Saturday, November 20, 2010

While The U.S. Prints And Spends, Russia Loads The Boat With Gold...

This chart is sourced from Casey Research, Ed Steer's Gold and Silver Daily.  The Russian Central Bank purchased another 600k ozs of gold in October (some is purchased on the open market, some is purchased from internal mining production).  I think the message of this chart, combined with China's demure announcement about accumulating a lot more gold, is pretty clear:  get ready for some kind of gold-based currency standard at some point down the road.

(click on chart to enlarge)

Year-to-date Russia has accumulated 4.6 million ounces.  That's roughly 131 tonnes.  That's a lot of gold, especially considering that the ECB sold barely any of the 400 tonnes permitted under the Washington Agreement.  Now we know why the IMF decided to unload 404 tonnes.  Think about where the price of gold might be if the IMF had not supplied the world this year.

I mentioned earlier in this week in the comment section that it was my belief that, other than France, the EU Central Banks are largely out of gold - either via leasing or outright sales.  Anyone who has studied this topic thoroughly, of course, knows that it is likely that most if not all of the U.S. gold is either sold or leased.  Given the aggressive and large-scale accumulation underway by China, Russia, Iran, et al, 2011 should prove to be a very interesting year for anyone who has already positioned themselves ahead of what will inevitably be a substantial move higher in the price of gold, especially as valued in U.S. dollars.



  2. It is going to outperform gold. The gold silver ratio right now is like around 50. That ratio will be well under 20 before this bull market is over.

  3. Just wanted to tell you, Dave, that I've read your various comments here and there for quite a while and value your opinions highly. Never comment much at all and I'm sure you have many other unspoken followers like me. Thanks for the time and effort. BTW, I'm a silver guy who believes the gold/silver ratio will be 16 to 20/1, and still kick myself for not swapping my meager few ounces of gold for silver when it was closer to 80/1.

    Dave, do you think there is any possibility that the ratio can ever get below 16/1? If so, by how much? Some claim the scarcity will push silver ever closer to parity.

  4. Thanks for the feedback - I appreciate it. I think it's very possible for the ratio to go below 16. In ancient Rome, the ratio was 8:1. If we end up with a global monetary system that includes both gold and silver, I believe that silver will have to be revalued somewhere below 16 in order "imbue" the physical gold/silver that would be held by Central Banks with enough value to represent the general level of global economic output.

  5. If the ratio goes to 8:1, then how would silver still be poor man's gold? At what price would you say that people are no longer able to purchase gold? 5k? 10k? Silver would be at 625 and 1250 respectively. At that price range, silver would be out of the reach of the average citizens as well. So are we left with copper to become the true poor man's gold? And how would trading be accomplished with silver at such a price? Fractional silver? Why couldn't we use fractional gold in alloy form? Its only money if society is willing to treat it as such. If availability was the concern, why doesn't society use copper as money. A gold/copper standard. Or silver/copper standard. Why bother with gold at all. Seems throughout the east, gold is valued much more than silver. Even in China, people are more interested in gold than silver. The availability of silver in the east and west is very limiting for it to become a true monetary metal.

  6. That's not to say that I don't like silver or that it won't become a monetary metal again. There are enough solid arguments against silver that makes it no sure thing. But definitely worth putting a portion into silver for the possible bigger payout.

  7. re: anonymous 8:1. right now at 50:1 it's poor man's gold. the dynamic is that silver's relative cheapness to gold, right now, makes it "poor man's gold." That will attract capital flows until the price is bid up to some ratio, since silver is not gold, to some ratio substantially lower than here and likely well below 20.

    That's my thesis and it's not really worth debating because it will either happen or not happen. I'm betting a large part of net worth that it will.

  8. Dave,
    sadly when the GSR was 8:1 they didn't have an industrial use for it, it was strictly currency. Now we use it up, the CBs only have gold... I have silver becase:
    *it's speculative as vehicle more than gold NOW
    *it might be very scarce in some years
    *to spend if needed
    *has never been confiscated before
    *I like it (design of coins)
    *I'm a bit greedy, not to miss an opportunity
    *want to save the rest for generations (me and the old dynasties :)


    Il Folletto

  10. SILVER WILL BLOW THE PAGES OFF OF THE HISTORY BOOKS..I can bet anyone my horad that silvewr will be over 250 in the future and not to may years off...$100/oz is a no brainer ..coming to a burrough near u...

    SILVER IS MORE RARE and definitely money..Silver means money in about 20 diff languages since the beginning of time..Has been used for money more that gold.>Though I love my GOLD..I LLOOOVESSS my SILVER!!

  11. James Turk's prediction that silver would hit $30 within 18 days was due today. It has failed to materialize. We're at about 27.50 as I write this. ha!

  12. Regarding official gold reserves and leasing/swapping/held in custody elsewhere.

    It doesn't matter. What matters in my opinion is where the gold is physically located. If/When there is a currency crisis involving the major currencies - I wouldn't be surprised if countries took over ownership of the gold - regardless of prior or existing swap agreements or leasing.

    Possession is 9/10ths of the law. Sovereigns can easily give a "receipt" to whatever other sovereign owns that gold and hold onto it themselves.

    We often speak of "physical" ownership over paper ownership - the same applies to sovereigns.

    What do you think?

  13. re: Turk - dude silver hit 29.40 on November 9th. Pretty god damn close in a world where the "horse shoes and hangrenades" applies. That's good enough for me. Give the guy a break.

  14. Lol. Speaking of "precious" metals, I discovered there's a huge market for imbeciles that are 'investing' in "copper bullion" in fancy, shined-up ingots of raw copper PER OUNCE @ X7 spot!

    Talk about one being born every minute....

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