Saturday, January 24, 2015

John Rubino (Dollar Collapse) Confused on Gold Price

An article by John Rubino on Dollar Collapse (cross posted on Zero Hedge) leaves me wondering how much he knows about the pricing of Gold (and questioning why Zero Hedge would perpetuate misleading information, yet again).

He highlights a chart which shows the spot price of Gold in Euros soaring over the last month and then claims:
"Yesterday the European Central Bank acknowledged that the currency it manages is being sucked into a deflationary vortex. It responded in the usual way with, in effect, a massive devaluation. Eurozone citizens have also responded predictably, by converting their unbacked, make-believe, soon-to-be-worth-a-lot-less paper money into something tangible. They’re bidding gold up dramatically."
He implies that the rising Gold price in Euros is directly a result of Eurozone citizens rushing for the metal and bidding the price up. At first I thought it was a slip, but he then repeats his sentiment later in the piece:
"Right now, the fear is country-specific. Europeans start to distrust their government and shift to gold, without necessarily questioning foundational concepts like big, activist government and central bank management of fiat currencies. They still assume that the euro would be fine if managed correctly."
The problem with these comments is that the spot price of Gold in Euros is not directly determined by citizens of the Eurozone. While there is no single market for pricing Gold (either in physical or "paper" form), the spot price is typically determined from the exchange of US Dollar denominated contracts on futures exchanges (there are some exceptions such as recent introduction of yuan-denominated Gold futures contracts, but even Gold futures on the Eurex are priced in USD). So the Euro price of Gold is determined by the price of Gold in US Dollars divided by the EUR/USD exchange rate.

To give you a calculation as an example...

US$1294oz / 1.1252 (EUR/USD) = €1155oz.

So the soaring price of Gold in Euros (that John Rubino focuses on) is not a result of Eurozone citizens in a Gold buying frenzy stocking up on the shiny metal (though traders in Europe could could contribute by buying Gold contracts or selling Euros), but rather was caused by Gold strength in US Dollars and Euro weakness relative to the US Dollar.

Much the same as Gold strength in US Dollars and Australian Dollar weakness relative to the US Dollar has resulted in a nice price surge locally (definitely not a result of Australians rushing to buy Gold):

On a side note, it's time to don your Gold A$1600 hat!

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Monday, January 19, 2015

Germany Repatriates 120 Tonnes of Gold in 2014

"When all the inspections had been concluded, no irregularities came to light with regard to the authenticity, fineness and weight of the bars."
- Bundesbank

Big news from Bundesbank released only minutes ago... they've repatriated 120 tonnes of Gold in 2014 with 85 tonnes coming from New York and 35 tonnes from Paris. Conspiracy theorists eat your heart out!

Bundesbank confirmed the repatriation is proceeding smoothly, that operations are running to schedule and that there were no irregularities with the Gold delivered. Furthermore, 50 tonnes of the Gold from New York was melted down and recast into London Good Delivery standard bars.

As I've covered this topic so extensively in the past this won't be a long post (and is likely to be covered in more detail by Koos Jansen on his blog in a short while).

Since announcing the repatriation skeptics have been coming up with any and every conspiracy theory they can dream of in relation to Germany's Gold and why they decided to shift it so slowly (674 tonnes over 7 years) and why only 5 tonnes were moved over 2013 from New York. Here is my coverage of the topic to date:

After Zero Hedge misinterpreted the Bloomberg article (see last link of above 3) on Germany's Gold repatriation, they implied there was a change to the schedule (i.e. that they'd stopped)... a narrative that they've continued propagandising over several articles:
Zero Hedge on 23/06/2014 - "Germany appears to have given up entirely in its attempt to recover gold which simply is not there..."

Zero Hedge on 16/11/2014 - "Germany was pressured to keep its gold in the US after a "diplomatic" line of communication was opened, most likely the result of the Fed making it all too clear clear to the Bundesbank not only who runs the show, but what the assured failure to repatriate Germany's gold would mean for "price stability." Which has, for now at least, ended Germany's gold repatriation demands."

Zero Hedge on 21/11/2014 - "Well, today we know the answer: it wasn't Germany who was secretly withdrawing gold from the NYFed contrary to what it had publicly disclosed. It was the Netherlands."

Zero Hedge on 29/11/2014 - " is now abundantly clear that the "logistical complications" excuse used by Germany to halt its own gold repatriation program was nothing but a lie to cover up what, as Deutsche Bank explained earlier this month, was an escalation of "diplomatic difficulties" between the US and Germany, one in which Germany has folded, if only for now."
After it was finally revealed in late 2014 that Netherlands wasn't responsible for the entirety of Gold withdrawals from the FRBNY, they were finally willing to admit there was some small sliver of hope that Germany's Gold repatriation might be ongoing:
Zero Hedge on 30/12/2014 - "The question is who: is it now the turn of Austria to reveal in a few weeks that it too, secretly, withdrew some 40+ tons of gold from "safe keeping" in the US? Or was it Belgium? Or did the Dutch simply decide to haul back some more. Or did Germany finally get over its "logistical complications" which prevented it from transporting more than just a laughable 5 tons in 2013? And most importantly, did Germany finally grow a pair and decide not to let "diplomatic difficulties" stand between it and its gold?"
While I'm a daily reader of Zero Hedge, they are a great aggregator of various content and are ahead of the curve on some news events and finance themes, their Gold narratives leave something to be desired. How will they admit they were wrong about the German Gold repatriation over the last 6 months? Probably with a heavy dose of spin and cynicism that Bundesbank is being truthful about the large and unexpected tonnage repatriated from New York.

Beware of sensationalist Gold market commentary. Looks like Germany's Gold repatriation is alive and well and will likely be completed by 2020 as I expected it would be.

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Monday, January 12, 2015

If You Don't Hold It, You Don't Own It

'If you don’t hold it, you don’t own it' is a popular meme and catch phrase used by physical precious metal owners who like to encourage others to own it likewise (avoiding fraud of the 'paper' markets)... but what are the risks of owning physical?

There is no risk free way of owning precious metals (or any asset for that matter) and safe storage is the key factor when dealing with physical.

There's risk holding precious metals in safe deposit boxes. 

There's risk holding precious metals in unallocated form. 

And there's also risk holding precious metals at home.

As I pointed out in a recent article (7 Ways To Keep Your Gold And Silver Safe), there are burglars willing to turn a house upside down if they think you have something of value: 
"A recent thread on Silver Stackers highlighted the care you need to take if deciding to store your precious metals at home, where during a break-in thieves had emptied potted plants, pulled out electrical sockets, removed picture frames, moved furniture and more."
There have been four home burglaries reported by members of Silver Stackers in Brisbane over the last 18 months. They may not be related, but some of them had factors suggesting the individuals were targeted due to known ownership of precious metals. In one case a 500kg safe was broken into with heavy duty tools (cutting torch and jackhammer), equipment that a thief is unlikely to carry on them for a random burglary. Another case had the safe 'pried open like a tin can'. Bleach was sometimes used at the crime scenes to cover their tracks, making any DNA and other incriminating evidence difficult to collect.

For some of these stackers it was a near complete loss of their life savings or investment.

It's a horrible way to lose one's life savings or even a portion of one's asset portfolio (commiserations to those affected if you're reading). You'd have to be the scum of the earth to do that to another person, but investors need to remember these cretins are out there and make sure they're not an easy target. If you're going to keep precious metals at home, make sure you take precautions when trading e.g. don't arrange deliveries to or pickups from your home address, don't transact in public where you might be easily followed home and be wary of providing any details that might be easily linked back to your home address (e.g. does searching for your full name or phone number produce an address in the White Pages or Google?).

Some individuals may ignore this risk because they believe their home and contents insurance policy will cover their losses, but most contents insurers have specific limits in place to reduce the payout for any bullion stolen. Some (Australian) insurer examples are below (my interpretation of their policy, check with the insurer for clarity and any changes over time):

AAMI (Limited to $500) - Uncut and unset gems, gold or silver nuggets, bullion and ingots (not jewellery). 

Allianz (Limited to $2000) - Item containing gold and/or silver. We will not pay more than $2,000 for any one item, pair, set or collection unless they are separately listed in the current schedule as specified contents items. 

CGU (Limited to $20,000) - Doesn't mention bullion by name, but potentially falls under a 'collection/set of contents items' (which is limited to $20,000). 

QBE (Limited to $500) - Cash, bullion or negotiable securities. Up to 1% of the sum insured to a maximum $500. 

SGIC (Limited to $2500) - Collections – cards, stamps, uncirculated mint issue or proof coins or notes, ancient or rare coins or notes, sovereigns and bullions. 

YOUI (Doesn't cover) - Contents exclude: unset gemstones, gold or silver bullion or coins, cash or other negotiable items. 

Some of these companies (or others not covered above) do offer the ability to increase the limits or list special items (incurring additional premium), however that also means you need to tell your insurer exactly what you keep at home.

If you're not going to diversify your assets, at least make sure the location of those assets is diversified. If you don’t hold it, you don’t own it? If you do hold it (in one place), you may not hold it for long.

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