Gold searching for support after fall

In the Lead: “A New Old Standard? It’s…Academic”

Just a couple of days ago, the SPDR Gold Trust’s (GLD) asset values overtook those of the S&P 500 SPDR – a development characterized as “senseless” and one that can happen only after “periods of euphoric rises” by economist Dennis Gartman. WFC’s Mr. Cronk also observes (with growing) wariness that some investors are over-allocating assets to gold at rates some two to four times higher than the conventionally advisable 10%.

Meanwhile, the traditional pillar of gold’s demand – that which comes from jewelry fabrication – is still relatively flat on its back after having scraped along at 23+ year lows for some time now. Without once again delving into the foggy statistics related to actual tonnage demand that we brought you in recent days on the subject of India, it is worth noting that Reuters has found some fresh news on this front.

Reporters who polled the head of that country’s leading gold trade body (the BBA) envisages dampened festival-related gold demand in 2011 (just weeks ahead, literally) if prices remain at or near present levels, but still expects imports to surpass the 1K tonne level. A separate Reuters poll on the estimates for 2011 imports conducted with the largest firms in the business of gold in India yielded other results.

The median of 825 tonnes projected is not only not more than 1K tonnes; it is 133 tonnes under what the 2010 import tally was reported as having been- again, if figures ever obtained from India are reliable to a close enough extent to mirror actual, on-the-ground market reality.

Meanwhile, ETF gold holdings in the GLD lost 2% on Tuesday and finished the day with 1,259+ tonnes in balances. On the other hand, the (brave) buyers that made a foray into the turbulent waters of this gold market did so largely on a knee-jerk reaction basis to Japan’s overnight downgrade by Moody’s (still in the…mood to cut, cut, cut) and in anticipation of some display of largesse on the part of the Fed following its Jackson Hole hole-up.

In a video segment recorded with last week we alluded to the possibility that given current gold values and given the unraveling situation in the Old World, some of the region’s hard-pressed-for-cash central banks might need to “bring” some of their gold to the market, in one form or another. Well, it appears that – at least for one German minister – that scenario is not only not far-fetched, it is possibly called for. The Saudi Press Agency reported last night that German Labour Minister Ursula von der Leyen has called on cash-strapped Eurozone member countries to use their gold reserves as collateral for any future bailouts.

Ms. Ursula is the second German lawmaker to call for such measures in recent weeks, reflecting the souring mood of the German electorate as regards the bailing out of the PIIGS. The idea was rejected by Chancellor Merkel at this point. However, Italy, Portugal, and Spain are all among the top 20 central bank-based holders of bullion globally and their funding needs are, shall we say,dire at the moment.

Some of the above conditions and the recent market developments in gold have also promptly reignited the ever-popular topic of the resumption of some kind of gold standard. Lord Robert Skidelsky, Professor Emeritus of Political Economy at Warwick University notes that bringing back the gold standard is not in the cards (sorry, Mr. Paul). His reasons? Well, A) there isn’t enough gold to do so with B) going back to a pure gold standard would be so deflationary and cause a depression of severe magnitude C) the “anchor” for the world, at the moment, remains the much-maligned US dollar as alternatives to it are invisible. Professor Skidelsky does allow that the possibility of pegging the value of currencies to a basket of commodities could have some merit but that such does not imply a de facto return to the “golden days” after all.

In the interim, please make sure you have a nice day – free of quakes and/or hurricanes, at least in the markets, hopefully…

Jon Nadler is a Senior Metals 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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