Seeking Alpha

Gold to post worst year in over 3 decades

  • Off 1.3% in morning action to $1,188 per ounce, gold is set to close the year on the lows, down nearly 30% for its worst performance in 32 years. Investors pulled $38.6B from gold funds this year, and holdings in the 14 largest ETPs plunged 33% to 1,764.1 metric tons - the first annual decrease since they started trading in 2003.
  • "Gold is something we avoid," says Marketfield Asset Management CEO Michael Shaoul, reflecting the prevailing attitude of the day. Prices are "likely to grind lower," says Goldman's Jeffrey Currie, predicting the metal drops to $1,050 next year.
  • GLD -0.9% premarket
  • Related ETFs: IAU, PHYS, SGOL, UGL, DGP, GLL, DZZ, UGLD, DGL, DGZ, AGOL, GLDI, DGLD, TBAR, UBG
Comments (90)
  • To make matters worse stocks are up 30% at the same time. 60% opportunity costs for gold bagholders in 2013. I hope nobody fell for Glenn Beck's fear ads. BTW whatever happened to the mantra that QE would lift all assets, particularly gold?
    31 Dec 2013, 09:18 AM Reply Like
  • QE is dwarfed by the deflationary credit contraction.
    31 Dec 2013, 09:21 AM Reply Like
  • Lol, because its impossible to own both stocks and gold right? BTW i guarantee you everyone who gained 30% this year in stocks did not sell and lock down their gains. Being up 30% one year means nothing if you ride it all the way back down. Talk to people who bought the NASDAQ back in 2000. They are still down 20% from 13 years ago.
    31 Dec 2013, 09:53 AM Reply Like
  • what deflationary credit contraction? total debts over $58 trillion now up from $52
    trillion in '08. Consumer credit has reversed and is growing again. gr88888t news. stack on some more debts as a good portion of it was Refi'ed to lower rates. the rope has been stretched a little more until we face the music again. now if house prices can go up another double digits in 2014 just maybe the home-equity bandwagon can be reloaded!
    31 Dec 2013, 12:52 PM Reply Like
  • th3decider: Funny how thats the argument for holding gold the past three years too.
    31 Dec 2013, 04:28 PM Reply Like
  • Don't forget about Peter Schiff, he too keeps peddling precious metals over stocks. Of course he will never admit how much he screwed up. I feel bad for anyone who followed his financial advice.
    1 Jan, 11:58 AM Reply Like
  • Isn't it wonderful how all the excerpts are from the bear side. I guess the profits I have in the PM's are not worth mentioning. I will say, the rise and fall in the metal sector is a traders dream. Of course, how you trade is important, not if you made money or not. Follow the trend my friend, follow the trend. ZSL and so on.
    Capt. Brian
    The Lost Navigator
    I will continue to play the PMs like a violin virtuoso.
    1 Jan, 02:15 PM Reply Like
  • Exactly right the3decider. I bought gold at an average price of $400/ounce and I recall all the talk about how gold would never break $1000.
    1 Jan, 11:22 PM Reply Like
  • Second that. I love Gold Futures, big swings up and down. I try not to read the news, don't care what price it is actually trading at, just the SR. I am a leech, I take whatever walks my way.
    2 Jan, 02:41 AM Reply Like
  • When there is blood in the streets...buy gold. There is still some more bleeding for gold to come, however...

     

    My latest (waiting again for Seeking Alpha editor approval):

     

    Gold and Dollar Down but Both Will Rise Next Year

     

    http://bit.ly/1ajXzLb
    31 Dec 2013, 09:20 AM Reply Like
  • & That "bleeding" could come in at another 20- 25% or so from these levels..

     

    Risk /Reward simply isn't there to be bullish.. & the environment for Gold in 2014 will be less favorable than '13....

     

    Food for thought before one dips in at these levels..
    31 Dec 2013, 09:30 AM Reply Like
  • The physical market tightness will eventually outplay the paper game.
    31 Dec 2013, 09:48 AM Reply Like
  • I got no problem at these levels for investors to dollar cost average into a position.

     

    My bottom call will come at some point next year. Hard to say when, but I do expect a good January first.

     

    Make it a good year F&G!
    31 Dec 2013, 09:48 AM Reply Like
  • Doug,
    Great blog !
    You sum it about all up what concerns gold price tumbling. So, if I'm right there's still some 78O metric tonnes left in GLD ETF ?
    I don't expect it all to disappear into Chinese hands, but another 300 tonnes can easily be withdrawn, what do you think ?
    In the meantime the goldprice race is steeper than a roller coaster's. Today it went to hell before climbing into the sky again. I wonder who does the driving but it gives me nausea.
    31 Dec 2013, 10:46 AM Reply Like
  • filipo, thanks...

     

    Bought some NUGT for a trade, expecting the January push higher.

     

    China is a large producer and will have supply via their government control I would imagine. I am sure there will be more Central Bank buying and I don't think those that are part of the Central Bank Gold Agreement (CBGA) will continue selling once this latest agreement ends in 2014.

     

    This may be a murky year for precious metals. A consolidation year. But it seems that everything is aligned for a springboard come 2015. The Republicans only have 3 years left to hurt the economy and bring in their chosen one come 2016. We'll see what shakes. This year will be much more difficult to call, but I think we do hit a bottom.
    31 Dec 2013, 12:59 PM Reply Like
  • Doug,
    I hope you're right with your January call. After the severe selloff we recently saw and with the shorters probably and for the time being, satisfied with the results, some upwards momentum might indeed ensue.
    According to WGC figures, Central Banks have been buying in September (October figures), but not so in October (November figures) or November (December figures). Actually in these 2 months Germany has been dishoarding together with Mongolia, while Kazakhstan, Indonesia and Azerbaijan have been adding minor quantities. The big absent though in the last two months was Russia. Now that it is at 1,015 tonnes and 8.3% of total reserves, I expect the Russian bear to pause awhile and catch a breath before attacking again.

     

    CBGA-sales have been close to zero the last 3 years, so I don't expect them to resume anytime soon either: Western Central Banks already are at their minimum minimorum and leasing is so much more profitable than outright selling.

     

    I still think there is not much downside potential with the $1,200 production cost limit reached and oil still hovering at around $100/barrel (WTI) and even $110/barrel (Brent). But I must say I also thought $1,500 would have been the limit and look where we're now, foolish me.
    Ah, well, we'll see where it all leads us to. I think it's extremely difficult to forecast the gold price on the M to LT, more difficult than the weather and God knows how difficult that is:
    http://bit.ly/1isoDA4
    31 Dec 2013, 02:23 PM Reply Like
  • filipo, Happy New Year either way (you'll hit it first!)!
    31 Dec 2013, 02:38 PM Reply Like
  • Doug,
    Thanks for your good wishes. The same to you.
    Yes, I hit New Year first. One more reason to call Europe the old continent I suppose. But there are more reasons, I can tell you that. Lethargy to name but one...burocracy, to name another one.
    Went with the family to the theatre watch "Gravity" and afterwards have a drink to rince those meteorites away.
    Cheers ! Hope you'll do all right in twenty fourteen (waw, does that time flee ! Seems like yesterday we had 2K).
    1 Jan, 04:29 AM Reply Like
  • I would not be surprised to end 2014 at levels below $1100 for gold
    2 Jan, 05:10 AM Reply Like
  • Agreed.
    2 Jan, 05:11 AM Reply Like
  • classic technical breakdown
    31 Dec 2013, 09:25 AM Reply Like
  • Hmmm

     

    Amazing how plain old fashion corruption and greed can turn the law of supply and demand on its head. Lets see now; Since 2007 the FED has flooded world markets with at least 30 Trillion dollars. They are still pumping at least 75 Billion dollars a month into the economy. The demand for physical gold has set records since 2011. Gold production has only seen nominal increases in that time. This year has seen mines closing or curtailing operations around the globe. The forecast for 2014 gold production is down significantly. While demand for physical gold continues to rise (despite misleading data to the contrary) Russia, China and India collectively have been consuming a very large percentage of annual production between them. Between Dec 16 and 20th this year Chinese consumers purchased 55 TONS of gold! This is of course on top of all the Chinese purchases which total between 700 and 2000 tons depending on sources. And it doesn't take into account the fact that all the gold mined in China stays in China as does the Russian production. In short we have had a raging bull market in gold for years. And you would never get that from this website or most MSM financial site either.

     

    So massive inflation due to trillions of dollars flooding the markets. Production up nominally and set to decline significantly. And demand for the physical through the roof. And yet gold has dropped in steadily in price. How is that possible without direct and repeated illegal market intervention by the likes of the FED and Bank of England? The short answer is that it isn't..................So how long can they keep a lid on gold? Not much longer.
    31 Dec 2013, 09:44 AM Reply Like
  • So how is the ETF (GLD) "down more than it has been in "DECADES" ,when it's a relatively new concept ? Kind of like NASCAR announcers talking about someone breaking Dale Earnhart's "SPRINT" Cup car record. He NEVER drove in a "sprint" car or in a "Sprint Cup" race. He was a WINSTON cup Champion,they just won't mention "Winston" .So HOW does this decade of ETF's compare with previous decades for (GLD) .There my New Year rant is out there and I am going to put on my flame resistant WINSTON Cup coveralls now :)
    31 Dec 2013, 02:30 PM Reply Like
  • The year end painting is in progress. We may see 1050 in 2014, but it will for sure not stay long for that price. At that price, no new gold can be produced.
    31 Dec 2013, 09:50 AM Reply Like
  • That's possible because
    1) the Trillions of dollars stay on the liability side of the Fed and do not generate any lending to the real economy. It is base money, not money supply.
    In normal times, base money (aka "high powered money") generates a multiple of itself as money supply. These are not normal times as banks are capital constrained, not reserve constrained, and their clients deleverage, so they don't borrow. Therefore this base money does not multiply. If you're a car guy, I'd say the high powered money engine doesn't move the car because the clutch is spinning so the axle is not moving, or very slowly.
    2) The humongous Chinese demand is a trifle compared to the amount of gold held as investment: probably 60 or 70% of total above ground gold (175,000 tons). So is yearly production (2,000 tons). Those factors are dwarfed by investment gold released as holders lose appetite for a non-yielding asset correcting from a bull run and facing adverse fundamentals.
    So, no, nobody is conspiring against gold.
    You've just been sold the wrong investment strategy by the von Mises fanboys.
    Gold will rise someday. But that may be a long time from now.
    Have a happy 2014.
    31 Dec 2013, 10:06 AM Reply Like
  • Tao Jaxx said; "Those factors are dwarfed by investment gold released as holders lose appetite for a non-yielding asset correcting from a bull run and facing adverse fundamentals."

     

    Not true Tao. Sure there are some paper sellers, like the Hedge Funds, Mutual Funds and Professional Traders who have sold the last month to take advantage of the 100% write-offs the IRS gives them. But the holders of physical gold and silver don't sell. I have zero sellers. They are still dollar cost averaging into an allocation. That's what you do when you allocate. You take from what's been breaking to new highs, and allocate it to that portion of your portfolio that is down. But many are not invested in gold and silver as of yet. We are only in the 2nd stage where they try and buck you off. Physical holders of gold hold onto the reins and dig in their heels. It's their nature.

     

    Have a happy 2014 as well.
    31 Dec 2013, 10:12 AM Reply Like
  • " to take advantage of the 100% write-offs the IRS gives them."
    That's for those with a loss on their position.
    Why do you assume hedgies lost on this? I'd expect that beyond what Mark Dow calls the "macro tourists" (Paulson is one), those guys are smart enough to have made money on a $700 one way slide.
    "They are still dollar cost averaging into an allocation.I have zero sellers"
    Sir,
    My understanding is you're catering to retail. Retail hate selling at a loss: they stick to their losing trades hoping for better times and bail out of their winning trades fearing the loss of their "paper gain".
    That's human nature (or "behavioral finance" if you want to give it a fancy name).
    You know better than I do this game is a food chain and individuals are not exactly at the top of it, right? Dollar cost averaging is the strategy big guys sell to the small guys. Small guys is a nice word for,er, "bag holders". That's what we see right now.
    Sorry for being cynical, not my style. But market Darwinism is what it is...
    31 Dec 2013, 10:28 AM Reply Like
  • Tao, most hedge funds, let alone mutual funds don't beat the market indexes, so yeah, I do think they are sitting on losses, including but not limited to Soros' fund. We'll find out next release date. See http://bit.ly/JHFdg4

     

    Retail or not, my suppliers are already showing shortages of Silver Eagles.

     

    The "bag holder" you speak of is a bit premature I suspect. Especially in light of the these discounted prices.

     

    I will tell my clients when to bail. The price of gold and silver will be much, much higher and they don't care about an insignificant drop from these levels.

     

    Don't look at the screen now, but the January buyers may have come in a day early. Gold up $27 from its lows of the day. I'll wait with baited breath for the Seeking Alpha email blast about gold moving higher (while they go on their 16th hour in waiting to publish my bullish article).

     

    31 Dec 2013, 10:44 AM Reply Like
  • Tao, you have described what I've done in my ROTH account to a "t". A tendency I'm working hard to change. Fortunately it's a small percentage of my net worth and a lesson in what not to do.
    31 Dec 2013, 10:58 AM Reply Like
  • Ag,
    Reason I know is I did more than my share of it lol
    Learned the hard way.
    :)
    31 Dec 2013, 11:08 AM Reply Like
  • 1) You know better than me that looking at form 13H (I guess that's what you have in mind) gives you zilch information about Soros's true position, right? Even I could window dress it. Do you think he will reveal what he does? Nice tool for smoke and mirrors.
    2) Congratulations for gold moving up! Bubbly is in the fridge. Only thing is, it's $30 from its lows and $710 from its highs.
    But that's a good start.
    GLTA
    31 Dec 2013, 11:18 AM Reply Like
  • Tao,
    Because there's lots of Chinese who of course individually can be called "retail guys", you have to admit that by the strength of their number, as a whole, they should be called "macro tourists". When a nation in its entirety from almost scratch buys over 2,000 metric tonnes of your physical gold in a year, that ain't s**t.
    Doesn't the Chinese gold devotion ring a bell to you ?
    31 Dec 2013, 11:24 AM Reply Like
  • Bubbly is in the fridge. 12 straight years of gold moving higher. 1 year down and we get to buy at a discount. That's something to celebrate!

     

    Cheers!
    31 Dec 2013, 11:33 AM Reply Like
  • No disagreement either, as you say, that ain't s**t.
    I believe we had this discussion before so won't bore you repeating what I said, you can easily find it in my comments if you care in any way. Chinese retail, as all retail, are price takers. (aka "bag holders". Sorry not nice).
    It's called "distribution". Fair chance that gold will come back on the market at lower prices. Happens all the time.
    31 Dec 2013, 11:33 AM Reply Like
  • This was @ Doug. Sorry numerous posts.
    31 Dec 2013, 11:34 AM Reply Like
  • Yes, Tao, that probably was @ Doug, but I came in, my apologies.
    Still, when not so nice "bag holders" buy that amount that by large surpasses what the CBGA had in mind to sell on an annual basis (400 m.t.), I scratch my head, not you ?
    Could be that what is being sold now to meet this Chinese devourer is paper gold and that those who sell this paper gold have to lease the physical gold from Western Central Banks in the meantime cause the Chinese don't want any paper.
    What you think ?

     

    You know what I think ? If China keeps on buying like it has been doing for the last 5 years, say for another year, those who lease to the paper gold salesmen will start scratching their heads too and might easily stop the leasing out of fear not to see any of their gold back again.
    You must have heard of the recent leasing by Finland, Belgium, Venezuela, Mexico...
    Besides, if only 38 metric tonnes out of the physical 50 promised to Germany this year went to destination, due to ... errrr, logistic problems, that tells a strong story about availability of the stuff, doesn't it ?
    In my country if you ask for delivery of 250g they make you wait 2 months. I mean, everyone knows that the gold price isn't fixed on it's scarcity, but still, there are limits.
    31 Dec 2013, 12:24 PM Reply Like
  • "bag holder"?
    You don't know much about Chinese or Indians. Guess when they will sell their gold at lower price back to the market?
    31 Dec 2013, 01:31 PM Reply Like
  • filipo: Been hearing the whole "just wait for China and India buying pressure to kick in!" meme all year.
    Makes you wonder what gold would have done without it.
    31 Dec 2013, 04:32 PM Reply Like
  • Rhianni,
    "Makes you wonder what gold would have done without it. "
    Very lousy indeed, I hear you think...
    Yet, there they are, China and India (although the latter crippled by high taxes on gold import) buying like hell.
    But that says not everything. The gold price is not only fixed by supply and demand, but rather by the tune of the day.
    Supply and demand in the gold market only means quantification of gold going from one heap to another and/or vice versa, again and again.
    That can be relaxing to watch but it says nothing about the price of these transactions. It says alot of the speed pro day at which these transactions take place.
    You also should notice that the Chinese have every interest not to pay a high price for their gold. That makes them brothers-in-crime with the Fed who has interest to protect the USD by keeping the gold price low.
    Just telling.
    I expect the physical market to gradually dry up while in the same time the price stays low thanks to the paper market. The Chinese have the tools to do that: 1.6T of USD reserves and when eventually the US would default on their debts (Treasurys), the Chinese would probably default over the same amount on their debts on Comex (gold that they don't want to deliver).
    But I admit this is science fiction from my part (watched Gravity yesterday night).
    1 Jan, 04:50 AM Reply Like
  • Funny how quickly people forget what usually happens when 95% of the population is absolutely sure where a specific investment is going.

     

    Warren Buffett didn't get rich buying those stocks that everyone loved and which people were sure would continue to be winners.

     

    What did people say about gold when JDS Uniphase and Nortel were stocks you just HAD to own?

     

    As the old saying goes "the most confident today are the most surprised tomorrow".
    31 Dec 2013, 10:36 AM Reply Like
  • DVL,
    You statements are very true ,

     

    but all should be reminded that the same chorus was sung when Gold was $1500 ....

     

    Happy new Year !
    31 Dec 2013, 10:57 AM Reply Like
  • I don't disagree with that. I'm only confident about the past. That's a $700 one way slide, admittedly with ups and downs.
    As for tomorrow, I just "bet". To make sure I stay alive, I only "bet" after
    1) a lot of boring research, away from the catchy soundbites and fads of the day ("gold to $12,000! Money supply exploding!"). That means understanding the Fed's Z1, H.4.1 or reading the CBO literature. Not fun, not fun.
    2) backed by enough equity, meaning positions small enough to sleep at night and ride out the twists and turns.
    The better your research, the smaller your equity need (or the higher potential leverage). That's Goldman's model.
    As I ain't that smart, I stay tiny lol
    31 Dec 2013, 10:58 AM Reply Like
  • I concur with all that Tao. I think I over analyze.

     

    Have a good and prosperous New Year...at my age, I don't know if I'll make it till midnight. Been up since 3:30am.
    31 Dec 2013, 11:04 AM Reply Like
  • That reply of mine was @ DLV
    31 Dec 2013, 11:06 AM Reply Like
  • You too, Doug. I don't either if I'll make it, no one does, irrespective of their age lol
    Stuff happens. Even to good people.
    31 Dec 2013, 11:43 AM Reply Like
  • Happy New Year to you as well.
    31 Dec 2013, 06:43 PM Reply Like
  • Gold dropped by almost the same magnitude as S&P 500's gain, like a mirror. In fact, both moves tell the story of QE on a global scale.
    31 Dec 2013, 11:31 AM Reply Like
  • Meanwhile Bitcoin is all the rage. Go figure.
    31 Dec 2013, 03:58 PM Reply Like
  • Alternative to gold.
    31 Dec 2013, 04:04 PM Reply Like
  • Alternative to Dollars.
    31 Dec 2013, 04:16 PM Reply Like
  • Indeed. I wouldn't worry though. Whether I'd be gold or dollar: no one can replicate gold or dollar (reserve currency).
    Anybody and their brother can do bitcoin duplicate. JP Morgan is working on one, others will follow.
    If some unknown Japanese dude with a computer can do it, the big boyz can do it too.
    31 Dec 2013, 04:31 PM Reply Like
  • Bitcoin's main problem is all of the other crypto-currencies that are diluting the network effect of Bitcoin...and that will only get worse.
    31 Dec 2013, 06:46 PM Reply Like
  • Yep: you can do Batcoin, Kitcoin, Budcoin (for booze), Badcoin, not to mention Titcoin and many more.
    You can't create Bitcoins easily but anybody can create competing ones.
    31 Dec 2013, 06:54 PM Reply Like
  • Buttnickels sounds catchy no?
    31 Dec 2013, 09:54 PM Reply Like
  • Primecoin is where it's at

     

    There is nothing wrong with multiple crypto-currencies as there is nothing wrong with multiple precious metals, rare earth metals or commodity baskets.

     

    It's healthy in the same way we have a basket of currencies. Some will die off, some will grow more in value.
    1 Jan, 01:38 AM Reply Like
  • Tao,
    "JP Morgan is working on one, "
    JPM does that all the time, adding zeros to sums to increase leverage.
    1 Jan, 04:53 AM Reply Like
  • Precious metals can't "die off" though.

     

    That is one major difference.

     

    (Well, that and the fact that electricity and telco lines are unnecessary with precious metals)
    1 Jan, 07:40 AM Reply Like
  • Well, unless it's not actually a precious metal but a synthetic derivative like an ETN
    1 Jan, 02:44 PM Reply Like
  • I dont know if this is actually true or not, but hypothetically, if a large player with very deep pockets ( think China) wanted to gradually acquire a huge amount of physical gold, and was willing to pay some savvy Wall Street firms to execute a strategy to do so, how would they go about it? Obviously the low hanging fruit is the retail specs, GLD, hedge funds ( like Paulson) - these small time players have varying degrees of threshold of pain and will sell if subjected to enough pain. Big win in 2013, but still more juice left to be squeezed. Maybe they let te price float up for a week or two, then start the slamming again.
    31 Dec 2013, 06:36 PM Reply Like
  • Oh, OK. So they're buying tons of the stuff by driving the price down, right?
    They found a way to drive the price down by buying by the ton.
    And they target "small time players" like John Paulson (21.5 Mio GLD share last June). How many shares do you own, like 200 Mios?
    31 Dec 2013, 06:44 PM Reply Like
  • RS055, There is the Central Bank Gold Agreement (CBGA) that runs until sometime towards the end of next year. Plenty of sellers for anyone who wants to contact them.

     

    (in metric tons) Source WGC and IMF
    2. Germany 3,396

     

    3. IMF 2,814

     

    4. Italy 2,451

     

    5. France 2,435

     

    6. China 1,054

     

    7. Switzerland 1,040

     

    8. Russia 895

     

    9. Japan 765

     

    10. Netherlands 612
    31 Dec 2013, 07:19 PM Reply Like
  • Doug,
    The CBGA covers only the Eurosystem central banks (so Euro Area only) plus Sweden and Switzerland. Not the IMF, not China, not Russia, not Japan. They sold what they had to way back so I don't expect them to sell anything anymore.
    31 Dec 2013, 07:31 PM Reply Like
  • Tao,

     

    Right...thanks...I copied and pasted from Pisani's article on Greece when it was speculated they might sell their gold (but couldn't because of the CBGA agreement). So that leaves the following who can sell (Greece has 111 metric tons):

     

    2. Germany 3,396

     

    4. Italy 2,451

     

    5. France 2,435

     

    7. Switzerland 1,040

     

    10. Netherlands 612

     

    Mexico reduced their holdings in August: http://bloom.bg/1hdOQ5d

     

    Russia bought in August but sold in September: http://bloom.bg/1hdOQ5d

     

    My guess any large size transaction can be handled at any time.
    31 Dec 2013, 07:40 PM Reply Like
  • Doug,
    I honestly doubt any of these guys are going to sell anything.
    See, for once I have a gold bullish argument lol!
    They didn't sell at $1,900, not at 1,800, not at 1,700, not at 1,600, not at 1,500 etc etc. Should they sell at $1,200, they'd have some 'splaining to do to their shareholder (National Treasury).
    I know they have an excellent track record of buying high selling low but ain't happening for these guys.
    The ones that got in an embarrassing situation are the Koreans, Kazakhs and other Emerging Central Bankers who bought @$1,500-1,800 and now have to cut dividend to the Treasury as they have to provision their ill-timed purchases. That should keep them away from the market for a couple decades.
    Plus, they can't use gold for intervening on the FX market to prop up their currency. They need $ for that. Back in 2011, they thought their currency would appreciate forever, so no need to intervene. But Mr.Market turns on a dime and there they are: underwater on an illiquid asset and their currency under pressure.
    Things change...
    31 Dec 2013, 07:59 PM Reply Like
  • Tao,
    Nice bullish comment, haha! and some good points. Not sure if the asset is illiquid or not, but my guess is they don't want to take a loss on it either, unless forced to. Will be interesting to see what some of these countries do if things go south for the world economies.

     

    I think the citizens of various countries have something to say about what their Central Banks are up to as well. I was talking to a client in Switzerland and he wrote me what the citizens there are doing to stop their Central Bank from selling anymore gold.

     

    Here is what he had to say:

     

    A lot of citizens then were very upset and one member of the
    National Council,Lutzi Stamm inaugurated a Citizens Iniative.
    The goal of this Initiative:
    1) The SNB`s gold has to be stored in Switzerland
    2) The SNB`s gold is unsaleable
    3) The SNB`s reserves have to constitute of at least 20% of gold

     

    As of March 20th 2013, about 105 280 citizens signed the petition.

     

    The SNB is against the three postulations...

     

    It is interesting to know that Switzerland is the main hub of
    international gold trading: about 80%
    is conducted via Switzerland
    31 Dec 2013, 08:26 PM Reply Like
  • One other point from the Swiss guy I found interesting (more from a political stand point):

     

    Despite its small size and diversity, Switzerland has been recognized
    for many years as the world's bastion of financial strength. On the
    basis of a direct participatory form of government, the Swiss people
    vote on important federal and local issues. The Swiss have in practice
    - not just in theory - a government directed by the people.

     

    The Swiss federal counsel has limited power - this is by design. With
    50,000 signatures (0.65% of the population) a referendum can result in
    a national vote and become a new law - if over 50% of the voters
    agree.
    31 Dec 2013, 08:33 PM Reply Like
  • Doug,
    Agreed. SNB used to be the epitome of the nice conservative central bank sitting on truckloads of gold and then sometime around the end of the '90s, they started unloading it like crazy (at the then depressed prices) to get into fancy schmancy FX reserve management techniques.
    Your point is an extra reason to rule out major sales from any of the CBGA signatories.
    I do not expect EM central bankers to sell at a loss. They don't need to: they'll swap acquired gold against dollars to get FX liquidity if needed. That'll cost them some money, even at today's low $ interest rates.
    My point is those embarassing paper losses will make them think hard before stepping in as buyers, and that for a long time.
    1 Jan, 03:40 AM Reply Like
  • Tao, but from an asset allocation point of view, I would argue that their buying now would lower their break even point. If of course they have the funds to do so which I would argue probably not. So I'll give you that one.

     

    As far as your comment about it being a "long time," we'll see what shakes. Debt of nations sure isn't going down and controlling of interest rates, quest for GDP growth and and ongoing Central Bank maneuvers will dictate the future. I just don't have faith in the one's doing the planning.
    1 Jan, 10:28 AM Reply Like
  • Doug,
    Leasing is much more profitable than outright selling.
    Practically all Western Central Banks, including the SNB, practice that sport nowadays.
    They get the much needed liquidity and the responsability in case something might go wrong (like the leasing commercial bank not being able to find the gold back at expiry date of the lease contract) is not their's.
    Did you noticed that no CBGA-signatories have sold whatsoever the last 3 years ?
    1 Jan, 10:42 AM Reply Like
  • Yeah, understand this filipo. Don't think they would sell. I was just pointing out to RS055 where the gold might come from. They have the ability to sell $396.5 more tonnes if they chose to. They of course don't have to and are not required to moving forward. When the agreement ends in September, 2014, I don't think there will be a new one.

     

    I do find this rather bullish. They could have sold at higher prices but did not. As Tao has suggested, there is no reason for those who bought higher to sell now, so with that same premise, I don't see any reason that those who own it now might want to sell, but indeed would lease if necessary or they want to earn interest.

     

    Thanks for the heads up. Made me dig a little deeper.
    1 Jan, 11:51 AM Reply Like
  • Doug,
    "They have the ability to sell $396.5 more tonnes if they chose to."
    Yes, that's right for 2013 and another 400 m.t. for 2014.
    But these are theoretical figures.
    I do not think that they will come into practice. There's not that much left in the Central Banks' vaults if you compare to some 50 years ago.

     

    I heard the BIS sold (or leased) some of its gold lately. They can resume that selling in 2014 but only for a limited amount.
    No, I really don't think there's much physical left in the West that can be put for sale except scrap of course. But according to the WGC Q3-4 of 2013 were disappointing as fewer people turned in their old jewelry at these depressed prices.

     

    "As Tao has suggested, there is no reason for those who bought higher to sell now,"
    Indeed, but Tao also said that the Western Central Banks have an excellent track record of buying their gold expensive and selling it cheap. And that is very true if you look at the past.
    So I don't exclude nothing, not even momentary hickups of small sales to suppress the price when market volumes are exceptionally low.

     

    But indeed, leasing by Central Banks to bullion banks or commercial banks to cover the paper gold liabilities on Comex (delivery obligations) is very probable to keep on happening. But again, as I said in one of my former comments, when Central Banks who have been engaged in leasing activities would suddenly start seeing the bottom of their gold reserves, I think they would scratch their heads and stop leasing any further for fear not to see any of their leased gold back, especially when these bullion or commercial banks would default on their obligations. I remind you that Rabobank and ABN-Amro in 2013 have blankly and quite suddenly refused to deliver whatsoever physical gold to their clients who paid for it. Instead, these clients, if they want to sell their rights, are being paid pack in euro at the nowadays price.

     

    "I do find this rather bullish."
    I completely agree, but I learned that bullishness is not enough to send the gold price higher. I expect the leasing to keep going on for some time. There are some socialist European states who are in a not so good financial situation but with lots of gold who will be lured by the leasing schemes. Leasing has the merit that as a Central Bank you don't have to admit that you sold your gold. You simply and casually say "gold sales: 0 ; gold related commercial activities: $2,000,000,000" the latter meaning that you lend out your gold worth that amount. Nobody will point his finger at you saying that you threw the nation's gold away when it's clearly stated: "gold sales: 0". And very few people read National Banks' accounts and if they do, they sure don't understand what "gold related commercial activities" mean, especially if they're politicians.
    1 Jan, 03:43 PM Reply Like
  • Thanks filipo...
    1 Jan, 04:21 PM Reply Like
  • Hello Doug,

     

    Funny funny, I expected the Emerging central bakers to suffer from their gold purchases, but I forgot about others: See our Swissy friends' central bank in the red:

     

    http://bloom.bg/1dfCTdt

     

    If the Swiss sweat it, imagine the others lol
    Doesn't bode well for that referendum, by the way.

     

    Regards,

     

    TJ
    8 Jan, 08:50 AM Reply Like
  • Hey Tao, this is of course what the SNB wants, but are the people smarter than those who sold all the way up while seeing that this blip is just a temporary thing?

     

    From my perspective of course...

     

    I still think it is in there inherent genes to have their currency associated with gold. It does give them the illusion that the currency is backed by gold and it hasn't hurt them throughout the years having all that gold.

     

    http://bit.ly/1lPsqER
    8 Jan, 10:21 AM Reply Like
  • I don't think it's a big deal for them Swiss.
    I just think they should never distribute revaluation profits as dividends, that's crazy if you ask me, especially on something as volatile as gold. Call me old school but they should carry it at cost ands leave the profits in reserve. Im sure the cantons and the Ministry of Finance would hate it but that what would make sense.
    I'm sure there's others in much deeper trouble out there among Emerging Markets central banks: wouldn't be surprised some governors would lose their job on this.
    8 Jan, 10:43 AM Reply Like
  • I guess we will learn more in March (I think details come out then if I remember correctly). The article on that did state there may be others with issues.

     

    BTW, we are talking about 5 days worth of U.S. budget deficit money here, lol...

     

    8 Jan, 10:59 AM Reply Like
  • I think Seeking Alpha editors took today off (they are mostly in Israel). Been over 24 hours since I submitted my article by checking the expedite box for timing reasons. Now it won't make as much sense. Rather frustrating to have to wait so long.
    31 Dec 2013, 07:45 PM Reply Like
  • Happy New Year everyone . Enjoyed reading the comments and this article this afternoon and evening. Thanks for the terrific posts Doug ,Tao,DVL ,and others. Hope 2014 is better than we have been told so far. All the new taxes and control of what used to be our freedoms will have it's effect. We will probably be working 2 months longer to pay for the redistribution of our labor and investing . But we must"endeavor to persevere" as someone once said.
    31 Dec 2013, 09:08 PM Reply Like
  • Happy New Year CoinsK!
    31 Dec 2013, 09:12 PM Reply Like
  • Gold is down because there is no discernible inflation, in fact, if anything,one of the dogs of war, deflation, is afoot. why? There is no velocity of money, and the politicians seek to raise taxes at every turn. The policy of the Eurozone, inspired by the German fear of hyper inflaton, is causing the rise of deflation and a collapsing euro economy. I n the USA, the banks are not lending, individuals are not borrowing to any significant degree, and thus velocity of money is down, which is death to any aspiring inflation. The fear mongering about the spectre of hyper inflation haunting the land is based on a complete misunderstanding of how that has taken place in history. The two instances we have in the last century, and only two instances of hyper inflation, occurred in revolutionary governments which had no international market for their debt issuance, and therefore sought to raise funds simply by the act of printing money. The two in question were the Weimar Republic and Zimbabwe under Mugabe.
    31 Dec 2013, 09:19 PM Reply Like
  • James, agree with what you are saying as I have been in the deflationary camp for some time.

     

    I do agree also that the two hyperinflationary events you mention are not similar to anything we are involved with today.

     

    However, this episode of hyperinflation is similar and it occurred not that long ago: http://bit.ly/1cWdjdx

     

    Food for thought...

     

    And I know today that many in that country are trying to exchange their currency for U.S. dollars at a 30% discount.
    31 Dec 2013, 10:00 PM Reply Like
  • If there is no inflation then why not expand QE to $5 trillion per month of asset purchases?

     

    Since QE cannot cause inflation then why not?
    1 Jan, 07:43 AM Reply Like
  • Deep,
    Eventually, it will come down to that.
    Look at what happens in Japan with Abenomics and you have an idea of what the US will look like in 50 odd years.
    1 Jan, 09:07 AM Reply Like
  • filipo, I don't think it will be 50 years. While I am presently dollar bullish, if Japan loses it, then possibly some of the European southern countries, it will kill us all because of the inter-connectivity of the banking system.

     

    Also, Japan's episode of deflation could last longer because they were a net creditor and had more exports than imports (a producer). The U.S. does not have the same luxury, but the U.S. dollar does have the world reserve status (thank you military).
    1 Jan, 11:31 AM Reply Like
  • Doug,
    You are absolutely right. I said 50, but it can be less, I have no idea, it depends on so many variables.
    The way fiat currencies are treated in our societies is dreadfull, but a sad reality.
    1 Jan, 03:49 PM Reply Like
  • The cost of health insurance has doubled for some and went up quite a bit for others who had to give up the quality of insurance they had. IOW's , paying more for less. .If that's not an inflationary event in 2013 wait until 2014 we will be paying a new TAX in addition. No inflation though , Interesting.

     

    Quantitative Easing is Nothing New

     

    Inflation is actually taxation, . http://bit.ly/1a0PE9p
    This video is from a PBS special in 1980 titled "How to Cure Inflation" narrated by the Free-Market Economist; Milton Friedman. In it he explains not only "How to Cure Inflation" but also Inflation's Cause & Effects.
    http://bit.ly/1eVoJ2E

     

    http://bit.ly/1cmlzxa
    1 Jan, 09:14 AM Reply Like
  • CoinsK, there is inflation in everything the government has their hands in;

     

    Student Loans
    Health Care (Medicare, Medicaid and now Obamacare)
    Salaries of Public employees
    Housing (guaranteed loans)
    Farm subsidies
    Ethanol (corn)
    Post Office (stamps)

     

    I'm sure there are more...

     

    The CPI doesn't paint the true picture, most everyone knows this.

     

    Pricestats shows true inflation (a daily measure of inflation derived from prices posted to public websites by hundreds of online retailers ) at .123% last month versus the last CPI reading of -.258% (Nov. 27th last reading). http://bit.ly/18XSOvV

     

    Tale a look at their Argentina discrepancies of CPI vs. their data.

     

    But to explain my thinking, which I am still for the most part in the same camp (said the Fed would do QE Infinity then), I offer what I wrote about a Deflationary Credit Contraction in Nov. 2010:

     

    How a Deflationary Credit Contraction Will Unfold http://bit.ly/18XSE7I

     

    1 Jan, 11:26 AM Reply Like
  • Never understood gold or more specifically "GLD"
    1 Jan, 10:32 AM Reply Like
  • Just checked what gold is doing now that the real traders are back. Up close to $17 bucks so far, silver following the upward movement as well. Over $20 ....

     

    Let's see if the trend continues!!!
    2 Jan, 12:30 AM Reply Like
  • The gold mining companies are really beaten down right now. I bought some more IAG just before the end of the year, in case some 'tax loss selling' was happening before Jan. 1. I've not backed up the truck by any measure, but think at this level it is a good price to by a gold mining company.
    2 Jan, 03:43 AM Reply Like
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