Central Bank buying of gold vs GLD inventories – What matters?
Recently there has been a lot of comments made about central banks buying gold. This is obviously being taken as bullish for the gold sector but the price has not reflected this. Jordan Roy-Byrne joins me to weight just how much central bank buying can impact the gold price compared to investment demand like in the GLD.
I thought the comments on this interview were a bit off course regarding the purpose of different publications or pundits noting the increase in central banks buying gold.
Point out the increase in Central Bank buying of Gold isn’t to predict a big move in the metals price in the immediate future, but rather to show that Central Banks still consider Gold a good store of value and alternative currency to the financial nonsense going on in many nations and their currencies on planet Earth.
The whole point of most of those articles is that if Central Banks are storing a portion of their wealth in Gold as a hedge, then average citizens would do well to store some of their wealth in Gold/Silver as well.
To position data on Central Bank buying gold into a failed correlation to predict an immediate uptrend, while saying there is little data and you could be wrong, is of little value, and is a throwaway comment and off the mark.
This bashing of Central Bank buying as some kind of indicator also completely misses the actual point most of the recent articles have been making: which is, Central Banks are insulating themselves from future systemic risk, and using Gold as a hedge, I posted a few few recent articles that mentioned it may be a good strategy for retail investors to adopt to insure the rest of their portfolio from financial chaos.
World’s Central Banks Want More Gold
By Ranjeetha Pakiam and Swansy Afonso – April 23, 2019
“India’s central bank is likely to join counterparts in Russia and China scooping up gold this year, adding to its record holdings and lending support to worldwide bullion demand as top economies diversify their reserves.”
“The Reserve Bank of India’s purchases are part of a wider picture across developing economies that are looking at de-dollarizing their foreign-exchange reserves, according to Ross Strachan at Capital Economics Ltd. The RBI’s buying trend can be sustained for a number of years in relatively small quantities, as part of a long-term diversification, he said.”
“Heightened geopolitical and economic uncertainty pushed central banks to diversify their reserves and focus on investing in safe and liquid assets, with governments worldwide adding 651.5 tons of bullion last year — the second-highest total of purchases on record, according to the World Gold Council.”
“There seems to be some form of pattern, not just the RBI, that central banks tend to increase gold reserves when the global macroeconomic environment is uncertain,” OCBC’s Lee said. “It’s no coincidence that one of the biggest buyers of gold in recent months was China, which is in the midst of trade tensions with the U.S. and may have been seeking to diversify its trillions of dollar reserves.” India may be following a similar tactic of diversification,” he said.
>> Even this article below that I’ve seen surface in a few places lately and that I had posted on the weekend show isn’t suggesting to buy Gold now because of an imminent price surge from central bank buying, but rather that it is a good discipline to accumulate a small percentage of Gold in ones savings, just like the banks have done, over time.
To think this was some how trying to make an endorsement about a causal relationship to Central Bank buying and price increases is just lazy analysis and missed the point entirely.
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Why The United States Needs To Encourage Americans To Hold Gold
The Federalist – April 25, 2019 – Sean Fieler
“Foreign central banks are acquiring gold at the fastest pace in 50 years, and their purchases are not driven by investment considerations alone. The Central Bank of Russia, 2018’s largest official sector buyer of gold, wants to reduce Russia’s dependence on the dollar, while the Hungarian National Bank noted gold’s increasing strategic importance as underlying their recent purchases.”
“America cannot stop foreign central banks from buying gold or reintroducing gold into the international monetary order. We can, however, adopt policies that will attract more of the world’s gold to the United States and position ourselves to deal with the remonetization of gold from a position of strength.”
“American investors have also been largely absent from the physical gold market in recent years. In 2018, Americans purchased just 28 tonnes of gold coin and bars, less than 1 percent of global mine production. Americans’ lack of investment appetite for physical gold reflects more than our collective faith in the dollar. It also reflects American tax policy that subjects physical gold, even gold coined by the U.S. Mint, to a higher tax rate than many other investments, including some gold derivatives.”
“While discouraging and even prohibiting Americans from owning gold was never good policy, it was at least understandable at a time the Federal Reserve was struggling to maintain parity between the dollar and a fixed weight of gold. But continuing this policy is deeply misguided at a time the dollar bears no fixed relation to gold and other nations, most notably China, are encouraging their citizens to accumulate gold.”
“Not only are central banks buying gold at the fastest pace in 50 years, but central banks are repatriating gold they have long held abroad. In recent years, Germany, Turkey, and the Netherlands have brought their central banks’ gold home. This decision to repatriate the physical metal recognizes that some of gold’s unique attributes are undermined if the metal is held abroad or in derivative form.”
“America’s longstanding gold policy is at odds with these global trends. While the U.S. Treasury holds its gold domestically, current U.S. regulatory and tax policy facilitates the acquisition of gold held both in its paper form and abroad. SEC-registered Gold Exchange-Traded Funds (ETFs), the most popular way for Americans to buy gold in recent years, hold a majority of their gold abroad. The federal government taxes gold futures and related gold derivatives at a lower rate than physical gold, a policy that provides exactly the wrong incentives for America’s investors.”
https://thefederalist.com/2019/04/25/united-states-needs-start-encouraging-americans-hold-gold/
Looks like the miners just put in an important low versus the stock market.
Priced in SPY, GDX just filled its huge Dec. 4 gap…
http://schrts.co/HfRBJZXN
It’s funny to watch gold and the miners get hit hard exactly when Powell starts talking. The offending “bears” had resistance on their side but their days are numbered…
http://schrts.co/JQPIBvIM
I will have to say I will be mildly surprised if last week’s low in gold is taken out this week or next. We are only a couple of bucks away, so it’s obviously more than doable.
The farce of it all is that the day Powell announced an end to QT, gold topped for the cycle. It should have gone up $100 that day.
The GCC:Dow ratio is retesting the low it hit in September ’18. Again, instead of taking off in January, the commodity complex has done nothing but trend sideways to down. The only beneficiary of the Fed’s open mouth policy has been the US stock market, just as it has for the last 7 years. And instead of tanking after January, the USD is on a surreal run higher.
I find it absolutely hilarious that people actually think Powell is worried about low inflation. All he cares about is the S&P500. Low inflation has actually been a massive tailwind/boon for the economy. They printed up trillions and not only has every penny gone into US stocks and housing, money has actually come out of commodities en masse.
As long as the stock market is at or near all time highs, there is no way in hell Powell cuts rates or fires up QE. The commodity complex is the lowest it has been in 40 or 50 years in absolute terms. If he actually cared about inflation, Powell would have fired up the printing presses 4 years ago.
No, it will take the stock market rolling over for the Fed to do any easing. If the market is really a liquidity fiend, it should roll over soon. The only thing that could prevent that is if the ECB and/or BoJ open the spigots wide, which is absolutely possible. The CBs have been playing a huge coordinated game over the last 6 years that has allowed them to have their cake and eat it too. There has been absolutely no downside to their historical money printing. In fact, post 2011, the more liquidity pumped into the system by the ECB and BoJ actually hurt commodities and was a huge boon for US equities and bonds.
I find it absolutely disturbing that so many are foolish enough to believe in the legitimacy and even necessity of central banking.
If GDX/$HUI bounce here, it will paint a possible head and shoulders top on the daily chart. In fact, the declining 50 DMA would be a perfect target for just such a bounce. Hard for me to think that even if the low is in for the miners today, that the next month or two will be anything but a slog. I will be the first person to jump for joy if they bust through the 50 dma and never look back.
I am still bullish, but I just wish for once the HUI would stop making these ugly H&S tops. Nothing easy in this sector, that is for sure.
FWIW, I am sticking to my call for gold having bottomed last week.
I didn’t expect the miners to make a lower low, but they have. They have now tagged the 200 dma. Can we get a v-shaped bounce off that important support? It’s very hard to get excited on days like today, but I am keeping totally open mind.
Kootenay Provides Update on Upcoming Drill Program at Columba Silver Project, Mexico
http://pdf.reuters.com/htmlnews/htmlnews.asp?i=43059c3bf0e37541&u=urn:newsml:reuters.com:20190501:nCNWG6cpsa
OK, to just use some reasoning regarding gold……..I am just thinking outloud, no anger please….I think just like equities did one more monor leg up when sell signals hit…It will be similiar with gold minors…one more leg,a minor one into a low….An intermediaste! low….so, may have 2 or 3 trading cycles up……quite possible at least a 100% gain using triples like Nugt….all stay focused on this goal!…positive outcomes!
This “creepy” tendency for news to line-up with the technicals is what causes Charles Nenner to say that the technicals ARE fundamentals. Whatever the case, wild action surrounding Fed talk is usually reversed in the days immediately following it. So I’d be more concerned if the miners had gone up dramatically and without interference.
More muted Fed-day action is much harder to call based on statistics.
+1
New Democrat Campaign “Ad”
https://www.youtube.com/watch?time_continue=35&v=gjzeNBSZFUo
Who is expecting gold to have a huge run to the upside?
The price of gold is manipulated to minimize demand for gold physical.
The price of gold is set in the paper derivative market, and has little to do with physical demand.
However, it should be obvious that the best time to buy gold is when it is cheap.
(I’m talking for long term holders, not traders.)
When is gold “cheap” ?
Pick a moving average, longer if your out look is really long term, shorter is your outlook is shorter; then whenever gold drops below your moving average you have a measure of “cheap”…….dollar cost average in.
Why should anyone hold gold or silver long term instead of trading?
Because it is then a buy and forget it asset…….one I plan on my heirs using, not myself.