Gold’s bull market called into question by bank analysts

In the Lead: “Sachs and the Citi”

Picking up right where we left off last week, we now bring you a little more Bundes Bull myth-busting content, courtesy of a…German banker. Commerzbank’s Carsten Fritsch addressed the (non-) issue of the Bundesbank moving some of its gold reserves back onto German soil and made some noteworthy observations on Deutsche Welle. First, Fritsch noted that — sizeable as they might be at 3,400 tonnes — the country’s gold reserves represent little more than “symbolic” value, especially when seen in the light of Germany’s five trillion euro-large sovereign debt. As well, the gold tonnage is not especially large, considering that individual Germans are estimated to own as much as 7,500 tonnes of the metal.

More importantly, Fritsch launched a broadside on the conspiracy theorists’ fatally flawed arguments that the move was somehow indicative of a huge amount of missing bullion and/or of a terminal distrust of the Fed or fear of U.S. collapse. It was in fact, partially the Bundesbank’s own fault that such wild fairytales were born, to begin with. The central bank did not conduct recurring audits of its golden stash. As for the Zero Hedge style reality-challenged claptrap that implies that Germany was somehow “denied access to its gold because it isn’t there to begin with because it has all been lent out,” The Bundesbank’s Carl-Ludwig Thiele (a board member) remarked in a Frankfurt press conference that Everywhere we were welcomed with open arms. We were shown the inventory lists and inspected individual gold bars, which were then crosschecked with those lists.” Sounds like an open and shut case to us, folks.

In other government-and-gold-related news, on Monday, the Indian government, unsurprisingly, enacted a 50% hike on the duty being levied on imported gold. Effective immediately, the tariff on imported bullion was raised to 6% and it will be “reviewed” on the condition that there is a decline in overall inflows of the yellow metal into the country. Indian officials had indicated for several weeks now that they intended to address the issue of swelling current account deficits with an appetite-curbing measure aimed at the country’s second-largest import item (after oil).

It is too early to conclude whether the measure will prove effective or whether it might give rise to higher levels of clandestine inflows of gold. The bottom line however is that the country’s economic stewards appear to be resolute as to the necessity of doing something about the identifiable causes of the current account gap. According to Bloomberg News, “about 80% of India’s current-account deficit, the broadest measure of trade, tracking goods, services and investment income, is due to gold imports, according to the Reserve Bank of India.”

In March of last year India also doubled the tax on the purchase of gold coins and bars but was not able to put too much of a dent into the demand that arose during the third quarter. Nevertheless, overall Indian gold demand fell by 28% in the one-year period ending in September 2012. As for the current tariff hike and its impact, “consumption and imports will fall definitely,” Bachhraj Bamalwa, Chairman of the All India Gems & Jewellery Trade Federation, said yesterday. It remains to be seen the extent of the measures on the final 2013 Indian gold import tonnage tally will be — we have many months left to go before that figure becomes known.

Also on Monday, bankers at Citigroup scaled back their 2013 gold forecast by 4.2% to $1,675 per ounce (gold was seen by Citi at an average price of $1,653 per ounce in 2014). Among the reasons given for the bearish turn in their forecast, Citi analysts cited gold’s recent struggle to sustain itself beyond the $1,800 technical resistance level despite seemingly conducive conditions such as record low interest rates and fiscal uncertainty has cast doubt onto the bullish case for gold among the investor community.”

Citi’s market observers also made note of the fact that, of late, “Investors appear to be losing faith in the bull story for gold, if net managed money positions on Comex provide a reasonable guide. Net-long managed money positions on Comex have dropped by 50% since the start of October 2012. Positive flows for exchange traded fund investing — an important gauge of investor sentiment — has also stalled since that month, with 17 metric tons of redemptions seen so far in 2013.”

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