Wednesday, October 1, 2008

Demand for physical gold goes haywire

Wealthy investors hoard bullion

Apologies for posting off-topic but gold seems to be a popular theme on here. --- "Investors in gold are demanding 'unprecedented' amounts of bullion bars and coins and moving them into their own vaults as fears about the health of the global financial system deepen. The London Bullion Market Association said the extent of the move into physical gold was unseen and driven by the very rich. In some countries investors were paying premiums of up to $25 an ounce above the spot price to secure scarce gold bars. Vault staff are doing overtime. The Krugerrand refinery in South Africa is now running at full capacity seven days a week. The Austrian mint has extended work to the weekends to accommodate soaring demand. The US mint suspended the sale of its American Buffalo coin after it ran out."

Posted by drewster @ 02:14 AM (1741 views)
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34 thoughts on “Demand for physical gold goes haywire

  • Prydonian Renegade says:

    The disparity between the rising demand for physical gold and the spot price of gold is a wee bit suspicious.

    Reply
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  • gardeniadotnet says:

    Came across this comment on a message board yesterday. I’m sure one of you financial whizz-kids will explain its relevance…

    GOLDMAN SACHS GOES NET LONG GOLD ON TOCOM

    It is my opinion and common knowledge to my friends that Goldman Sachs
    is the feds stooge bank – now get this………

    In the September 29 session on the TOCOM Goldman Sachs COVERED 13
    short contracts and bought 495 long contracts to bring their long
    position to 2,525 contracts AND AS A RESULT MAKING THEM NET LONG 28
    CONTRACTS!!!

    The largest net short position they held was 52,000 contracts in March
    of 2006.

    The declining net short position has been going on for 30 months and I
    have predicted for some time that GS would eventually be net long just
    before the gold price explodes. Well here we are!

    John Reade of UBS poked fun at this analysis saying that GATA doesn’t
    know what an arbitrage position is. Well, Mr. Reade some of us do
    know, and this sure as hell isn’t one! This documents perfectly the
    demise of the gold Cartel.

    It should be noted that in July Goldman Sachs advised its clients to
    sell gold as they said gold was going to $740/oz.

    Their price prediction turned out to be accurate, however, they did
    not sell gold from their own account during that time; they covered
    their shorts with the aid of charitable donations from the clients who
    followed their advice!

    Here is the estimated liquidated value of the GS TOCOM gold position.
    We no longer have to extrapolate this as their net short position has
    now been eliminated.

    GS has lost approximately 185 MM$ on their TOCOM position since we
    started tracking the data in January 2006.

    One has to wonder why a company as smart as GS would tolerate being in
    an increasingly losing position for so long. I think we know the
    answer. The suppression of the gold price facilitated orders of
    magnitude larger profits to be made in other markets.

    Now that Goldman Sachs has finally come on to the GATA side of the
    market we can expect a gold price explosion.

    For a long time many in our camp wondered if the Cartel was so smart
    they could continue their manipulation for ever.

    We have seen in the last few weeks that some of the key players have
    stepped on their own land mines.

    The laws of economics can be frustrated but not repealed.

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  • gardeniadotnet says:

    “The Austrian mint… manufactures the Vienna Philharmonic, a popular gold coin in Europe.

    Wow, just the name makes me want some! Where can I buy a boxful?

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  • planning4acrash says:

    Will the lack of a bailout agreement reduce ability to suppress gold prices? I see $6000 an ounce some time soon, but am no expert.

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  • Physical gold & Silver seems to be the only safe bet at the moment. I personally have no faith in the financial system at all.

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  • Where’s the comments from the so called experts who said gold is “just a usesless metal” or “has no real worth”

    Ha ha ha.

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  • The next bubble. Can’t go wrong with gold. People will always want gold whatever happens. It doesn’t matter what you pay for it because you can always sell it for more. There is only a limited amount of gold and the population is increasing. There is a wall of money looking to go into gold. The chinese buy a lot of gold and they have more money to spend. Anyone want to buy a tulip bulb (or a two bed flat in Leeds)?
    What is it about sheeple?

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  • I’m no expert either but gold has fallen back again to $880oz since stocks have recovered, which still leaves it at 12% below it’s previous peak. Which tell me I’m wrong, was still being advertised as a strong buying opportunity.

    Gold may take off to the moon but it’s not currently ‘cheap’. Gains from here are bubble territory IMO. Even the article says people are paying over London Spot price to get there hands on it – Classic Bubble.

    Just an opinion again but with regard to Jewellery I’d say there is more of a trend towards Platinum and Silver in the Western World with Gold being more popular with Asians etc.

    And if things are going to be as bad as some say no-one will be buying jewellery. Further the falls from last peak of $1000oz were in the region of 25% and happened in less than a month. Therefore you may get a gain on the stuff but be sure to get out at the top because the dip happens quite quickly.

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  • sold 2 rent 1 says:

    If approx mid-point “sixth night” represents gold peaks then the next one is spring 2010, but expect a bumpy ride.

    This article confirms that the wealthy investors are hoarding bullion which means that when fiat currencies begin to fail the masses will not be able to afford a gold backed currency.

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  • IMHO, at present silver presents a far better buy opportunity than gold. I think gold will do well, but silver is hideously under priced. The total and utter disconnect between the paper markets for PMs and bullion is a tell-tale sign of manipulation and future bullishness.

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  • matt_the_hat says:

    @ debtfree 3.

    ‘Where’s the comments from the so called experts who said gold is “just a usesless metal” or “has no real worth” ‘ – something of value has to have little or no worth and visa versa, e.g. gold and water – Adam Smith

    2 points @ str 2007 pt5

    1. I’d rather any investment decision be backed by preference from asians – wealth transfer west->east.

    2. Also are you sure your not mixing the volatility of gold up with that of other reserve currencies?

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  • matt_the_hat says:

    Sorry correction sub ‘worth’ for ‘usefulness’

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  • Two things leapt out at me from this article. First of all, it’s “the very rich” who are stocking up on gold. The very rich are usually pretty wise about investments – it was the ordinary middle-class amateur investors who got burned in the BTL bubble and in the dot-com bubble. Secondly they’re buying physical gold, not just trackers or miners. Is it merely because they like to show off their vault of gold bars at dinner parties? Or are they in fear of a major system-wide collapse? My vote is for the former, but you never know…

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  • mountain goat says:

    There is a disconnect between physical gold (shortage) and the spot price because the spot price is hugely affected by speculators. The speculators have gone, they bailed with the vicious gold correction in August and are now desparately trying to shore up their hedge funds from collapse. Mines can’t even produce gold at $900 with oil at $100 so no new mines are being developed. Looks like a perfect storm for gold, bubble if you want to see it that way. I have gold in coins, bullionvault, mining shares and ETFS, but currently more interested in silver which tends to react after gold but in an amplified way. Still need to educate myself on this, any views out there?

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  • sold 2 rent 1 says:

    Dr Ray,

    Of course gold WILL be a bubble. Every asset class has its bubble day.
    It is all about transfering your wealth from one asset class to another at the right time.

    Gold won’t just be an ordinary bubble, it will be a bubble to end all bubbles.
    Spring 2010 is Elliott wave 3. Autumn 2011 is Elliott wave 5.

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  • In the 70’s Gold was hyped in a similar fashion, but the movement in price was usually sharp (down as well as up) and impossible to predict.

    People who bought physical Gold discovered there was no market to sell to when prices peaked.

    One should remember that Gordon Brown sold a large quantity of the UK Gold Reserve only a year ago at a low price.. He clearly does not believe in it as a hedge on the economy.

    Don’t get taken in by the Doomsters who will sell Gold products to you – it’s their business.

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  • Can I point out two things:

    i. People buying bullion bullion or coins always pay more than the spot price, that is the retail extra cost including delivery and a bit of hedging over the time taken from purchase to delivery. That’s a measly 3% retail margin, so I’d ignore that.
    ii. The gold price is suppressed by massive deleveraging from investment houses and hedge funds, even as retail investors are buying into it. Take your cash out of the hedge fund; buy into the physical metal. So it should still go up in the future, but at the moment – the same as inflation – it is being countered by deleveraging.

    I have some gold and would buy more if I had more cash. (I’m actually going to buy a gold mining stock I’m watching.)

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  • Would we store our gold at a bank and use bits of paper instead of lugging gold around ? :o)

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  • sold 2 rent 1 says:

    The telegraph has removed its 500 year graph of real gold, but here is a 600 year real silver graph

    Gold and silver always decline during a Kondratieff autumn (1982-2000) then rise in the Kondratieff winter (2000-now and beyond)
    Gold and silver have also decined during the Spengler autumn (1500-1918) and are rising in the Spengler winter.

    Note: Real gold bottomed in 1918 when Spengler wrote the “Decine of the West” (the beginning of the end of our civilisation)
    Silver always follows gold and took another 85 years to also hit a bottom in real terms.

    Once gold goes beyond $3200 we really are in unchartered territory

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  • theboltonfury says:

    educate me

    1) if you are buying gold to grow wealth in a flat currency that you believe is finished, then isn’t this counter productive. Talking about gold in terms of $$$ surely is an oxymoron in the sense that you are buying gold because the dollar is screwed. If it’s a hedge against currency then surely it can not then be traded back in for currency?

    2) if you are hoarding gold for it’s worth do you not think you’ll just be robbed by the thieving society we live in? People will steal gold. Fantasy I know, but the Costner film Waterworld illustrates point

    3) if you are letting a bank hoard your gold do you not believe that there is a chance that if things got tough, all of a sudden your stash may have been misplaced or difficult to get at?

    answer me these. I am not completely opposed to buying a bit to spread my investment portfolio but need some serious convincing

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  • Safe As A Crash says:

    the South Africa plant is running at full capacity because normally half of the gold gets stolen…

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  • 1. Gold is a hedge because it’s value doesn’t change – it protects you against the fiat crisis – and you can change it back into whatever medium you want when you need to, be that fiat currency or berter. So it doesn’t stop you using the prevailing monetary system, but it ‘protects’ you from the ‘flaws’.

    2. Yes. Small amounts secreted in places, and anything larger locked away, or kept by a company such as physical stored gold bought with an ETF or similar.

    3. That’s waht happened a long time ago in America – I believe if that happened now in our enlightened world with our communication flows, there would be rioting if not revolution.

    Not that I’m paranoid about these things – I have a bit of gold, I don’t believe it’ll get this bad, I’m just being S2R1/P4AC for a moment.

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  • mountain goat says:

    @ beartil2010 I see that my AIG linked precious metal ETFS are trading at a discount so I suppose trust is low. Personally my feeling is that AIG is now like Northern Rock, more trustworthy because the government owns it. The US government now owns 80% of AIG.

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  • sold 2 rent 1 says:

    This graph is the best I can do for 500 years of gold
    Half a graph I know….if anyone can do better???

    From memory real gold bottoms in 1918
    Elliott wave 1 peaks in 1935 ish
    Elliott wave 2 bottoms in 1970
    Elliott wave 3 peaks in 1980
    Elliott wave 4 bottoms in 2001
    Elliott wave 5 peaks in autumn 2011 (mid-point of Universal Underworld sixth night)

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  • Barclays online banking down due to technical problems.

    Hope ‘technical’ doesn’t include running out of money.

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  • mountain goat says:

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  • Dr [email protected] — all fair comment, but here’s the difference. While gold, like bricks and mortar, cannot ‘only ever go up’, the difference now is that the nature of the savings we have built up for that house purchase one day might be seriously eroded by currency revaluation or some such. I don’t mean inflation, no pay rises or any of that — but the £ in our pockets made a fraction of it’s current value. If people jumped into property for profit purposes (those who s2r in the same hope and just as bad), people are piling into gold for a different reason — to protect what they think they own from loss.

    If I have this wrong someone please enlighten me; I have my savings in NS&I but I am increasingly concerned about the notional value of the paper £ and how it might change (downward)…

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  • Davip

    If you’re savings are for a house you’re going to buy in £ then does it matter. Agreed you can protect your savings by buying Gold – if you time it right. I’m not brave enough to put all my eggs in the Gold basket. Mind you Barclays have got me nervous now !

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  • ‘Where’s the comments from the so called experts who said gold is “just a usesless metal” or “has no real worth” ‘

    1. Gold is a hedge because it’s value doesn’t change – it protects you against the fiat crisis – and you can change it back into whatever medium you want when you need to, be that fiat currency or berter. So it doesn’t stop you using the prevailing monetary system, but it ‘protects’ you from the ‘flaws’.

    Gold should have a value based on its rate of entry into the market (via miners) and its exit (consumers). These consumers must have a real use for it; so either industry or as luxury consumer goods. Consumers that re-introduce the goods into the market don’t effect the supply-demand ratio so they don’t count (investors).

    The problem is that investors view it as a ‘safe’ store of value. Its value is based on the statement above; as long as the investors who purchase gold ‘don’t move the market’. if investors do purchase gold in large quantities, then any profits they make will be at the expense of other investors. Its speculation. This is why its not a currency hedge, or at least its a bad one. Its doesn’t protect you from fiat currency risk as it replaces that risk with speculative risk.

    Bonds and equities are holdings in companies eventually. Therefore their yield is based on the underlying company producing goods. Gold just sits there. So from an investor perspective it is a useless metal and has no value. Unless of course; you envision buying low and selling high; the standard call of all speculators. This is the reason we are in this mess in the first place.

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  • mountain goat says:

    Any gold discussion here always brings out the sarcastic people talking of bubbles and tulips. Let us who believe in gold as a store of wealth in time of crisis have our say too please. Just like those who believe in “no bailout”, “cash is king”, “keep interest rates up” etc etc. It is not my intention to educate or convince anyone, that is why I did not respond to theboltonfury. If you wish to keep your money as cash under the mattress that is fine by me. Keep it in a bank as well if you trust that. I keep some cash “under the mattress” and the equivalent of several pay cheques in an instant ISA account because I think that is prudent. Just realise that banks use those saving of ours to do their corrupt leveraging deals so don’t think you are so ethically superior not contributing to our boom and bust economy because you have no investments.

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  • sold 2 rent 1 says:

    mountain goat,

    “Any gold discussion here always brings out the sarcastic people talking of bubbles and tulips”

    But gold will be a bubble to dwarf the tulip mania – but not until it has gone to $4,000 in 2010 and then $40,000 in 2011, and then to ZERO.
    Everyone should be aware of this.
    But NOW is a great time to buy.

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  • S2R1

    I take it your predicted gold prices are showing the collapse of the dollar as opposed to increase in value of Gold as such ?

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  • sold 2 rent 1 says:

    str 2007,

    “I take it your predicted gold prices are showing the collapse of the dollar as opposed to increase in value of Gold as such ?”

    In autumn 2005 to spring 2006 we saw the dollar/gold inverse relationship break down.
    We could easily see this again when gold and USD rise together if the eurozone and UK implodes faster than the US economy.

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  • [email protected] — thanks, but this misses the point I think. To use an extreme Zimbabwean analogy, there may be hundreds of millions of whatever their currency is to the dollar, but a loaf of bread still costs the same relative amount. If our currency is also devalued by these stupid financial crises, I don’t want to find my savings devalued in one fell-swoop while what I want and need to buy remains the same price (house price crash notwithstanding!). In this respect, a physical commodity such as gold whould appear to have intrinsic value that paper does not — the bank might ‘promise’ to pay the bearer etc. I just don’t trust these 7uckers not to mess-up our means of exchange as well as all else. So again, someone please explain this to me — postings to the effect that no-one need educate anyone else is hardly helpful, btw…

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