Friday, June 22, 2018

Central banks getting their wish as retail demand for gold crashes allowing them to accumulate

If you go back to a released memo from the 1970's, one of the primary purposes of the gold futures market was to dissuade common people from moving into the metal as the dollar devalues.  And here in 2018 we still see the fruits of their labor as the price continues to be depressed through massive amounts of short contracts.

4. THE MAJOR IMPACT OF PRIVATE U.S. OWNERSHIP, ACCORDING  
LIMITED OFFICIAL USE  
LIMITED OFFICIAL USE  
PAGE 02 LONDON 16154 02 OF 02 102035Z  
TO THE DEALERS' EXPECTATIONS, WILL BE THE FORMATION OF A SIZABLE GOLD FUTURES MARKET. EACH OF THE DEALERS EXPRESS- ED THE BELIEF THAT THE FUTURES MARKET WOULD BE OF SIGNIFI- CANT PROPORTION AND PHYSICAL TRADING WOULD BE MINISCULE BY COMPARISON. ALSO EXPRESSED WAS THE EXPECTATION THAT LARGE VOLUME FUTURES DEALING WOULD CREATE A HIGHLY VOLATILE MAR- KET. IN TURN, THE VOLATILE PRICE MOVEMENTS WOULD DIMINISH THE INITIAL DEMAND FOR PHYSICAL HOLDING AND MOST LIKELY NEGATE LONG-TERM HOARDING BY U.S. CITIZENS.  
5. AS TO FUTURE DEMAND BY U.S. CITIZENS FOR GOLD, MOST DEALERS DID NOT FORESEE DEMAND FOR PHYSICAL HOLDING AS SIGNIFICANT, WITH THE EXCEPTION OF AN INITIAL SURGE DURING THE FIRST 2 TO 3 MONTHS OF THE YEAR FOLLOWING DEREGULATION THEY DID NOT FEEL THAT U.S. CITIZENS, ON THE WHOLE, WERE PSYCHOLOGICALLY PREPARED TO SWITCH FROM SMALL SCALE GOLD COIN PURCHASES TO LARGE SCALE, LONG-TERM BULLION HOARDING. SEVERAL EXPRESSED THE VIEW THAT THE DEMAND FOR COINS (AFTER THE INITIAL SURGE) WOULD MOST LIKELY BE SUCH THAT IT COULD BE MET FROM WITHIN SHOULD THE U.S. DECIDE TO MINT GOLD COINS FOR SUCH PURPOSES. SPIERS LIMITED OFFICIAL USE - Wikileaks

In today's market trading, most investors buy on price momentum rather than the traditional way of fundamentals, technicals, and value.  And this is one of the biggest reasons why cryptocurrencies saw parabolic moves in 2017, while gold and silver have done just the opposite here in 2018.

But ironically gold itself has not lost its true value, and is being bought by one global entity at record levels.  And thanks to the concerted effort to manipulate the price going back as far as 2011, it is allowing central banks to buy huge quantities at discount prices while the retail investor ignores it like the plague.
Central banks in emerging-market nations are likely to keep adding gold to their reserves, says BMO Capital Markets. Analysts offered this view after citing a Bloomberg news report that the Bank of Russia added another 1% to its gold holdings in May, taking its total to 62 million troy ounces. “This continues the trend over the past few years where Russia is selling U.S. Treasuries and allocating more to gold,” BMO says. “We expect global central banks, particularly those in emerging markets, to continue to add to gold holdings at a steady pace over the coming years amid efforts to diversify their reserves.” - Kitco

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