The Gold Rush Spreads From China And India To Saudi Arabia
Submitted by Tyler Durden on 12/24/2013 18:32 -0500
In the "west", the higher the price of gold rose, the more demand there seemingly was bymomentum-chasing gamblers investors, if only for paper certificates claiming to represent gold, or GLD as the case may be. Conversely, once the momentum turned, the same investorscouldn't be bothered with gld (sic) even at 30% lower. At the same time, in the "east" the higher the price of gold rose, the lower the demand was for physical, which for that extinct breed of deranged gambler known as "value investor" is a familiar concept." And now that gold's price is not only back to early 2011 levels, but is essentially below production costs, demand out of China is off the charts. Demand in India - traditionally the greatest in the world - continues to also at unprecedented levels, although now that official purchases of gold are regulated and limited through capital controls, it is forcing the local population to smuggle in gold through the most innovative of schemes.
But while the west is the west, and the east is the east, and no amount of adaptive behavioral modifications can change that, much to central bankers' chagrin, what lies in-between? Courtesy of the Saudi Gazette we learn that the uber-rich middle eastern kingdom, which floats on a sea of oil has picked its side... and it has chosen to take advantage of the ongoing paper-driven price collapse and load up on as much gold as possible.
From the Saudi Gazette:
The gold shops in Jeddah are now flourishing as more customers are buying various gold types thanks to the international drop of gold prices.Saleh who works in Al-Amari gold shop said that more people are now buying various gold jewelries and others are buying gold bullions to store their money after staying away from gold for quite sometime.According to him various nationalities are approaching them including Saudis, Africans and Indians. The prices he said range from SR165 to SR140 per gram based on the item being sold. The price is set based on any additional work or jewelries being added. The country where the gold comes from also determent the price, “We have Italian Indian, Bahraini, Korean and local gold creations each with a distinct price,” said Saleh.Speaking to the Saudi Gazette, Ali Batarfi, deputy chief of gold in Jeddah, said that they anticipate that the gold prices will continue to drop towards this month to reach $1150 per once, however the prices are likely to increase during the first quarter of 2014.Batarfi said “the gold market is now witnessing an increase in sales thinks to the drop in gold prices, however not only that but also the school break that will start very soon will also drag more consumers into the market who will buy gold for their special occasions especially weddings.”The gold has marked a drop this year from $1,920 per once to $1,193.3, which crated a difference in the costumer attitude in buying and storing gold, said Batarfi and added, “we anticipate that more gold will be sold both with jewelries and pure bullions.”Experts in the field believe that the international move towards investing in various sectors and the stabilization of these moves have decreased the investment in gold with China and India lessening their investment in gold. The demand on gold from central banks has also lessened. Consumer demand for gold jewelry worldwide grew by 20 percent for the year ending September 2013, reaching 3,757 tons and valued at $183.9 billion.According to a report released lately by The World Gold Council’s Gold Demand Trends, regional consumer demand for gold jewelry has grown by 25 percent, reaching 225.8 tons and valued at $10.9 billion, with the UAE and Saudi Arabia featuring prominently.
So while the rest of the world celebrates the anti-Giffen good nature of gold, a function of sophisticated US investors for whom only momentum and 200 DMA lines matter, and is buying it up at an unprecedented pace, these same sophisticated investors in the US are dumping the certificates representing to be backed by the yellow metal in droves and are BTFATHing stock certificates exchangeable for a currency that is being diluted at a pace of $85$75 billion per month, even as more and more gold miners are set to go out of business if the price of gold continues to drop below production cost.
We are confident that we know how this latest "conflict" between "east" and "west" will end...
( Just compare the flows of gold to China this year with what Germany has been able to " claw back " from the New York Federal Reserve Bank ! )
A Year Later, The Bundesbank Has Repatriated Only 37 Tons Of Gold (Of 700 Total)
Submitted by Tyler Durden on 12/24/2013 12:09 -0500
Procuring physical gold seems to be a rather problematic and time-consuming process, as the Bundesbank is learning.
Recall that it was almost exactly one year ago in mid-January, when the German central bank, in a shocking development expressing the bank's lack of trust in its central banking peers, announced that it would proceed with the repatriation of 700 tons of gold held by its "partners" the New York Fed and the Banque de France, by the end of 2020.
Since we had posted numerous articles on the topic of German official gold just prior to this announcement, many of which speculated about its quality and existence, it seemed like a shocking confirmation that the most hawkish of European central banks was taking its commitment to hard-money so seriously, especially after just weeks prior it swore up and down it has confident about its gold where it currently was.
This is what we said at the time:
There is no need to explain why this is huge news (for those who have not followed our series on the concerns and issue plaguing German gold can catch up here, here, here, here, and certainly here) . At least no need forus to explain. Instead we will let the Bundesbank do the explanation. The following section is the answer provided by the Bundesbank itself in late October in response to the question why it does not move the gold back to Germany:
The reasons for storing gold reserves with foreign partner central banks are historical since, at the time, gold at these trading centres was transferred to the Bundesbank. To be more specific: in October 1951 the Bank deutscher Länder, the Bundesbank’s predecessor, purchased its first gold for DM 2.5 million; that was 529 kilograms at the time. By 1956, the gold reserves had risen to DM 6.2 billion, or 1,328 tonnes; upon its foundation in 1957, the Bundesbank took over these reserves. No further gold was added until the 1970s. During that entire period, we had nothing but the best of experiences with our partners in New York, London and Paris. There was never any doubt about the security of Germany’s gold. In future, we wish to continue to keep gold at international gold trading centres so that, when push comes to shove, we can have it available as a reserve asset as soon as possible. Gold stored in your home safe is not immediately available as collateral in case you need foreign currency. Take, for instance, the key role that the US dollar plays as a reserve currency in the global financial system. The gold held with the New York Fed can, in a crisis, be pledged with the Federal Reserve Bank as collateral against US dollar-denominated liquidity. Similar pound sterling liquidity could be obtained by pledging the gold that is held with the Bank of England.
And in case the above was not clear enough, below is the speech Buba's Andreas Dobret delivered to none other than NY Fed's Bill Dudley in early November:
Please let me also comment on the bizarre public discussion we are currently facing in Germany on the safety of our gold deposits outside Germany – a discussion which is driven by irrational fears.In this context, I wish to warn against voluntarily adding fuel to the general sense of uncertainty among the German public in times like these by conducting a “phantom debate” on the safety of our gold reserves.The arguments raised are not really convincing. And I am glad that this is common sense for most Germans. Following the statement by the President of the Federal Court of Auditors in Germany, the discussion is now likely to come to an end – and it should do so before it causes harm to the excellent relationship between the Bundesbank and the US Fed.Throughout these sixty years, we have never encountered the slightest problem, let alone had any doubts concerning the credibility of the Fed [ZH may, and likely will, soon provide a few historical facts which will cast some serious doubts on this claim. Very serious doubts]. And for this, Bill, I would like to thank you personally. I am also grateful for your uncomplicated cooperation in so many matters.The Bundesbank will remain the Fed’s trusted partner in future, and we will continue to take advantage of the Fed’s services by storing some of our currency reserves as gold in New York.
Incidentally, what Zero Hedge did provide after this article, was factual evidence that the Buba's very much "trusted partner" had been skimming it on physical gold deliveries on at least one occasion, in "Exclusive: Bank Of England To The Fed: "No Indication Should, Of Course, Be Given To The Bundesbank..."
So we wonder: what changed in the three months between November and now, that has caused such a dramatic about face at the Bundesbank....
* * *
The question of Buba's relationship with other central banks still remains open, however one thing we have just learned is the pace at which the German Central Bank has been able to repatriate its gold. It would make a snail proud.
Yesterday Buba head Jens Weidmann told Bild that gold valued at €1.1 billion has been repatriated so far. Putting a weight to this number: to date the Bundesbank has received shipments of a paltry 37 tons of gold from its existing storage place in either New York or Paris to Germany: "The gold reserves of the country will be stored in Frankfurt because it has a special storage with the corresponding equipment,” said Carl-Ludwig Thiele, a Bundesbank board member.
The repatriated amount over the course of all of 2013 represents just over 5% of the total stated target of 700 tons, and is well below the 87.5 tons that the Bundesbank would need to repatriate each year if it were to collected the 700 tons ratably ever year in the 8 year interval between 2013 and 2020.
So the question begs: since the price of gold has tumbled in 2013 (according to many driven in part by the Buba's own demand, which would make procuring gold in the open market for the US and French central banks that much easier for subsequent dispatch to Frankfurt) and one would assume there would be many more sellers than buyers of physical, why would the Bundesbank not be able to obtain a far greater share of the gold? Unless, of course, neither New York nor Paris actually have free, unencumbered physical gold in their possession -with most of it leased out to various even closer "partners" - and are scrambling to procure as much physical as they can find at the new low, low prices (thank you paper gold ETF dumping).
However, a snag seems to have emerged: unlike in the "west" where momentum is the only driver of "value", buyers out of China (and of course India, especially when one considers the black market attempt to circumvent the Bank of India's capital controls on gold imports) are hoarding as much physical gold as they can get. Could it be that the Bundesbank is unable to repatriate more just because China is already buying up every marginal tons of physical gold in the market, and is making physical gold purchases by the Fed next to impossible?
In other words, is China now holding Germany's gold hostage, and if so when and what price would it release it to the New York Fed and the Banque de France? One look at just the pace of imports by China reveals that if indeed this is the case, then there may be a few snags in this hardly best laid plan of central bankers and men.
¤ YESTERDAY IN GOLD & SILVER
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