Wednesday, May 30, 2012

Gold Isn't Just For Goldbugs Anymore...

I don't think China really cares about the Comex other than the fact that the Comex operators do a great job keeping the price of gold and silver artificially low for China as the world's largest buyer of gold and silver.  - Dave in Denver
Anyone who buys into the "gold is in a bubble/bear market" proclamations being tossed out on CNBC, Bloomberg and other mainstream disinformation sources needs to examine the real evidence.  The real evidence does not come from some asswipe working for a big bank brokerage firm who examines pretty lines drawn on a chart or has spent the last 10 years conning the public into buying stocks like Facebook.

The real evidence comes from looking at what the big buyers of gold are doing.  I think many of you have already seen the recent articles which report the latest Central Bank gold accumulation in primarily eastern and southern hemisphere countries.  As I mentioned yesterday, China imported the equivalent of about 10% of the world gold production in 2011.   In Q1 2012, China imported 50% of the amount it imported for all of 2011. 

Venezuela has repatriated most of its gold (200 tonnes) that was being held outside of the country by western country Central Banks (England, U.S., Switzerland).  Mexico has been recently accumulating physical gold.  And Viet Nam is now known in global gold circles as "little Switzerland."  In other words, it seems that every country other than the U.S., Japan and EU countries are actually aggressively accumulating physical gold (and silver).

One reason is that the B.I.S. - Bank for International Settlements, the Central Bank for all global Central Banks - is looking into reclassifying gold as a Tier 1 asset:  LINK  What this means in short is that it would elevate gold held by banks to the same asset class status as paper currency.  In other words, "gold is cash."  Currently gold is classified as Tier 3 asset, which means that any gold held by a bank gets a 50% haircut to market value in accounting for a bank's required capital reserves held against liabilities.  Tier 1 status would elevate gold to 100%, same as cash.  Hmmm...

What this means is that banks/Central Banks which own and hold physical gold (not GLD, mind you) would be incentivized to see the price of gold go a lot higher.  This would put the big accumulators (China, Russia, India, Gulf States, South America/Mexico) in direct conflict with the big manipulators (Fed, Bank of England, ECB).  This could get interesting. 

Another point of note is Germany is now proposing that, in return for bailout support from Deutscheland for the ailing southern EU countries, EU members would be required to use their gold as collateral in order to participate in a fund that would be established to bail out troubled Governments: 
Germany would have a lockhold over the fund, able to enforce discipline. Each state would have to pledge 20pc of their debt as collateral. "The assets could be taken from the country’s currency and gold reserves. The collateral nominated would only be used in the event that a country does not meet its payment obligations," said the proposal.
Here's the entire article from the Telegraph:  LINK

What the above developments signal to me is that - contrary to the bubble/bear market idiocy spewing from the paper pushers in this country - gold is actually getting ready to move much higher in price against the dollar/euro/yen/yuan.  In fact, the incentives are being implemented to make sure that happens.  Think about that for a bit.

The next time your trusty financial advisor calls up to tell you to sell your GLD and buy some muni bonds or a stock market ETF, ask him how come the B.I.S. is looking into making gold a Tier 1 asset and Germany wants to require gold to be used as lending collateral?  You may hear a dial tone after that inquiry...


  1. Dave, I happen to know a treasurer of a large world-wide US-based corporation who is plenty worried right now. How can a company best protect its cash-equivalents if it is dealing in large sums? Is there any feasible way to use gold?

    1. Ya but I'd be surprised if he or his board of directors would ever invest in physical gold.

      They can buy into PHYS and PSLV and convert their shares into delivered bullion if they want, or they can just use those as vehicles to index gold/silver. Right now the premium on both makes sense if they want to take delivery.

      The other method is to set up a commodities acct with a custodian that allows delivery, buy up Comex contracts and have the metal delivered to a private depository like Diamond State in Delaware.

      If he's truly interested, I'd be happy to provide consulting services for how to best go about doing it.

  2. michael schumacherThursday, 31 May, 2012

    "B.I.S. is looking into making gold a Tier 1 asset and Germany wants to require gold to be used as lending collateral"

    I gather that this will go the same way as the CFTC investigation on silver manipulation. As to say if ti actually hurts the big banks it has zero chance of being applied.

    1. I wouldn't assume that MS. It would hurt the U.S. big banks. The BIS is global. It would actually help a lot of the EU banks because they are still long gold. The eastern hemisphere banks would benefit big time. The power base of the world is slowly shifting east. Even the TBTF banks are expanding aggressively into Asia.

  3. Dave will this do anything to help silver?

  4. The ECB counts physical gold as line item numero UNO on the asset side of its balance sheet. See what Germany has proposed in its gold for paper bailout strategy ?? Miseans and Hayekers, I love 'em.

    But think long and hard upon the flight to the bond bubble. With all the evidence of gold accumulation you have just referred to (excellent synopsis btw) who will give a flyin' fuck about a third world country defaulting on it's debt, spending 40 years shorting gold in every way imaginable, and when the music stops ... they have no gold.

    All we will have is our war machine to fight back with then. That's when you pray the BIS steps in.

    And yes, The Fed reports to the BIS, not the Treas(on)ury or CONgress, as do it's it bullion banks. Yes they take a haircut on their balance sheet, but the BIS accumulates as a 100% asset (Another).

    I know that FOFOA, FOA and A are a headache somewhere between cryptic and cryptonite to read, but damn if everything they say all comes to make perfect sense.

    And Jim Willie, Rob Kirby and now Harvey Organ all seem to be on the same page. These guys are poison to MSM, but they are spot on.

    Yes there will continue to be many counterintuitive and contrary "episiodes" in the coming months as the mother onion of depeptive onions slowly unpeels, but at least we can now see that it IS unwinding.

    The bond bubble WILL be the LAST and most furious one to burst into flames before the reset.