The smart money is quietly buying more gold
mrearlygold
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The smart money is quietly buying more gold
The herd is selling gold – so should you be buying, asks Richard Dyson.
By far the biggest source of demand for gold is consumer purchase in the form of bars and jewellery Photo: ALAMY
By Richard Dyson
7:15PM BST 05 Jul 2013
Comments96 Comments
Five or six years ago, few private investors were very concerned about the price of gold. Then came the financial crisis. When major banks were failing, a sense of apocalypse focused investors' minds on the value of physical assets as never before.
But other factors were at work. The evolution of new investment vehicles and trading platforms suddenly made it easy for private investors to buy small parcels of real gold. With "physical gold" exchange-traded funds, for instance, investors buy shares quoted on the London Stock Exchange, where each share is backed by solid gold stored in a Docklands bank vault. You could buy and sell gold as easily as you could blue-chip shares.
As the crisis rumbled on, increasing numbers of private investors used these ETFs to speculate, or as part of their planned portfolios, so that from owning about 800 tons of gold in 2007, total ETFs owned almost 3,000 tons by 2012. The gains enjoyed by the investors during that period were terrific, sucking in yet more money, stimulating further appetite, and so on.
Now the gold price is in reverse and ETF investors are selling their holdings fast. There is a sense in which these investors' actions are self-fulfilling, because although ETFs – big as they are – account for a small proportion of the total, global demand for gold, they play a large part in driving the price.
The World Gold Council (WGC), which collects a range of statistics about the gold market, said ETFs accounted for only 6pc of demand for gold. By far the biggest source of demand is consumer purchase in the form of bars and jewellery, at 72pc of demand.
While ETF purchases and redemptions have a very immediate effect on the gold spot price, this bigger, consumer-driven factor takes longer to feed through. So there is an argument that an ETF sell-off by flighty, equity-style investors will be corrected by the ultimately more resilient demand from people who prefer the old-fashioned hoarding of chains and bars.
The latter demand takes time to feed through, the argument goes, because it is a more complicated supply chain. If you have travelled in an Indian city you might be more susceptible to this view. There the jewellers display updated gold prices in their windows, and sell jewellery by weight from scales ranked along their counters.
And the ETF sell-offs certainly are big. The WGC said in its latest bulletin that ETFs dumped 6pc of their holdings, more than 150 tons, in April alone. That figure has probably grown as the price has continued to slip, by 15pc since the beginning of May. Overall, it is down by more than 30pc from its all-time peak in mid-2011.
There are also some seriously credible professionals currently buying, albeit quietly. One is Sebastian Lyon, the fund manager overseeing Personal Assets Trust, a unique, quoted £600m investment fund whose overriding aim is to preserve shareholders' capital.
The board of Personal Assets is so hell-bent on its cautious, wealth-preserving tack that it boasts about having missed stock market rallies. In its own words, it is a "tiresome holding for lovers of excitement and adventure, who will find it unbearable to see us sitting on the sidelines while the FTSE climbs tantalisingly to its peak".
Personal Assets Trust's excellent performance during the worst of the crisis was largely due to its big investment in bullion – currently more than 12pc of its portfolio. In recent months, as the price has fallen, Mr Lyon has topped up gold holdings. That someone who follows such a cautious mandate, and has done so with such success, is today a buyer of gold is worth noting.
smart money-gold-continued
The herd is selling gold – so should you be buying, asks Richard Dyson.
By far the biggest source of demand for gold is consumer purchase in the form of bars and jewellery Photo: ALAMY
By Richard Dyson
7:15PM BST 05 Jul 2013
Comments96 Comments
Five or six years ago, few private investors were very concerned about the price of gold. Then came the financial crisis. When major banks were failing, a sense of apocalypse focused investors' minds on the value of physical assets as never before.
But other factors were at work. The evolution of new investment vehicles and trading platforms suddenly made it easy for private investors to buy small parcels of real gold. With "physical gold" exchange-traded funds, for instance, investors buy shares quoted on the London Stock Exchange, where each share is backed by solid gold stored in a Docklands bank vault. You could buy and sell gold as easily as you could blue-chip shares.
As the crisis rumbled on, increasing numbers of private investors used these ETFs to speculate, or as part of their planned portfolios, so that from owning about 800 tons of gold in 2007, total ETFs owned almost 3,000 tons by 2012. The gains enjoyed by the investors during that period were terrific, sucking in yet more money, stimulating further appetite, and so on.
Now the gold price is in reverse and ETF investors are selling their holdings fast. There is a sense in which these investors' actions are self-fulfilling, because although ETFs – big as they are – account for a small proportion of the total, global demand for gold, they play a large part in driving the price.
The World Gold Council (WGC), which collects a range of statistics about the gold market, said ETFs accounted for only 6pc of demand for gold. By far the biggest source of demand is consumer purchase in the form of bars and jewellery, at 72pc of demand.
While ETF purchases and redemptions have a very immediate effect on the gold spot price, this bigger, consumer-driven factor takes longer to feed through. So there is an argument that an ETF sell-off by flighty, equity-style investors will be corrected by the ultimately more resilient demand from people who prefer the old-fashioned hoarding of chains and bars.
The latter demand takes time to feed through, the argument goes, because it is a more complicated supply chain. If you have travelled in an Indian city you might be more susceptible to this view. There the jewellers display updated gold prices in their windows, and sell jewellery by weight from scales ranked along their counters.
And the ETF sell-offs certainly are big. The WGC said in its latest bulletin that ETFs dumped 6pc of their holdings, more than 150 tons, in April alone. That figure has probably grown as the price has continued to slip, by 15pc since the beginning of May. Overall, it is down by more than 30pc from its all-time peak in mid-2011.
There are also some seriously credible professionals currently buying, albeit quietly. One is Sebastian Lyon, the fund manager overseeing Personal Assets Trust, a unique, quoted £600m investment fund whose overriding aim is to preserve shareholders' capital.
The board of Personal Assets is so hell-bent on its cautious, wealth-preserving tack that it boasts about having missed stock market rallies. In its own words, it is a "tiresome holding for lovers of excitement and adventure, who will find it unbearable to see us sitting on the sidelines while the FTSE climbs tantalisingly to its peak".
Personal Assets Trust's excellent performance during the worst of the crisis was largely due to its big investment in bullion – currently more than 12pc of its portfolio. In recent months, as the price has fallen, Mr Lyon has topped up gold holdings. That someone who follows such a cautious mandate, and has done so with such success, is today a buyer of gold is worth noting.
smart money-gold-continued
Coin's for sale/trade.
Tom Pilitowski
US Rare Coin Investments
800-624-1870
0
Comments
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
Knowledge is the enemy of fear
Instead, they seem to proclaim it at every opportunity to anyone who they can get to listen, which makes it appear that they are trying to convince others to buy it, perhaps so they can sell their gold to the others at a profit, or else get enough people convinced about the amazing fundamentals of gold that it starts actually going up in value again, so that then they can sell their gold to others at a profit.
Liberty: Parent of Science & Industry
<< <i>The etfs are 6% of the market yet selling of these etfs resulted in a 40% decline in the price of gold? >>
There are other forces at work
". . . the Secretary (of the Treasury), with the approval of the President, may deal in gold, foreign exchange, and other instruments of credit and securities."
Yes, the Governement is authorized to "stabilize" markets with direct involvement. That means they get to determine what needs to be stabilized and how best to stablize it.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
<< <i>The smart money is quietly buying more gold >>
One of the best oxymoron posted recently
I admit I have been buying gold recently and I'm about as far away from smart money as you can get
<< <i>The etfs are 6% of the market yet selling of these etfs resulted in a 40% decline in the price of gold? >>
How about the Comex futures volume as well as the LBMA which handles the bulk of the world's gold trading? The gold ETF's are a blip vs. the paper markets.
The Comex futures market dumped the equivalent of 400 tonnes of gold within a few minutes/hours during the April crash. Clearly that wasn't price discovery or
getting the best price for your 130,00 - 100 oz futures' contracts. No real surprise it resulted in a large price decline. Ditto for the May smash as well.
<< <i>
<< <i>The smart money is quietly buying more gold >>
One of the best oxymoron posted recently
"This is it!"
Gold commercial short to long ratio fell to another all time low at 1.12. That matches silver's ratio this week which climbed from 1.06 to 1.12. When's the last time these two matched in nose bleed territory? Gold comm net shorts dropped to 23K. Silver net shorts at 7.8K. This past reporting week saw a 13.5K contract shift to the long side by commercials. Managed money took the brunt of that with 9K net short to bring their gross shorts to a record 81K. They also cut deep into their gross long position Another week like this and commercial swap dealers will be net long gold. "Other reportable" large specs are now net short gold for the first time in a long while. Obviously, the large specs (hedge funds) unloaded longs and added a lot of shorts during the bounce from $1179 to $1267 last week. They continue to be the smarter money....though for how much longer when the banks continue to pile to the long side.
The monthly bank participation report came out today and shows the 4 large reporting US banks to be a net long 44,717 gold futures contracts. That's quite a jump from the June report when they were long 29,622 contracts. In May those banks were 16,781 net short. Before those last 2 reports the big banks have been very much net short gold since 2008 or earlier.
This is what is guiding the smart money:
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
chases trends and gold was in an incredible uptrend for 10 years.
Those traders/investors buy futures which offer high leverage and very low transaction
costs. The public followed along in ETF's, and to a lesser degree, physical gold.
The hot money is gone now. Either took profits in the long 2 year topping process, or
stayed too long and got flushed out.
Either way the hot money is gone, probably trading oil or stocks now.
Interesting chart. Gee, I wonder what could possibly happen next?
I knew it would happen.
<< <i>"Give me control of a nation's money and I care not who makes the laws." - Mayer Amschel Rothschild, 1744-1812
Interesting chart. Gee, I wonder what could possibly happen next? >>
What happened to all the "imminent inflation" BS that was bantered about 3-4 years ago?
Knowledge is the enemy of fear
Let's examine the chart in question. The "monetary base" has almost quadrupled since '08. If the money velocity is near zero, where do you think the money's been going?
It seems to me that the tbtf banks are simply soaking it up and "using" it to repair their balance sheets. It's free money for them, but it ALL comes back down on taxpayers in the end.
I've never really understood why a private banking cartel should be involved in money creation for any sovereign country. It seems like such a contrived arrangement.
Where do YOU think that all the money has been going? And, how does it get there?
I knew it would happen.
<< <i>
<< <i>"Give me control of a nation's money and I care not who makes the laws." - Mayer Amschel Rothschild, 1744-1812
Interesting chart. Gee, I wonder what could possibly happen next? >>
What happened to all the "imminent inflation" BS that was bantered about 3-4 years ago? >>
The chart clearly answers your question - the money is not moving. The imminent inflation (from money supply increases) is 100% dependent on that money getting into the "velocity" system. The banks holding it are keeping 87% of it on deposit with the FED where it remains stagnant. Better paying, rising interest rates should (without FED intervention of course) flush it out to the public in the form of better paying debt. I wouldn't be surprised to see a lot of it take the form of mortgages.
Most of us realize that while the money supply has been greatly increased, it has not yet been released to the inflating, public spender. Spenders are the heart of inflation. Until they have more money in their hand (or a higher line of credit) the inflation will be kept in check. The public will not spend more (and drive up prices) until they have more to spend.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
Hummm...$85 BBBBillion/month is hard to hide but it doesn't seem to be visible to us mushroom people. Maybe it disappeared into the big bank balance sheets so they could stimulate commercial lending (or finally let the account mangers retire to Costa)? Maybe it was sent to foreign countries so they will go along with the plan (and that is gone money)? Maybe it was distributed to Costco or Walmart or McDonalds to stimulate part time job hiring (life is good)? I didn't get any of it, how 'bout you?
<< <i>"Where do YOU think that all the money has been going?"
Hummm...$85 BBBBillion/month is hard to hide but it doesn't seem to be visible to us mushroom people. Maybe it disappeared into the big bank balance sheets so they could stimulate commercial lending (or finally let the account mangers retire to Costa)? Maybe it was sent to foreign countries so they will go along with the plan (and that is gone money)? Maybe it was distributed to Costco or Walmart or McDonalds to stimulate part time job hiring (life is good)? I didn't get any of it, how 'bout you? >>
everyone "in the game" got some of the money as their asset values were prevented from cratering, while those with "solid money" metals got big profits as metals prices inflated
edit: also, some of the money went into bonds, but I didn't get none o' dat!
Liberty: Parent of Science & Industry
$85 billion/month and it went only to the banks and hasn't moved since.
Free money for the bankers. Nuthin' else but.
That's one heck of an economic policy, being run by people who have no business "creating money". A really screwed-up way to mis-use people's energy & ingenuity!
But that's only looking at one side of the ledger, i.e. - the crazy way they call debt money. The other side of the ledger is worse, when they continue to spend way-over budget and waste a large percentage of the money they spend.
I knew it would happen.
I think the money flowed into "valuations" of everything at different rates; for a while, we were geniuses for having bought metals early, but now other assets are catching up and metals are going back down as the money flows amongst assets. IMO, if an asset increased in value, then the owner got some money (on paper) and if he cashed it out, he locked in a profit. Spin it any way someone wants, they are entitled to their own opinions but the past and current valuations are fact.
Liberty: Parent of Science & Industry
and speculation that big banks do. It doesn't go to consumer loans. Hence we've seen the price of bank favored assets climb quickly since October. Doesn't everyone feel richer
because the S&P is up since then?
<< <i>The money base is up around $600 BILL since the start of October. That's where a lot of that $85 BILL/month went. That money in bank reserves is used to backstop the trading
and speculation that big banks do. It doesn't go to consumer loans. Hence we've seen the price of bank favored assets climb quickly since October. Doesn't everyone feel richer
because the S&P is up since then? >>
When lending pays a better return it will go to loans. This will occur when interest rates are high enough or when assets being traded are low enough. Make no mistake, it may be on deposit with the FED, but the banks decide when to change that arrangement, not the FED.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
Knowledge is the enemy of fear