All the Gold in Saudi Arabia

There was a story out last week in the Gulf News about unprecedented gold buying in Saudi Arabia during the first half of November. According to the report, 13 billion Saudi riyals worth of the metal have been purchased in recent weeks - about $3.5 billion or roughly 140 tonnes at today's prices.

A quick check of the SPDR Gold Shares ETF (NYSEArca:GLD) shows no similar buying over this time. In fact, the world's most popular gold ETF has been noticeably quiet during this period, with just 0.3 tonnes exiting the trust earlier in the month, barely noticeable in the chart below.

It also looks like there's another little wedge pattern forming at around $740 an ounce.
This report by Peter Cooper at ArabianMoney.net, which also appears at Seeking Alpha, lends some credibility to the story in the Gulf News, one of the leading English-language newspapers in the region:

I cannot verify the source but all I can say is that this has the hallmarks of a genuine story, based on my 25 years in financial journalism. First, it was buried on an inside page and the amount was given in UAE currency later in the story - hardly the action of somebody looking to manipulate the gold price, more an indication that the sub-editors did not understand the importance of this story.

Second, this is how the best stories emerge from Saudi Arabia - the market is not very transparent but insiders do notice big changes and pass this information on, and it surfaces as well sourced rumor. I am afraid this is about as good as it gets in the Middle East.

With local stock markets faltering badly and the property market in Dubai and elsewhere beginning what might be a truly spectacular fall, it makes sense that wealthy individuals would seek out more secure assets during this time of uncertainty.

Curious to see what this two-week purchase would look like when laid up against the inventory at the Gold ETF which, incidentally, just celebrated its four year anniversary, the chart below was created with the recent Saudi purchases indicated in yellow.

The 140 tonnes recently purchased in Saudi Arabia amount to about one-fifth the inventory that took four years to accumulate at the Gold ETF.

That's a lot of gold in a very short period of time.

Full Disclosure: Long GLD at time of writing

Comments

[bold4gold:]

This market is ready for a short squeeze! Smart traders will be invested before it happens.

2008 Nov 18 07:54 AM

[Peter Cooper:]

Silver is also increasingly popular, again stocking up now before the short squeeze makes sense, and last summer's manipulation of the silver price is already under investigation in the US - perhaps under President Obama a whitewash is less likely, but here is the latest news:
arabianmoney.net/2008/.../

2008 Nov 18 08:30 AM

[Smarty_Pants:]

Gold. They ain't printing very much of it these days.

2008 Nov 18 09:43 AM

[User 30121:]

Thank you Tim, for the article. As usual, you produced another gem!

The TIMING of this Saudi purchase speaks VOLUMNS about where gold (and silver) will be going VERY SOON--UP!

Get some ASAP!

2008 Nov 18 09:43 AM

[Alex Stanczyk:]

Enjoy reading the thoughts here.

A great article pointing out the 3 banks shorting gold with over 50% of the market:
www.resourceinvestor.c...

2008 Nov 18 12:45 PM

[knapp:]

So Saudi Arabia buys 140 tonnes of gold and it doesn't move the gold price needle.

That's bearish! It means there are plenty of sellers at that price despite the financial crisis.

2008 Nov 18 12:58 PM

[User 30121:]

Knapp,

My guess is that the shorts havent caught up as yet. Wait until that occurs, then the push will begin.

You best get some for yourself!

2008 Nov 18 10:27 PM

[Lookout:]

Don't forget that in all those years of gold price falls there was serious intervention to protect currencies and the gold holdings were a lot higher. Costs of mining gold are much higher in real terms and big deposits are not being found. Tell me which currency will outperform gold in the long run?

2008 Nov 19 02:06 AM

[Peter Cooper:]

Silver

2008 Nov 19 08:05 AM

[bearfund:]

Which currency will outperform gold? None of them; they are all being printed in excessive quantities. What will outperform gold in the long run are quality stocks. Always. Gold is the fundamental store of value and the standard by which all investment must be measured; it is not itself an investment and its long-run return is always zero. Successful businesses create value. Gold stores value. See the difference?

This is a good time to store up value. Gold is the only way to do so. Therefore this move should surprise no one. What is surprising is the number of people trying to store value in paper money. When the short squeeze in paper money (that's what a credit crunch is) ends, they are going to find themselves in deep trouble.

2008 Nov 19 11:42 AM

[Robert Nabloid:]

Fiat currency has never been a good store of value.

Gold and Silver store value much better than the paper (or cotton) we print dollars on - when we actually bother to print them. How many of the dollars are completely electronic?

If you were going to go away for a long-long time would you rather put your money in a USD account where you get some interest or buy a piece of gold/silver and put it in a safe? I'd rather have the gold/silver in the safe... Countries like Saudi Arabia have so many dollars they don't know what to do with them all or how to store their wealth until they decide how to use it... Gold/Silver just make sense for them to store some of that wealth.

2008 Nov 25 01:41 AM

[ceejay2005:]

What will outperform gold in the long run are quality stocks. Always. Gold is the fundamental store of value and the standard by which all investment must be measured; it is not itself an investment and its long-run return is always zero. Successful businesses create value. Gold stores value. goldstashforcash.com

Jun 12 10:05 AM