Last week, the world's 'Bond King' Bill Gross continued his message where he proclaimed that stocks and bonds were invariably crap, and that the only true wealth protection right now is in gold and silver. And at the heart of this clarion call is the fact that he believes the central banks are now in an unavoidable abyss where they not only have to continue to print massive amounts of new money, but also buy up every possible paper asset simply to keep the system going.
But in doing this, the central banks have also had to reverse a trend they were following last year when a large portion of them were out buying physical gold on the open market. And since the majority of them are now net sellers of the metal at the same time they are net buyers of paper assets, it is creating a unique dichotomy where instead of simply using their policies to funnel wealth to the 1%, they are also opening the opportunity to funnel wealth down to the other 99%.
Not only is gold an auspicious color, culturally, on the mainland, but the People’s Bank of China has long been a major hoarder of its bullion form. Less so, though, as central bankers from Beijing to Brasilia cut gold purchases - by 40% in the second quarter alone.
While monetary authorities still hold almost 33,000 metric tons of the precious metal, that marks the third consecutive quarterly drop and the longest streak in five years.
And yet, the gold price is rising - up 24% so far this year - even as the biggest buyers back away. What gives? For central banks, waning demand seems partly technical in nature. Weak global exports mean China and other major nations have recorded fewer cash inflows of the kind that normally drive gold purchases. The bigger question, though, is whether G20 leaders are internalizing the three reasons why negativity about the global outlook is driving gold.
One, of course, is genuine concern about a global financial system still working through the trauma of 2008. Bond guru Bill Gross is making the rounds to explain the second: how central banks, including the Federal Reserve, “all have mastered the art of market manipulation” at the same time the Ph.D. economists on which they rely for advice “have lost their way.” In other words, lingering fear from 2008 and too much money chasing too few investments are combining to pump up safe-haven assets, and excessively so. - Barrons