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Dreams made of Gold 0 comments
They put forward a compelling argument, which no other coinage in the world possesses: gold is an intrinsic value in itself. It is also the most classic value reserve known.
These analysts let go of the annual returns notion for a while and simply say that it is by saving in gold material that they find themselves sheltered in the long term. It seems that what really matters to them is not the price of this metal but the amount of ounces they have against the total of their assets.
There is truth and falseness in such view. It is quite relative. What I here propose is to go into this subject in more depth to see what we can get as a conclusion. Today we are still immersed into a trust crisis over currencies.
I think that runs on the banks over the main currencies used as value reserves are unlikely to happen, mainly because none of the Central Banks would like to see its international reserves loosing value. The currencies that manage to keep such status are the dollar, the euro, the pound, the yen and the franc.
I was convinced that, as consequence of the trust crisis, we were slowly going to observe an increase of the gold participation in the international reserves of the Central Banks at a global level. However, the IMF has announced that they are planning to sell gold again. In this case, they are parting with 191,3 tonnes of the precious metal – last November they had already sold about 200 tonnes.
Then I start to wonder what will be the future of the golden metal, if there is any clear signal of the direction that its ounce price will follow. Then in my mind gold takes back the roles of an asset which is used to protect the value of our assets, and of the traditional hedge against inflation.
At present, the market does not show any inflationary signs. What is more, deflationary risks are still pending. Ben Bernanke therefore keeps the rates low, and focuses his efforts on reflating the economy. Knowing that this is the direction that the economy is heading for, one can find a first valid reason for being attracted to gold (of course, if we believe that Bernanke will achieve his goal).
Predicting the market performance of this commodity is not as easy as writing a few lines about it. There are many agents taking part. The result of the interests’ game in which the most influential agents in this market interact will determine the direction of the metal’s quotation.
According to the last data reported by the World Gold Council, the supply volume of gold is made up by a 65 per cent coming from the Mine production and a 35 per cent from Recycled gold. Such mining production is performed in every continent of the world except for the Antarctic (not because they consider that gold cannot be found there, but because mining is not allowed in the ice continent). India, East Asia and the Middle East represent 70 per cent of the world’s metal demand.
Specifically, 52 per cent of the demand volume of gold comes from the Jewellery market, 10 per cent comes from Industry (electronics, dentistry and others), and 38 per cent comes from financial investments. It is amazing to see how the share of this type of investments has raised on the total of the metal demand in the last three years.
Gold is one of the many investment alternatives coexisting in the financial market. Whoever invests assuming a bullish position on gold through the financial market, is in search for a positive return, and considers that the demand volume will be higher than the supply one and price will rise. And I make this comment because this point should always be born in mind when this metal is under consideration.
The main players in this market are the Central Banks through the gold variances in their reserves, the Jewellery industry in the United States and India, some big investment funds, and the ETF GLD, which is giving voting rights to most small investors who use this instrument as investment vehicle to get hold of the metal. The ETFs market alone represents around 15 per cent of the gold’s global demand.
India’s Central Bank was the main buyer in the last big sale of 200 tonnes made by the IMF last year. Both India and China seem to be interested in the current 191 tonnes. And this last colossus has continued widening its metal reserves for decades.
Now speaking of Central Banks, there is an interesting detail to mention. These institutions used to be net sellers of gold. This trend was reversed in 2008, when they became net buyers (coincidentally in the middle of the crisis). From that moment on, the policy of buying more than selling has been sustained.
Quotation of the gold ounce has kept going up over the last decade. Unlike fiat currencies, gold is an intrinsic value in itself and preserves its value over time (space and shape, of course its quotation changes). It is considered as one of the main value reserves, recognized in the whole world. It is an effective hedge against devaluation, inflation, and many of the market temporary swings.
Markets are still in panic although the worst has already passed. And many are dreaming dreams made of gold.
Disclosure: No Positions
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