Wednesday, May 06, 2009

Gold & The Wisdom Of Central Bankers

After a few weeks it´s about time for another post on gold. The first chart showing the "private investment demand" comes via The Mess That Greenspan Made and is a good addition to the last graph observing the "behavior" from the central banks during the past decade. It´s also worth noting that one of the best performing hedge funds over the past few years has allocated "quite a bit" of the portfolio to gold ( see Paulson & Company's golden portfolio )

Nach einigen Wochen ist es mal wieder Zeit für ein Goldposting. Der erste Chart der den gewaltigen Anstieg der "privaten Investoren" mittels der Gold ETF´s anzeigt kommt von Tim und seinem Blog The Mess That Greenspan Made und ist eine gute Ergänzung zur letzten Grafik die sich mit dem Verhalten der Zentralbanken in einem ähnlichen Zeitraum befasst. Besonders hervorzuheben ist noch das einer der am besten performenden Hedge Fonds der letzten Jahre einen nicht unwesentlichen Teil des Portfolios in Gold hält ( siehe Paulson & Company's golden portfolio )

The following graph via Option Armageddon gives the explanation why despite soaring investment demand and decreasing central bank sales gold hasn´t moved higher. And with collapsing jewelry demand ahead this headwind will likely continue for some time to come.

Die nachfolgende Grafik via Option Armageddon zeigt sehr schön warum Gold trotz massiver Investmentkäufe ( alle ETF´s zusammengenommen halten momentan die sechstgrößten Goldreserven / China hat sich dank der letzten Käufe gerade wieder auf Platz 5 geschoben ) und gleichzeitigen Verkaufsvolumen der Zentralbanken Gold nicht höher gelaufen ist. Und da die Nachfrage aus dem Schmucksektor momentan im Crashmode ist dürfte dieser Gegenwind noch eine Weile anhalten.

But with quoptes like the following the demand structure will shift even more quickl in the favor of investment.....

Ich denke angesichts Zitaten wie diesem dürften sich die Nachfragegewichte demnächst massiv verschieben....

A policy mistake made by some major central bank may bring inflation risks to the whole world. As more and more economies are adopting unconventional monetary policies, such as quantitative easing, major currencies’ devaluation risks may rise.

- People’s Bank of China quarterly report, May 6 (via Bloomberg) via FT Alphaville

Gold sales cost Europe’s central banks $40bn FT
Europe’s central banks are $40bn poorer than they might have been after they followed a British move taken 10 years ago on Thursday to shrink the Bank of England’s gold reserves, analysis by the Financial Times has shown.

London’s announcement on May 7 1999 that it would sell a large share of the Bank’s gold reserves in favour of assets offering a return, such as government bonds, was the high water mark of so-called “anti-gold” sentiment among European central banks.

Many of these banks, such as those in France, Spain, the Netherlands and Portugal, decided later in 1999 to follow Britain and sell off their reserves. At that time, gold was worth around $280 an ounce, less than a third of its current level of more than $900.
European banks sold about 3,800 tonnes of gold, reaping about $56bn, according to calculations from official sales data and bullion prices.

> Here an extra piece on Brown and his epic mistake

> Weil es so schön ist und uns Brown leider noch immer viel zu oft in den Medien begegnet ein extra Link zum epochalen Versagen....... Aber eigentlich genügt ein Blick auf den Chart......

Gold: Does Gordon Brown's regret selling half of Britains' gold reserves 10 years ago?

Gold chart: Price of gold since Britain sold half of its reserves in 1999

Taking into account the likely returns from the investments in bonds, the banks have gained another $12bn. But because today’s gold prices are far higher, they are about $40bn poorer than if they had kept their reserves

The biggest loser is the Swiss National Bank which sold 1,550 tonnes over the decade and at today’s gold prices is $19bn poorer, followed by the Bank of England, which is $5bn poorer.

The UK Treasury on Wednesday defended its decision to sell gold as a way to diversify reserves and cut risk. “As a result of the programme, a one-off reduction in risk of approximately 30 per cent was achieved,” it said. The Swiss National Bank declined to comment other than to say that it did not plan to sell more gold.

However, central bankers are confident that over the long run their move out of gold and into bonds will pay off and reduce the volatility of their portfolios, people familiar with their thinking said. Analysts also argue that because some banks had more than 90 per cent of their assets in gold, some disposals were warranted.

The proportion of European reserves held as gold remains extremely large even after years of sales, at an average of about 60 per cent, compared with the world average of 10.5 per cent.

After 10 years of steady sales, Europe’s gold sales are set to slow to their lowest levels since 1999, while central banks outside Europe have already become net buyers of gold.

The US, the world’s biggest holder of gold, decided not to follow Europe’s move. Germany and Italy are the only two big European central banks which did not follow the UK, mostly because of domestic disputes about what to do with the proceeds.

> Looks like Spain´s central bank is "desperate" ...... Selling gold to buy hyperinflated covered bonds backed by toxic Spanish real estate.... Brilliant!

> Sieht ganz so aus als wenn die spanische Zentralbank sich dem unrühmlichen Beispiel von UK und der Schweiz anschließt...... Anders kann man die Tatsache das Gold verkauft worden ist um den hyperinflationierten Covered Bond Markt ( der durch nicht gerade werthaltige spanische Immobilien gesichert ist ) zu stützen nicht bezeichnen......

Banco de España has already been delving into the covered bond market with money from gold-sale proceeds FT Alphaville

Barclays Capital on Wednesday morning cites Spain’s Expansion newspaper on a report that Banco de España has already been delving into the covered bond market with money from gold-sale proceeds .

We note that the latest available data, as reported to the IMF for March, show that Spanish gold holdings at end-March were 9.054mn oz, unchanged since end-July 2007. That said, it should also be noted that Spain slashed its gold holdings during 2005-2008: from 16.826mn oz at end-2004 to 9.054mn in July 2007.

"Cleaner Graph"

I think this piece from Jesse The US Dollar Rally Will End in a Crisis of Confidence isn´t "unrealistic"......

Ich denke das die Message aus dem nachfolgenden Link via Jesse The US Dollar Rally Will End in a Crisis of Confidence eher früher als später zum Tragen kommen wird......

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Blogger jmf said...

Trichet Says ECB Agrees on $80.5 Billion Bond Plan May 7 (Bloomberg) -- European Central Bank President Jean- Claude Trichet said the ECB unanimously agreed on a 60 billion- euro ($80.5 billion) plan to buy bonds as officials step up their response to the worst recession since World War II.

BOE Increases Bond Purchase Plan

The nine-member Monetary Policy Committee, led by Governor Mervyn King, will add 50 billion pounds ($75 billion) to its program of asset purchases. By the time it meets in August policy makers anticipate having spent a total of 125 billion pounds.

8:50 AM  
Anonymous Anonymous said...

it will end badly for sure

12:03 AM  
Blogger jmf said...

Moin Anon,

follwoing the track record from central banks in forecasting & sctions i think this is a safe bet......

12:10 AM  
Blogger francois-guillaume said...

However i dont see gold going to 6000$, unless a bigmac cost 5$ or 10$
as well...
in an inflationist scenario, i see house prices recovering from the (to be expected new) lows, but not increasing as much as everything else.. too much pain and supply...and bad demographics

6:32 AM  
Blogger jmf said...

Moin Francois-Guillaume,

i´m also not in the camp predicting gold will skyrocket.

For me it´s more than ok when it buys some good kind of insurance.

It has worked wonders during the past few yers.

Lot´s of "new" gold fans will be probably disoppointed.

I think they are more or less speculators that are betting on quick jumps.

11:31 PM  
Blogger jmf said...

As a contrarian i like this headline......

Gold: The Worst Precious Metal Of The Year / Chart
"More visual evidence that Gold has laid a monster brick this year.

Bloomberg's chart of the day compares gold to platinum, silver and palladium. Despite an abundance of fans for the shiny yellow stuff, it's doing worse than all the rest."

Too bad that he isn´t looking a almost any other timeframe available

We´will revisit this statement at the end of 2009.....

Wouldn´t surprise me if the same writer is bullsih on gold......

6:02 AM  
Blogger jmf said...

More fun for contrarians.....

via Tim

Money Magazine, gold, and hedge funds
Money Magazine:

"Gold has delivered lousy returns — on an inflation-adjusted basis, it's still trading far below its 1980 peak"

The comment from Tim is spot on....


Don't you just love that - the demeaning "hawking" of gold investments and the well-worn argument about poor "inflation-adjusted return since 1980"?

It's also underperformed other metals this year as some gleefully point out.

The fact that it's been about the best investment in the world since the last bull market in stocks came to an end in 2000 is apparently irrelevant to some and that's a good thing.

1:56 AM  
Blogger jmf said...

Chart Dow / Gold Ratio

7:43 AM  
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2:41 PM  

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