Mining’s old guard needs strong medicine
A new report details subpar investor returns in the mining industry over the last decade, particularly big cap diversified companies which have not adapted to new realities.
As you all know Bangladesh bought 10 tonnes of the gold on sale from the I.M.F. last week. This leaves 88.3 tonnes to sell now. The 10 tonnes that Bangladesh bought cost them around $1,260 an ounce. This tells us that price was not a determinant in the matter. This may surprise many, but it does highlight something about why central banks in general are buying gold now.
The potential, not just for currency crises, but serious foreign exchange structural problems is huge. The international level of cooperation between nations is poor [as we are seeing in the U.S. China faceoff over the Yuan exchange rate against the Dollar] leaving us uncertain at the prospect of unstable currency markets. This has vastly increased the attraction of gold as a reserve asset. As such the price paid for gold in foreign exchange reserves is hardly relevant. When that dark and rainy day comes its use in settling pressing foreign obligations will heavily outweigh what the gold cost. It’s having the gold to pay these obligations or guarantee foreign currency obligations that will matter then.
Why can’t anybody buy anyway?
The I.M.F. has chosen to sell their gold in only two ways;
1. They will sell direct to central banks and announce the sale after the sale is complete.
2. It will sell the remaining gold on the open market through the bullion banks over time in a manner that will not influence the price. This can result in just a couple of tonnes sold right up to 15+ tonnes sold in any month.
China not a Buyer but others would like to
You may be surprised that China has not made a direct bid for the gold on sale from the I.M.F., but there are good reasons why they have not bid. The Chinese central bank, the People’s Bank of China does not buy gold for its reserves direct from any market or auction. It uses an agency to do the buying. This agency can hold the gold for 5 years and then pass it to the P. of C. Only at that point does the central bank declare it has bought it. This anonymity is very important to China. If it were known that China had a serious long-term commitment to buying gold there is no doubt that it would precipitate such a jump in the gold price that the market could destabilize and China not be able to access open market gold.
Because of these considerations of a direct and then announced approach by China to the I.M.F. we doubt very much if China will now be a buyer. They will continue to buy in the open market anonymously.
If the I.M.F. had been willing to sell direct to large institutions [such as China’s buying Agency if they had been a buyer] the gold would have been sold to it and/or to other private funds and sovereign wealth funds very quickly after the initial announcement to sell gold had been made by the I.M.F. In fact, there are many non-central bank institutions that want to approach the I.M.F. to buy the gold, but the two selling routes are inviolate. This means that, with only 88.3 tonnes left to sell it the opportunity to buy gold in a large amount [only by central banks] is slowly disappearing.
A potential buyer could have been India, who made the largest purchase of I.M.F. gold at 200 tonnes. Just after India bought the 200 tonnes of gold from the I.M.F. it stated that it may be a further buyer of this gold. Will they come in again, or will more Asian central banks come in for the first or second time? Well, both time and supply are running out for all central banks buyers.
As the buying has come from Asian countries who know and love gold, the most likely buyers will be from that part of the world, not from the developed world’s central banks. For the West to be buyers, may well be seen as undermining the paper currency world.
At the present rate of selling in the ‘open’ market the I.M.F. will have completed selling in 6 months time. So the clock is ticking. That’s why we expect one or more announcements from the I.M.F. on further sales to central banks soon. These will come anytime from now and over the next 6 months. We would not be surprised is the entire remaining amount goes in one fell swoop, soon. No-one can say who for sure will be buyers.
The IM.F.s’ announcement that I.M.F. gold sales are complete will be a trumpet signal to the market that supplies have narrowed. Then what?
Once gone what will happen to gold demand and supply and the gold price?
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This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment. Gold Forecaster – Global Watch / Julian D. W. Phillips / Peter Spina, have based this document on information obtained from sources it believes to be reliable but which it has not independently verified; Gold Forecaster – Global Watch / Julian D. W. Phillips / Peter Spina make no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness. Expressions of opinion are those of Gold Forecaster – Global Watch / Julian D. W. Phillips / Peter Spina only and are subject to change without notice. Gold Forecaster – Global Watch / Julian D. W. Phillips / Peter Spina assume no warranty, liability or guarantee for the current relevance, correctness or completeness of any information provided within this Report and will not be held liable for the consequence of reliance upon any opinion or statement contained herein or any omission. Furthermore, we assume no liability for any direct or indirect loss or damage or, in particular, for lost profit, which you may incur as a result of the use and existence of the information, provided within this Report.
