Gold prices possibly beginning to stabilize

This, according to Hans-Guenter Ritter, managing director of German precious metals firm Heraeus. Kitco News’ Daniela Cambone writes that Mr. Ritter’s firm “watches prices closely because the company is in a manufacturing business in which precious metals are used. He said at this time industry consumption does not reflect the higher prices of gold.” On the other hand, investment has become the major theme around the precious metals for the past couple of years,” Ritter said, noting that is a different environment. “It is always a risk when the interest is coming too much from one side of the market.”

Another side of the market (along with a substantial amount of mine de-hedging over the past half a decade) that has helped shape the current value structure of the gold market is the slowdown in central bank disposals. The annual sales period that ended last night witnessed just under 100 tonnes of official sector gold coming to market. However, a slowing in sales is not tantamount to a shopping spree for fresh, major gold additions to said institutions’ balance sheets (even if certain newsletters and even some trade groups would like us to believe that such is the case).

Perhaps it was an honest error, perhaps a bit of over-optimism amid the bullishness of June; nonetheless, the World Gold Council’s assertion that Saudi Arabia doubled its reserves this summer drew a statement of…‘correction’ from…Saudi Arabia itself. “‘We did not buy new gold, this was just a merge and reclassifying assets, this gold was under different accounts and was brought under one account,' Muhammad al-Jasser, the Saudi Central Bank Governor, told Reuters declining to give more details.”

“In June, the WGC data indicated that Saudi Arabia lifted its reported reserves to 322.9 tonnes from 143 tonnes, making it the world's sixteenth-largest holder of gold.” As previously mentioned, the official sector will continue to buy and sell gold as internal policies dictate. Sometimes, a shift or reclassification such as the Saudi one can be misinterpreted as a de facto purchase. Hopefully, that was the case here. Hopefully.

The only consistency in this niche has been the inconsistency of policies; this, as there is no ‘ideal’ level of gold holdings that is appropriate for everyone across the official board. Certainly, official sector policies will not suddenly take the advice of hard money newsletters, mining company heads or that of trade organizations created to stimulate gold demand.

Take China, for example. Please. One adviser to the country’s central bank said this morning that China will, indeed, “continue to shift” its huge foreign reserves into non-dollar assets. However, the core of its holdings, and the largest slice of the Chinese reserve pie, will remain…the US dollar and related instruments. No mention of gobbling up hundreds of tonnes of bullion.

Emphasis is to be added to the word “continue” in the above, as official sector asset reallocation plays are a process, not a sudden rash decision-based exit or entry out of, or into a particular asset. As regards gold, the Chinese have made it eminently clear that – for the time being – a 2% earmark in the metal is sufficient, and that no large-scale purchases are on the drawing board, for reasons that have to do with price distortion and impaired liquidity. Mind you, as reserves continue to grow, the simple maintenance of the 1.6 to 2.0 percent level in gold implies modest, but on-going (and likely domestically-sourced) gold acquisitions. It’s all well.

For the moment, China has some bigger fish to fry –make that some bigger crabs to boil – as in the excellent Andy Xie Bloomberg piece on the current (and future) real estate market conditions over there. So, for the moment, does the US, as regards the dreaded double-dip probability game. Veteran economist Henry Kaufman’s double-dip-oriented words are worth a double, double-take.

Have a nice (data-laden) week ahead.

Jon Nadler is a Senior Analyst at Kitco Metals Inc. North America

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About the Author
Jon Nadler Jon Nadler is a Senior Analyst at Kitco Metals Inc. North America
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