Many of you have probably seen this by now, but for those who haven't, several countries have announced significant central bank gold purchases. The most significant of which is South Korea, which purchased 25 tonnes in June and July. Why is this significant? "JB," who's global gold market reporting can be found every night in the Midas report at http://www.lemetropolecafe.com/ - and is invaluable I might add - sums it up the best:
South Korea is emphatically an American client state and to see it defying the well-known US hostility to the use of gold in FX reserves is arresting. Furthermore Korea has been struggling to restrain the Won: buying gold is a stratagem which logically would answer the similar Swiss problem as well. This is not just a matter of another CB joining the list of gold buyers. Korea has $300B in FX reserves, the 7th largest in the world.Thailand, Russia and Kazakhstan all added signficantly to their central bank gold reserves as well: LINK These purchases make Bernanke's statement that gold isn't money and that central banks hold gold out tradition look retarded. I doubt these central banks would be spending $10's of billions on "tradition." I might also add that Russia has been the most outspoken about the U.S. debt problem and has been backing up those words by substantially reducing its Treasury holdings over the last 6 months. I'm still trying to figure out who is going to collectively pony-up $2.5 trillion over the next 18 months to finance Geithner's Treasury auctions...
Finally, for all you out there thinking that you can seek safety in Swiss francs, we were greeted this morning with the news that the Swiss central bank is making an aggressive attempt to devalue the Swiss franc, which has move up substantially vs. the euro and the dollar. Please note that the Swiss franc is a fiat currency and the Swiss banking system is nearly as bloated with bad debt as that of the EU and the United States. Here's good color on action being taken by the Swiss: LINK
People scratching their head over the recent strength in gold and silver this summer will soon be scratching their ass. Many of us have suggested that we might see a large, surprising upside move in the metals this summer, contrary to the typical seasonal summer pattern for the metals. And for those still scratching their head and not their ass yet, Ben Davies sums up the reality of the sentiment/bubble situation:
Sentiment may be high, actually I had a main stream reporter call me from a newspaper and said, ‘Hey I’m going to write this piece about popular culture and you know it’s all the talk at cocktail parties’. And that’s just it, it may be all the talk, but it’s all hot air, nobody really owns it (gold). I mean I’ve just come back from a meeting where a very large UK allocator said they’ve had their portfolios short gold, actually short gold for the last 18 months.Here's a link to his interview on King World News: LINK
Then I went to another one, again very large private bank in the UK and they told me they had cut from 6% to 4% their holdings in gold over the last ten months. So for my mind there is no participation. The market is going to be higher over the next four months. The market is making it very difficult, it feels like it is going to make that move with not many people on board
With that I'll finish by mentioning that today the front section of The Denver Post has two 3/4 page ads and one full-page ad soliciting readers to sell their gold. Remember, it's not an investment bubble when the majority of retail and institutional investors/people are selling an asset/investment. It will be a bubble when these people looking to buy your gold now begin to solicit you to purchase their gold because you have turned from a skeptic to buyer at any price - like with internet stocks and houses...