to show how the STREET shows no mercy and has no friends whatsoever but is a violent, cruel and brutal entity. The smaller barracudas seem to relish harassing the larger sharks when opportunity presents itself.

13 comments:

  1. Ha ha, Dan, the English world does not speak Americanese, but English. It's you Yanks who are guilty of misspelling the word...

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  2. Jack Lovell;

    Thanks for the humor... or should I say, jolly good quip there! :o)

    then again, I like the English spelling of the color "grey" instead of our "gray".

    ReplyDelete
    Replies
    1. And humour and colour -- no, no, this could go on forever so I shall withdraw....

      Delete
  3. :)
    at least it still means the same thing.
    We have a few similar problems with our canadian neighbours from Québec.
    I will always remember the day I was telling a canadian friend from Montréal that a woman I met had two "kids", and his jaw falling from his mouth, "kids" meaning something totally different in québecois, and I'd better not tell you what :)

    ReplyDelete
  4. GLD is not gold, despite the headline.

    From http://blogs.marketwatch.com/thetell/2013/08/14/paulson-soros-dump-gold/

    John Paulson was an early highlight, with his fund cutting more than half of its position in the SPDR Gold Trust
    Elsewhere, George Soros also took part in the massive gold ETF exodus, dumping nearly 531,000 shares of the SPDR Gold Trust

    It appears Paulson and Soros reduced the number of shares of GLD they held. As I understand it, every 100,000 shares of GLD turned in may be exchanged for almost 10,000 ounces of physical gold. The drain of physical gold from GLD means somebody is trading shares for physical. We know Paulson and Soros traded shares for something, could it be for physical gold? Perhaps their holding of physical gold increased by roughly the same amount they reduced their holding in GLD shares?

    ReplyDelete
    Replies
    1. Everyone I know in gold whether in or out of it is haunted by being out when it makes its move up. Soros and Paulson are no different. They must have bought physical gold.

      Delete
  5. Thanks for the interesting update. The corollary you point out isnt one I've seen before.

    Candidly, I'm only looking to preserve my "wealth" (meagre tho it may be...) and the smell of equities to me is rather stinky. Pardon my non-technical phrase-ology. I'm willing to risk possible sbort term loss in cash and PM's rather than expose myself to equities. Gotten rid of my holdings in TLT and BTTRX apres l'deluge.

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  8. I suspect Dan's comments about smart rich guy Mr. Paulson are correct. Paulson bravely bought gold more than two years ago and held on for most of the long two year correction. I guess he finally succumbed to pressure from his angry clients who were losing money in his hedge fund. Or maybe Mr. Paulson got tired of being ridiculed by his buddies on the hedge fund cocktail circuit for owning gold. I don't run a hedge fund so I managed to hold onto all the gold and silver stocks I bought more than two years ago. I'm sure I will enjoy the long ride back up again in precious metals stocks. Thanks go to Mr. Paulson for falling on his sword and helping to put the final bottom into our gold and silver stocks!

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  9. Dan, does the DJIA to spot gold price ratio on the daily look like it's breaking down to you?

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    Replies
    1. Power Corrupts;

      Check out the post I just sent up. hopefully that answers your question. thank you for bringing this topic up!

      Dan

      Delete
  10. Let us not kid ourselves into thinking Paulson or Soros for that matter were not short gold and or gold mining shares, I can only surmise they indeed were. That being said they will be or are turning to the long side on these the gold and silver months . Again thank u Dan.

    ReplyDelete

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