What has the Bank of England done with 1,300 tonnes of gold?
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While perusing the BofE’s new website application, which allows you to take a virtual tour of the Kingdom’s gold vaults, Macleod learned that in June the bank was holding 400,000, 400-ounce gold bars. As a veteran precious metals adviser, Macleod noticed a discrepancy between this figure and the bank’s year-end accounting from February which reported 505,000 bars in storage.
“Roughly 100,000 bars seems to have disappeared from the February 28 when the annual report was dated and some time in June,” Macleod told Keiser. “So where has this gold gone?”
The former investment manager believes the BofE has been flooding the gold market in an attempt to suppress prices.
This actually makes sense!
I had suspected Bundesbank of intervening due to an “off-hand” remark by Jens Weidmann to Cyprus: “Why not sell out of your gold reserves.” Now the tiny Cypriote gold reserve of about 10 tons is far too small to make a dent in anything, but the remark showed an interest which should in theory be to the detriment of the Bundesbank and its vast holdings of gold – that is undermining the price of your own assets.
Following the price of gold we can probably nail the time more precisely. In June 2013 the price dropped from 1400 USD/oz to about 1225 USD/oz – or about an eighth – has since recovered some to 1325 USD/oz as we speak.
Raw materials exporters currencies such as AUD, ZAR and BRL (and to some extend CAD and RUB – but they are probably more oil dependent than metal dependent) have all dropped relative to USD and EUR.
NZD has dropped, but seriously and that is probably more of a timing adjustment. That is: There is some indication as to a metallic raw-material thing, as New Zealand is geologically far too young and volcanic to have really interesting metals.
Gold and silver supply side sell off
Gold, silver and copper being in the same group of elements, thus sharing a lot of chemical properties and found to some extent in the same ore. So that could explain a supply side sell off. A cross reference to nickel, zinc reveal some “wave-action” of late, nickel being the worst of less than 5 percent; but otherwise the trend is steady down for base metals as a group. Significantly lead (often with silver as an “impurity”) does show a somewhat steady increase of ½ percent. So it probably is not a raw material supply “thing”.
At demand side it is not, as the base metals show a steady price decrease over the last 3 years as Chinese growth has slowed down.
It is not a geographic factor either, as Australia, Canada, Brazil and South Africa are also food producers of some renown with food prices generally moving up. It will however in those countries give some social upheaval, as the moneymaking groups of the population shifts from mining to agriculture – as we have seen.
Leaving out all the pundit philosophies of supply and demand plus the grand order of the universe we are forced to recognize a purely financial disorder.
It must be a central bank selling off gold with a overrun on silver. The question is which? Fairly certainly it is not the FED – on the contrary if anything.
No, what has probably happened is the mad scramble into metals – above anything precious – away from bank deposits and similar investments in China and India. This leads to a rise in gold price (as seen generally over the last three years) and a sell off of USD both in China and India, but probably mainly in offshore banks in Europe and USA.
US securities and Sovereign bond sales
This leads to a sale of US securities and sovereign bonds that will raise interest rates and depress the exchange rates of the USD. It is possibly a supplementary underlying reason for the FED’s program of buying of securities. The depression of the USD is not that big a concern to the USA, as the drop in imports have take the inflationary pressure off that kettle, secondly the food prices will adjust upwards to negate selling exports to too low a price.
So the indicators point to Europe.
A sell off of German sovereign bonds? Come on! This is serious business. France and Italy have other fish to fry than a skyrocketing gold price. Raw material prices are a matter of indifference to those countries, as major construction work and industrial expansion are not high on the agenda. Anyway, there is always the problem of oil price from Russia to occupy thoughts in the few idle moments European banks leave for calm reflection.
This leaves Britain as the remaining gold hoard of any significance. The GBP has been under pressure this last month dropping with respect to the EUR almost as badly as the USD. A large sell off of securities is probably the last thing the Deranged Lady of Threadneedle Street needs – with its accompanying very nasty raises in interest rate and the grim spectre of bankruptcy wheezing lewdly in broken Greek.
So the Bank of England has every motive in indictment to do something drastic about the gold price. The tonnage does seem rather on the high side, but generally the report on mining.com is confirmed also by the short term stabilization of the GBP with respect to the EUR. The last thing the UK needs now is a general bank run. Even the timing of the latter part of July 2013 seems quite near the mark.
As to prognosis? Well. Underlying everything is a gross over-evaluation of metals by a factor of – say 4 – because the USA and Europe are not really desperate for raw materials these years – and there is a lot of scrap around the can be profitably recycled. So we are with raw materials in somewhat the same situations as we are on the housing markets: The adjustment of asset prices (tied up in storage or unsellable property) will fall as banks collapse. It is Tobins-Q:
New houses will be built as long as the cost of doing so is lower than the second hand price.
As metallic raw materials are rather unimportant in the overall economic picture of the USA and Europe, the decay speed of raw material prices is of minor concern – especially compared to the real distress of the finance sector.
In China it won’t really matter either, as the collapse of the real economy and their banking disaster is pressing:
Taken from Neue Zürcher Zeitung, but the Guardian had a similar piece:
China is intending to take an inventory of the debts of local governments that has financed completely useless construction with loans – and without anything approaching a tax-base. It will however bring things to a grinding halt, so demand for metals is going to be low. And we will have a lot of insolvent speculators looking at mountains of iron ore without any value – and nobody daring to call the bluff.