What Is Hurting Gold?

Analyzing data from the World Gold Council, Canadian brokers Desjardins help explain why the gold price has stalled below $1000 per ounce, despite recent economic upheaval. One would have expected investors to flee into the precious metal in a crisis. Gold after all is an alternative to paper money which is being created ad lib by central banks and governments around the world.

But instead, gold just sits there. The failure of their predictions has led the community of gold bugs into warnings of evil conspiracies by nefarious cabals. But it may be that the failure of gold to take off is linked to its use as an industrial metal or a combination of store of value and mark of conspicuous consumption.

Moreover, the printing presses have not so far led to an outbreak of inflation, because the money created has not yet fed into liquidity for growth, capital spending, industrial expansion, and hiring. Since these are still in the dumps, inflation is only a theoretical threat until the recovery feeds into the real economy of the world.

Here is part of the brokerage's report, which was published on August 19 (in French; my translation):

Gold demand fell in the 2nd quarter to the lowest level in the last 6 years as the recession hurt purchasing by jewelery and electronics manufacturers.

The Canadians cite warnings by billionaire Warren Buffett that the US has to deal with potential overdoses of 'monetary medicine' given to rescue the financial system. The impact, they quote his saying, “threatens the economic and currency” of the US. But does it help gold?

Hurting gold too is geography. In normal times, there is huge demand for the precious metal from India and the Middle East. But with the monsoon low and late, rural India probably has more sellers of gold bangles than buyers these days. And with Persian Gulf countries facing a real estate glut, soured placements in supposedly safe US paper, and even billion-dollar frauds and scandals, some of the impetus to buy gold in the souk has disappeared.

Apart from the price level, another indicator of gold's lack of appeal comes from the SPDR Gold Fund, GLD, which closed out last week holding 1,066.4 mn tons of the yellow metal. It was up on the prior week but still 67.6 tons below the record level reached in early June.

From Jackson Hole, over the weekend, the gathered maestros seem to have agreed to delay raising interest rates for a while. Since gold earns no interest, this should have boosted gold prices. But in fact, both the spot and future price of gold are all but flat today.

Contrary to conspiracy theorists, Desjardins cited one source of demand: “Central banks were net gold buyers for the first time since at least the year 2000.”

Central bank buying probably means placements by surplus countries keen to lower their dollar risks. The likeliest buying is Chinese. With so much speculation in China on other commodities, however, the central bank purchases are not now being echoed by market buying, in part because of tax disincentives and weakness in Hong Kong.

The revival of the gold price will depend on new demand, and this will take time to appear. Gold is a hold but it is not a buy until we see more than green shoots.

Other precious metal demand usually has an even stronger industrial component. That means recovery hopes feed through into higher prices for silver, platinum, and palladium before they feed into good old gold. Silver, an industrial metal, saw its dollar price rise over 26% so far this year, while gold barely inched ahead 8.3%. Platinum is up close to 35% and palladium over 52%. All these are spot prices in US$ per oz.

Commodities stocks in the S&P 500 are trading on average at 33.1 times this year’s estimated earnings. That sound pretty steep. However, they are only at 17.7 times next year’s profits. That means profits are expected to double in the next year. This is the widest gap among the S&P index of 10 industry groups, according to data compiled by Bloomberg.

Comments

[ktchnsnk:]

close out your GC trade, today you have all that you will make on it for the next 30 years.

Aug 25 08:34 AM

[doubleguns:]

Keep it open. It might be the only thing you have left that is worth anything in 2013!!!!

Aug 25 09:48 AM

[Donald Ingram:]

The data you cite from the World Gold Council, is at best taken with a very large grain of salt! Their independence and impartiality has been called into question too many times in the past to be taken seriously.
For the true picture of gold go to the Gold Anti-Trust Action Committee (GATA). There you will find the facts and statistics of what is "Truly" hurting gold.

Aug 25 02:46 PM

[Homer II:]

The US Govt is hurting GOLD, thats what! Any bimbo can see that, if they watch what is going on for a few weeks at a time. The FED and JPM/GS have a system in place whereby when the price creeps up to around $975-$980, they start selling tonnage to drive the price back down. They have to do this to keep the dollar afloat. If gold were allowed to move freely, it would be trading between $1500 and $2500 today.

Only thing that I wonder is how much AU is left in Ft. Knox.

Aug 25 03:35 PM

[5142152-337:]

The author is clueless (or intentionally) dismisses the reason for gold (and silver's) stagnation: EGBs! (Elitist Greedy Bastards) JPM et al. They are manipulating the market (as they have done for decades). However, only now is their greed catching up with them. Keep taking delivery of physical metals, shun the ETFs and watch the price of both skyrocket!

Homer II: I would estimate that the amount of gold in Ft. Knox is ZERO! The EGBs have long skimmed it off!

Aug 25 04:01 PM

[HardwoodFlo...:]

Title: "what is hurting gold" ans: Jeff Neilsen

Aug 25 05:01 PM

[capt Brian:]

Everything you say is NOT making me happy, I want gold to fly into the stratosphere. I have been buying it, and its sister metal silver, and even some platinum, and have been waiting like a bridesmaid for a suitor of my own for gold to rise up. But, all the things you say are absolutely correct and I couldn't agree more. BUT!!!! I say, BUT AND HOWEVER!!!!! All of these reasons for holding gold down are playing right into the intelligent investors hand. It will be our Royal Flush, our Run for the Rose, and our place in the winners circle. Gold will do precisely what the worlds market tells it to. In golds mirror will reflect exactly what is happening in the world, and for now, this recovery is just testing our mettel to see if we can stop bickering, and begin trading. I for one, do not think the tiger is going to lose his stripes nor the leopard his spots. I think the greedy human race, who wants to have it all with out working, will cause more strife in the financial markets, impatience will cause more infidelity, and eventually the PM's will truly shine. Those of us who have put a prudent amount of our hard earned money into Gold and its kin should be amply rewarded, (in this lifetime) an probably during the next 3 years. It may take a little bit into the next presidency, ( I cannot see many voting for Obamma next time) and the wheels that have begun to turn economically will surely cause metals to rise. I am simply believing in a tribulation afoot, a downturn, and a need for real money. And with that, I am ordering more numismatics (actually bought 3 more coins today) {putting money where mouth is} and in wait and see attitude. I continue to day trade stocks, gold and silver, and buying more PM's on dips.

Good luck, stay in cash mostly...

happy grins

Capt Brian
The Lost Navigator

Aug 25 07:13 PM

[5142152-337:]

Hardwood: You obviously have an inferiority complex when dealing with Jeff. Why not just leave it alone. You couldn't shine Jeff's shoes, so just let it be. You will be better for it. Stop your imbecilic whining!

Aug 25 08:14 PM

[The Geoffster:]

“The desire of gold is not for gold. It is for the means of freedom and benefit.”
`Ralph Waldo Emerson

Aug 25 10:05 PM

[realold:]

You really believe this stuff? And when the gold is gone, what do they do? I guess you have to blame someone for everything. How about no demand?


On Aug 25 03:35 PM Homer II wrote:

> The US Govt is hurting GOLD, thats what! Any bimbo can see that,
> if they watch what is going on for a few weeks at a time. The FED
> and JPM/GS have a system in place whereby when the price creeps up
> to around $975-$980, they start selling tonnage to drive the price
> back down. They have to do this to keep the dollar afloat. If gold
> were allowed to move freely, it would be trading between $1500 and
> $2500 today.
>
> Only thing that I wonder is how much AU is left in Ft. Knox.

Aug 25 11:58 PM

[realold:]

Good article and bit of speculation. Thanks, and apologies for those that attacked you personally.

Aug 26 12:01 AM

[jt:]

Well...you do prove one thing by your little "analysis"...and that would be that they apparently now allow ANYone to post theirs, even those with obviously NO expertise or knowledge of the topic but what a sixth-grader could "glean" from the pabulum-spouting (that's fancy talk for lies, spin, obfuscation, and, oh yeah, did I mention lies?) mainstream media propaganda machine.

"But instead, gold just sits there. The failure of their predictions has led the community of gold bugs into warnings of evil conspiracies by nefarious cabals."

I know it's very PC for those with absolutely NO journalistic integrity or courage to spout the "conspiracy" word and so sound somehow like someone from the "in the know" crowd. But the fact is it just shows you have NO clue of what you speak. Without the knowledge of what these supposed tin-hat wearing "conspiracy" freaks have revealed and proven way beyond the shadow of a doubt needed in any court of law, you can and will make absolutely NO sense of what goes on and has gone on for the past two decades in the precious metals markets, esp. on the CRIMEX.

Perhaps your next 6th grade term-paper (ok, fess up, is your daddy on the review board for articles for this site and trying to promote your writing career??) could actually deal with the evidence put out publicly for all to see (eg, by GATA et al) of the ever-growing more and more blatant manipulation and control of the prices of gold and silver on the COMEX and what affect that may have had on bringing on this financial crisis in the first place, all for the benefit of those who have a stranglehold on the balls of our economy (and indeed our very economic liberty) thru their control of the supply of created from nothing funny munny fiat. currency.

Aug 26 02:33 AM

[HardwoodFlo...:]

5142152-337: Wow, you frost backs really stick together. You also have very little sense of humor- hows that gold trade working out for you?

Aug 26 12:29 PM

[HardwoodFlo...:]

As for shinning shoes- are Canadians wearing shoes these days?

I'm sorry, I do own some Canadian mining stock it's true. I don't think Canadians are bad- I have a lot of friends there. I'm just tired of Jeffs propoganda.

The world isn't going to hell in hand basket, the sky isn't falling and there is no reason to distort numbers and facts to make the case that it is to justify an investment. That is the epitome of GREED- which you so vilified in your EGB stuff (BTW I agree someone is leaning on Gold everytime it gets to $980 I've told Jeff this over and over again he just doesn't believe me. I've a also told him many of his statistics are false- which the are)

Aug 26 12:35 PM

[HardwoodFlo...:]

Homer II: Hilarious.

Aug 26 02:47 PM

[Global Inve...:]

Oy. what venom when you tell people that the price of gold is being held back by economic reality rather than a dark conspiracy by central banks and, for some reason, JP Morgan. (Isn't that supposed to be Goldman Sachs, the bank everyone loves to hate?)

I think I will not take on the Gold Bugs again. For the record, I am not a 6th grader. I am not a bimbo either. I am a grandmother 5 times over. My parents both died of old age in their 80s, 20 and 10 years ago.

Aug 26 03:09 PM

[HardwoodFlo...:]

Just thought of something. What "if" and it's a big "if" this housing thing is real? What if JUMBOs come back? What if employment (chicken and egg to housing) returns?

Hold on to your hat- inflation right? Well, what will the FED do- fight it a little bit then right? So what will they do- protect the dollar. If the dollar strengthens what happens to gold?

Man, so much for being an inflation hedge.

Jeff, GO LONG GOLD!

Aug 26 04:07 PM

[jlconst:]

Dear Global investing It is not venom as you describe. It is the continual lies spewed out by our gov and use of our tax dollars by GS to continually short the metals market, that "gold bugs" (your words) despise. I watch the markets minute by minute and I don't need GATA to tell me it's totally manipulated. But then, so is the S+P. Don't get me wrong, I'm not complaining, I make money either way. It's just sad our country has come down to this. A more worthy article would have been the blatant manipulation of the markets. P.S. I'd say there's a little venom coming from the other side also. Though can't see the purpose.

Aug 26 07:29 PM

[Global Inve...:]

I think gold has a place in every portfolio as an inflation hedge. it is just that for the moment, worldwide, inflation is not a major threat. Long-term it may be an issue if the managers of our financial system screw up.

The governments are printing money which sounds like it would trigger price increases, wage increases, and inflation. But because of the amount of deflation going on, because of the savings boost, because of global slowdown, inflation is, for now, de-fanged.

For a forecast on the price of gold made months ago, you may want to buy my report at:
globalinvesting.member...

Aug 28 01:12 PM