lunes, abril 13, 2015



More Reasons To Believe In Gold

by: Power Hedge  

  • There have been a few developments recently which could prove bullish for gold.
  • Foreign central banks resumed repatriating gold, with The Netherlands and Germany repatriating a total of 207 tons last year.
  • The official numbers from the Federal Reserve state that only 177 tons were repatriated last year. It's uncertain what is causing the discrepancy but it could indicate market tightness.
  • Goldman Sachs predicts that gold production will decline going forward with the world's gold reserves declining to zero in approximately twenty years.
  • This could tighten the gold supply-demand balance and thus push prices up.
Over the past several weeks, there have been a number of developments globally that could prove to be quite bullish for gold. However, the market price of gold has not yet moved to reflect this reality.

Instead, gold continues to trade in the same range that it has held since the price of the yellow metal plummeted back in 2013. This could represent an opportunity to investors to begin or continue accumulating gold.

In a comment to an article last year, I stated that Germany has been attempting to repatriate its gold that has been stored at the New York Federal Reserve for safekeeping. Germany was not alone in this. On November 21, 2014, the Netherlands announced that it has secretly repatriated 122 tons of gold that had been stored in the vaults of the New York Federal Reserve. During the same year, Germany managed to successfully repatriate 85 tons of gold from the New York Fed according to the Bundesbank's own press release. However, it is interesting that the Federal Reserve itself stated that only 177 tons of gold left its vault in all of 2014. This chart, from Zero Hedge, shows the amount of foreign-owned gold on deposit at the Federal Reserve according to the institution's own statements:

(click to enlarge)

The withdrawals by Germany and the Netherlands alone should have reduced the Federal Reserve's foreign gold on deposit by at least 207 tons. But for some reason this did not happen.

While it is uncertain exactly what this means at present (if anything), it could be a sign that the physical gold market is much tighter than the market believes.

It is interesting to note that the Federal Reserve has not revised its official numbers to correct this discrepancy. However, it does state that the withdrawals of gold have continued this year.

According to the most current data published by the Federal Reserve, a total of thirty tons of gold were withdrawn from its vaults in the past two months, with twenty tons being withdrawn in January and ten tons being withdrawn in February.

(click to enlarge)

It is possible that this thirty tons is simply the delayed delivery of the unaccounted for gold discussed earlier, but this is not certain. If it is, then it is an indication that the Federal Reserve has imposed a settlement period for physical gold for some reason as both the central banks of Germany and the Netherlands stated that they actually received their gold in 2014. This could be, once again, an indication that the physical gold markets are much tighter than the market reflects.

The reductions in the Federal Reserve's holdings of foreign gold could also be an indication that the Bundesbank or some other central bank continues to repatriate its gold. In fact, this seems likely. At the end of last year, the Bundesbank stated that it intends to repatriate an additional 210 tons of gold from the gold vaults at the New York Fed. Therefore, the reported withdrawal numbers could be this process continuing.

One of the reasons why gold has been a highly valued metal is its rarity. Unfortunately, it may be about to get much more rare. According to Eugene King at Goldman Sachs, the world's total reserves of gold in the ground may be depleted in as few as twenty years. Discoveries of new mineable gold deposits peaked in 1995 at around 140 million ounces and have been declining ever since then. In 2013, only ten million ounces of new gold reserves were discovered. Meanwhile, Goldcorp (NYSE:GG), one of the largest gold producers in the world, predicts that total global production of gold will peak this year and then begin to decline.

(click to enlarge)
Source: Goldcorp, Consensus estimates

This should prove to be bullish for gold prices as the supply of new gold steadily declines going forward, barring a decline in demand, which seems unlikely.

Consumers of gold, such as jewelry makers, have begun to take steps to protect their gold supply. On April 6, 2015, reported that Rajesh Exports, the largest jewelry maker in India, is actively looking to purchase gold mines in Australia for this purpose. Rajesh Exports is one of the largest consumers of gold in the world, single-handedly consuming approximately 140 tons of gold annually. There is little reason for the company to be actively looking to acquire gold mines unless it had reason to believe that gold will become more scarce going forward, as Goldman Sachs predicted. This therefore lends further support to our bullish thesis for gold.

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